COVENTRY — As they await the full report from the sewer rate study currently underway, town councilors in Coventry this week were given an update by a consultant in the process, who told them that a steep sewer use rate hike may be necessary in the fiscal years ahead.
The town has been working with Raftelis, a consulting firm focused on solving financial challenges within the water and sewer industries, to fix some of the financial woes plaguing its sewer program.
“Studies like this, rate studies, are our bread and butter,” Dave Fox, a manager at Raftelis, said of the work his firm does. “We are not engineers that dabble in rate consulting, or accountants that dabble in rate consulting, we are rate consultants. It’s what we do on a daily basis.”
Though it hasn’t yet been completed, Fox on Monday reviewed the progress of the sewer rate study, a process that was among the recommendations for correcting Coventry’s sewer program offered by the auditor general earlier this year.
According to Monday’s presentation, under its existing sewer use rate the town next year won’t meet its debt service coverage requirements, which Fox told councilors is a “serious issue” that should be addressed immediately.
In order to alleviate the problem, Fox added, the town should consider increasing the rate by 66 percent in the upcoming fiscal year — an increase that for typical residential customers could result in a 45 percent increase in their bills annually.
Although under current rates the town in fiscal years 2021 and 2022 is projected to be “financially sufficient,” Fox said the revenue would only cover operating expenses and existing debt service.
“It’s not giving you any additional funds to reinvest into your system, to be able to continue to provide good, clean, safe service to your customers,” he added.
It also won’t allow the town to meet its debt service coverage requirements, which dictates that revenues minus operating expenses equal at least 125 percent of the annual debt service.
“Currently that is not the case,” Fox said, “and, having a fiduciary responsibility to you, I cannot recommend anything to you that wouldn’t at least allow you to be at that 125 percent mark.”
And in 2023, with the town’s debt service payments projected to increase, that debt service coverage under the current rate would drop even further, to only approximately 80 percent. Without increasing the rate, the town in 2023 could also end up running a deficit of around $500,000.
By increasing the sewer use rate by 66 percent over the next two years, Fox said, the town could meet its debt service obligations and also have some additional funds to make capital improvements.
In that case, the town would be financially sufficient in 2023, but once again it wouldn’t quite be meeting its 125 percent debt service coverage requirement. Another option could be to increase the rate by more than 66 percent in 2021 and 2022 to generate enough revenue over the two year period to cover that requirement, however Fox doesn’t recommend doing that.
“There’s enough uncertainty that could potentially occur over the next two years — potential savings in debt service, potential new customers coming on board — to offset the need for additional rate increases,” he said. “It would be irresponsible of me recommend to you to have too high of a rate increase now for something that we’re not even sure is going to occur.”
It’s possible, Fox continued, that another rate increase in 2023 won’t be necessary and, if it is, then it may be less than what can be projected today.
Other suggestions Fox offered Monday that he said could be phased in over time included moving from a quarterly to a monthly billing system, establishing a fixed charge by meter size, and considering a customer assistance program for residents in need.
And as for next steps, Fox encouraged the town to work on an outreach campaign to inform customers of what’s happening and why.
“Nobody is trying to hide anything here, nobody is trying to pull the wool over customers’ eyes, we’re being very transparent,” Fox said. “We want to inform customers of what you’re doing, why you’re doing it, when you’re doing it, and how it’s going to affect them.”
Because Monday’s presentation was informational in its nature, town council president Kerry McGee invited Fox to return in January for a question and answer session.
Ratepayers can expect to receive a letter advising them of the meeting, interim town manager Ed Warzycha said, and once Raftelis has completed its study the report will be posted to the town’s website.
“Some of these folks, this is going to hit them hard,” councilor Debra Bacon said. “It’s already hitting them hard — it’s going to hit them hard, so I think we need to get this information out.”