February 21st, 2010
In Phoenix as in almost all big cities, the water and wastewater (sewer) systems are treated as “enterprise funds”. These funds are separate from the general fund where tax dollars are received and spent to run the day-to-day business of the city. The purpose of these enterprise funds is to make municipal utilities financially self-supporting.
The Phoenix water system services a 540 square mile area and includes 6 water treatment plants, 123,000 valves, 7,000 miles of water mains and 53,000 fire hydrants. Only 17 percent of the total water services budget consists of personnel costs. Debt service accounts for 25 percent, cash funded improvement projects accounts for 27 percent, materials, supplies and outside service accounts for 16 percent and chemicals, water and electricity accounts for 15 percent.
After a thorough review and analysis, management has determined that a combined 4.4 percent water and waste water rate increase (7 percent for water and 0.0 percent for wastewater) is needed starting in March. This increase will amount to $2.21 per month for the typical customer. After the proposed 4.4 percent rate increase, the Phoenix combined water and wastewater rate will compare favorably with that of most of the 20 largest U.S. cities, compare favorably with that of most of the cities within the southwest region and compare reasonably with that of other cities within the Phoenix Metro area.
The following factors impact additional rate revenue:
- Debt payments for $1 billion in capital improvement projects for bonds issued in the last five years
- Continued maintenance and replacement of an aging infrastructure
- Continued implementation of cost saving programs like the automatic meter reading equipment
- $200 million construction expenses required to comply with the federally mandated Safe Drinking Water Act
What has Phoenix done to keep the proposed rate increase to a minimum?
- Cut annual operations budget by $10 Mil
- Reduced five-year water and wastewater capital by $621 Mil
- Renegotiated Palo Verde agreement which brought in $4.5 Mil in revenue
- Collected late payment fees of $5.0 Mil
- Completed land sales which brought in $2.1 Mil
What will be the consequences if the proposed rate increase doesn’t take place?
- Phoenix’s Triple “A” bond rating will be downgraded by the rating agencies
- Financing costs for Capital projects will increase
- Other credits of the City may be negatively impacted
Is the concern over the possible lowering of the Phoenix bond rating if the proposed rate increase doesn’t go through real, or just “crying wolf”?
It is REAL. There has already been a move to place the State of Arizona’s bond rating on the “Watch” list. Glendale, which is looking to bond to secure financing to finalize a deal to keep the Coyotes, has already had its bond rating downgraded. Phoenix is on the bond rater’s radar screen. It would be most unwise for Phoenix to give them any reason to downgrade its ratings.
Are there citizens outside of Phoenix management and staff supporting the proposed rate increase?
The answer is YES. The City of Phoenix established a Water Roundtable consisting of 27 citizen members. This roundtable had an opportunity to study pertinent factors and data related to the proposed combined rate increase. All members were given ample opportunity for questions and comments as well as requests for additional information. The end result was a 13 to 3 vote on 2/10/11 to support the proposed combined 4.4 percent rate increase. More significantly, as indicated in the Arizona Republic February 12, 2011 article which they all authored, Former Phoenix Mayors, Skip Rimsza, Paul Johnson, Terry Goddard and John Driggs, all support the proposed increase.
Please refer to the action item on the proposed combined rate increase
Paul Barnes and Ann Malone
Citizens For Phoenix