Water and sewer rates could rise 10% annually to help for expansion and upgrade
Mebane city officials were stunned recently when bids for work at the Water Recovery Resource Facility (WRRF), the city’s water and sewer plant, came in far higher than anticipated.
The low bid of $82.5 million came in 20.8 percent above what the city had expected.
The pre-bid estimate had been that the total cost of the project would be about $75.5 million. Instead, the city is faced with finding, or financing, an additional almost $18 million.
With architectural and other preliminary funding included, the total price tag was put at close to $93.5 million.
At their Monday night meeting, city council members heard options to finance the hugely expensive expansion and plant upgrade.
It was explained that approximately two-thirds of the project’s expense is for an expansion in capacity, while one-third is to upgrade the waste treatment at the plant to comply with the so-called Jordan Lake Rules, which requires municipalities to improve their treatment of waste to avoid contamination downstream toward the Jordan Lake. The city is required to remove more and more nutrients from its treated waste before releasing the effluent into waterways that ultimately end up in Jordan Lake.
Among the options provided by the public finance consulting firm Davenport is to assume 10 percent increases in water and sewer rates for residential and commercial customers for each of at least the next five years. These increases will fund both the WRRF project as well as other water and sewer projects for the city during this time period.
Mebane has already raised water and sewer rates 10 percent in the current fiscal year that began July 1.
Officials stressed that they are not yet committed to raising the rates in that fashion in the coming five years. They hope other factors will lessen the overall costs in future years, but for funding purposes at this point, Davenport assumes that level of increases.
The city has already designated approximately $25.5 million for the project from existing sources, including $11.3 million from federal dollars provided through the American Rescue Plan.
The city will also revise its “system development fees” that affect new homeowners and industries. State law allows cities to calculate these based on their actual cost of providing utility services. Because of the dramatically higher costs associated with the higher price tag for the expansion and upgrade, city officials said they would bring a proposal to the council within the next month or so in order to increase these fees.
They said initial, very rough, calculations suggest that such a change may increase revenues into the city’s water and sewer fund by $400,000 to $450,000 annually.
Another factor that could affect the city’s cost for financing is the fixed interest rate that the city gets when it issues the revenue bonds (of $67.3 million) next month.
Davenport’s representative told the city council that he expects the rates to be under 4.5 percent, and potentially closer to 4 percent.
City officials will return to the council next month with a final proposal, on October 7. If the council gives its final OK, the city expects to issue its bonds on October 9, and close by the end of the month, on October 30.
The council set the process in motion with a unanimous, 5-0, vote Monday night.
