COVENTRY — The results of a well-overdue sewer use rate study have revealed that, after years of no increases, Coventry will need to implement an immediate — and dramatic — increase to its sewer use rate.
To bring the town into compliance with its debt service requirement, it’s been recommended that the town raise the rate by 50 percent — an increase that would result in a 34 percent increase overall to customers' bills.
“It’s never an easy thing to recommend [a rate increase], but this is an absolute necessity at this point in time,” said Dave Fox, a manager at Raftelis, the consulting firm hired by Coventry to address the financial woes plaguing its sewer program.
The state auditor general last year recommended a number of actions, including a sewer use rate study, that the town should take to fix its troubled sewer program. In addition to conducting a rate study, Raftelis has also been working with Coventry on creating a program that's sustainable and easy to manage.
Fox explained the process of studying the sewer use rates during Monday’s town council meeting.
“Essentially, we went through and wanted to determine what it costs you to run your sewer system,” he told councilors, “and how those costs compare to the amount of revenue you’re bringing in.”
In 2020 and 2021, revenues are projected to exceed costs. But without action, Raftelis projects that by 2023 the program will be running at a deficit.
The town should be maintaining a debt service coverage of 125 percent, Fox said, noting that Coventry’s sewer program should be generating an annual revenue that exceeds its debt service payments by 25 percent.
“The bonding documents that allowed us to borrow the money to build most of our sewer system require that,” explained Nicolas Gorham, Coventry’s town solicitor.
The town hasn’t been adhering to that requirement, however.
“It is a legal obligation and as of right now, without a contribution from the general fund, you are not meeting those obligations,” Fox said. “Although you’re meeting your base operating expenses in the short term, you’re out of compliance with your debt service coverage immediately, right now, today, and something needs to be done about that.”
By increasing sewer rates by 50 percent this year, Fox said, the town could “get to a level playing field” by immediately meeting its debt service coverage obligations.
“That is priority number one, in my eyes,” Fox said. “It’s imperative that at least a 50 percent rate increase is approved.”
A forecast presented Monday to councilors shows that another increase may be needed in 2023, although Fox said rate increases should be considered on an annual basis.
“It would be somewhat irresponsible to recommend an even higher rate increase to maintain your debt service coverage two years from now,” he said.
It’s possible, he added, that more customers will have come into the sewer program by then, bringing in enough additional revenue that a rate increase in 2023 won’t actually be necessary.
“Let’s wait to see what happens,” said Fox, who added that it’s industry best practice for municipalities to revisit their financial plans annually to avoid drastic adjustments.
“Your customers, if they’re seeing a 3 percent rate increase every year — even if it equates to a 50 percent increase over time — it’s a heck of a lot easier to swallow than it is a 50 percent [increase] in one fell swoop,” he continued.
The last time Coventry increased its rate was 2013, interim town manager Ed Warzycha said, and even that increase was less than what had been recommended.
“We have not had a rate increase on the usage in a number of years,” Warzycha said, “and that’s why we’re so far behind on this.”
For the typical customer, who consumes approximately 9,000 gallons of water every quarter, a 50 percent rate increase would mean an annual increase of $180 — from around $531 to $712.
Sewer bills comprise several components, not all of which would be going up. So, despite the 50 percent rate increase, bills would actually see only an approximately 34 percent increase.
“I know that needing an increase is never a thing that you want to do,” Fox added.
However, he said, if the town holds off any further on raising the rate, “not only will things get more expensive… there might be legal ramifications.”
“The idea of you staying out of compliance with your debt service coverage for any longer than you already have is not really viable,” Fox said.
Fox recommended that the town eventually consider moving from quarterly to monthly billing to help with cash flow and reduce the burden on customers of larger bills, as well. The town in the future might also think about establishing a fixed charge by meter size, he added, and then increasing the amount of revenue that generates.
The town should also consider starting a customer assistance program, Fox said.
The town council will hold its first reading of an ordinance changing the rate during its Sept. 14 meeting, with a public hearing Sept. 28.