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Local water service paid by fees, not tax dollars

Now that local government officials have finished their 2010-2011 budgets and in several cases proudly announced their decision to hold the line on property taxes, they are busy raising fees for water and sewer services. That's provoked some residents to cry foul. "Fee" is just another word for "tax," they say. But in the case of utility fees, there is an important difference and it can compel responsible officials to raise rates.

Local government utility services such as water and sewer usually are set up as so-called "enterprise funds" that are meant to be self-sustaining. Recipients of the service are supposed to pay the full cost of the service, unlike other government programs paid for with tax dollars.

Customers' rates are calculated to cover the cost of delivering the water, funding capital projects, paying off debt and building reasonable reserves. If officials don't raise rates as needed to cover those costs, they can be declared in default on bonds used to finance construction of the system, or they can have their bond rating lowered, making it difficult or impossible to finance upgrades or expansion of the system.

Government utilities regularly review their rates to make sure they still cover the costs. This year, those reviews showed the need to hike rates in Pinellas County and several county cities.

One reason for the increase is that the regional water wholesaler, Tampa Bay Water, raised its price for the water it sells to local governments. But another reason is difficult for residents to accept: They are using too little water.

Thousands of homes are empty because of foreclosure or because the owners moved away and haven't been able to sell their homes. No water is being used in those homes, so they are not helping to support the system. Residents also are using less water because they're trying to cut expenses or they believe in conserving water or they've switched to reclaimed water to irrigate their lawns.

The water system was built to service all those now-empty homes and at usage rates that were current at the time of construction. The bonds used to build the system still must be paid off, but the debt service now must be spread among fewer rate payers.

In the past, some local government officials neglected to raise rates as their costs of providing utilities went up, thereby improperly allowing tax dollars to subsidize enterprise funds. It also threatened the long-term health of the funds. It didn't take long for bond holders to catch on and threaten default actions. That necessitated big jumps in rates to catch up.

For families that are struggling, it is tough to pay higher rates for water, sewer and other local government-provided utilities. But it isn't a tax, it's the cost of purchasing the service. And paying incremental increases is easier than getting slammed with big increases later on.

Local water service paid by fees, not tax dollars 09/28/10 [Last modified: Tuesday, September 28, 2010 6:45pm]
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