By Stephen DeVol, Publisher
Cottonwood AZ (September 14, 2014) – Water rates in Cottonwood and the surrounding areas are soaring. Rate payers are angry that their water bills are rising at astronomical increases: 365% in 10 years inside Cottonwood city limits; 377% in the Verde Villages and Verde Santa Fe. The reason is not that it costs more to deliver their water, but because the City of Cottonwood acquired their water companies with 25 year revenue bonds and the rate hikes are due to the cost of the bonds used to make these acquisitions. It’s the same water, coming from the same sources, delivered by the same methods. What the rate payers are paying for is the debt Cottonwood has obligated the rate payers to pay. They are making the payments for Cottonwood to purchase your water company.
The city is trapped in a recurring cycle of debt and unsustainable rate hikes which people can’t afford. 57.7% of city water utility revenues collected must pay debt service in FY 2015 – FY 2015 Water Facility Fund Expenses, Pg. 257). Very little principal is being paid down on its huge 2004 and 2006 revenue bond debts and the payments rise every year which will force annual rate increases.
The problem is, the city painted a rosy picture in its 2006 revenue bond issue to qualify to borrow millions of dollars. Yet in reality, there is a big gap between the city’s 2004 and 2006 forecasted water revenue, customer and population growth, and actual statistics.
CITY FORECASTS (2006 BOND)
* 10,357 paying customers in 2015. Actual: city currently has approx. 9,000 water customers.
* $8,732,989 water revenues. ACTUAL: FY 2014 $6,938,250 water revenues (FY 2015 Budget, pg 258 forecasted $8,732,989 in FY 2014-2015 revenues).
* 2.5% annual population growth. ACTUAL: Est. .0875 population growth rate (“City of Cottonwood Rate Study and Long-Term Financial Forecast, June 2005”).
ACTUAL RATE INCREASES:
COTTONWOOD: 2004 TO 2014 – A 365% RATE INCREASE.
7,500 gals. of water from Cottonwood Water Works in Cottonwood in 2004 cost $16.33. In 2015 incl. the 6% rate hike will cost ratepayers $59.71 incl. fees & taxes, AN INCREASE OF 365%.
VERDE VILLAGE: 2005 to 2014: – A 377% RATE INCREASE.
7,500 gals. water from Cordes Lakes Water Co. in the Verde Village cost $28.40 in 2005. Including the 6% rate hike, fees & taxes, it will soon cost customers $75.72.
BOND DEBT REQUIREMENTS
The bond covenants require 135% of the debt service to be collected from water bills plus another
10% for the bond’s debt service reserve fund, which must be added to the regular cost of keeping the
city’s water flowing from the treatment plant to taps.
The bonds also require the city utility to collect a Water Resource Development Fee of $4.00 from water bill customers each month.
It’s been 10 years since the original purchases of 3 companies, and 8 years since the purchase of an additional 2 companies.
The original bonding covenants stated that “aggressive” rate increases would be necessary to pay the increasing debt. The Cottonwood City Council was advised these investments were risky and yet the council moved forward, ignoring the financial warnings and the will of the people who were directly affected. For the first few years after the acquisition Cottonwood used city reserves to make up the short fall on the payments. The debt payments increase every year , thus insuring a rate increase every year. Same water, same source, same delivery, just the debt load increases.
Cottonwood apparently made their risky acquisition decisions based on forecasts supplied by consultants. The future economics were based on advice that suggested Cottonwood could expect business and population increases of at least 2.5% growth per year.
As water rates increase each year, the ratepayer base decreases: people move away, population shrinks due to deaths, and as rate payers water is shut off, resulting in fewer rate payers to retire the debt. At the end of the bond term, there is a balloon payment.
What is the solution to this upward rate spiral? At this juncture there don’t appear to be quick answers. The money was spent and it’s time to pay up.
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4 Comments
Excellent truthful, fact filled article on the water issue, Mr. De Vol. Thank you.
Excellent news reporting. The story is clear and well documented. Good job Steve.
There seemed to be no mention of arsenic treatment. That seemed to be a catalyst for the water company acquisitions and not mentioning the cost of that treatment really makes the comparison of before/after more like apples and oranges rather than apples to apples.
If you factor in the added cost of treatment what is the result?
City leaders’ used the threat of arsenic poisoning and running out of water to acquire the water company acquisitions. They grabbed all of the water supplies in the entire area (6 companies) and failed to lower the arsenic levels for more than five years after they bought the first three water companies in 2004:
Arsenic levels: Before and after the acquisitions, arsenic was found in Cottonwood’s water 49 times (2001,2007,2008,2009,2010). Fecal coliform and E.coli was found in the water 4 times spanning 5 years (2005,2010).** The EPA issued orders to the following Cottonwood municipal water systems or face penalties of up to $37,500 per day for each violation
· Cottonwood Municipal Water, 220 W. Mesquite Drive
· Verde Santa Fe Water System, 800 Santa Fe Trail
· Clemenceau Water System, 165 S. Candy Lane
· Verde Village 3, 2612 Pleasant Valley Drive
The City municipal water systems were granted a federal exemption for the new arsenic standard from the EPA in 2006. Under the terms of the exemption, all four water systems were required to meet the new standard by January 2009. All four systems failed to meet the deadline, and are currently out of compliance with the arsenic standard. The orders require the City to submit a plan and schedule to comply by 2011.”
Source:
Amount of bond revenue set aside for arsenic remediation ($3,325,000) was a tiny fraction of the city’s massive bond debts:* The 2004 and 2006 revenue bond principal + interest = $72,000,000 which must be paid by the 9,000 water customers the next 25 to 30 years (added on to their regular monthly water bills). Debt service for the two bonds is more than $3,000,000 a year. Add that to thee water utility’s maintenance, operating and delivery costs:
https://sedona.biz/wp-content/uploads/2014/07/20140721_cottonwood-bond-revenue-chart.pdf
*In a Verde News article at city manager, Doug Bartosh, said a portion of the funding that was borrowed in 2004 and 2006 was set aside for capital improvements and repairs to the system including $3,325,000 for arsenic remediation. But the City municipal water systems were granted a federal exemption for the new arsenic standard from the EPA in 2006. Under the terms of the exemption, all four water systems were required to meet the new standard by January 2009. All four systems failed to meet the deadline. The orders require the City to submit a plan and schedule to comply by 2011.”
**”EPA orders four Cottonwood water systems to decrease arsenic in drinking water – October 6, 2009
!OpenDocument
SAN FRANCISCO — The U.S. Environmental Protection Agency has ordered four Cottonwood, Ariz., public drinking water systems to reduce arsenic levels in their drinking water systems or face penalties of up to $37,500 per day for each violation.
The EPA’s orders require four City of Cottonwood public drinking water systems serving over 15,000 residents combined, to develop and meet a schedule to comply with the federal Safe Drinking Water Act’s arsenic standard of 10 parts per billion.
“Public water systems are responsible for providing safe drinking water,” said Alexis Strauss, the Water Division director for the EPA’s Pacific Southwest region. “We’ll continue to oversee the Cottonwood public water systems as they take the steps necessary to comply with all federal standards.”
The EPA issued orders to the following Cottonwood municipal water systems:
· Cottonwood Municipal Water, 220 W. Mesquite Drive
· Verde Santa Fe Water System, 800 Santa Fe Trail
· Clemenceau Water System, 165 S. Candy Lane
· Verde Village 3, 2612 Pleasant Valley Drive
The City municipal water systems were granted a federal exemption for the new arsenic standard from the EPA in 2006. Under the terms of the exemption, all four water systems were required to meet the new standard by January 2009. All four systems failed to meet the deadline, and are currently out of compliance with the arsenic standard. The orders require the City to submit a plan and schedule to comply by 2011.”