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Urbanna water system continues to lose money

by Tom Chillemi

“It’s critical that the town keep control of its water supply. That’s an advantage we don’t want to give away.” —Lee Chewning

Water is often taken for granted—turn on the tap and it flows.

However, delivering potable water to customers is an expensive and complicated service due to the infrastructure that is needed.

Water is sold to Urbanna residents and neighboring customers by the Town of Urbanna.

The cost of water will continue to escalate as Urbanna maintains miles of water lines and equipment. 

“The water system does not make money,” said town administrator Lewis Filling during the Urbanna Utilities Committee meeting on January 8. “It does not always break even.”
The water system lost $73,000 in the last two fiscal years, Filling reported.

Urbanna resident Bob Calves recently proposed the town consider selling its water system to a company that would own and operate it. He said a large company could spread debt over its entire organization.

The consensus of the utilities committee and three other council members who attended the January 8 meeting was that Urbanna would have more control if it continues to own the water system. “We would be losing control of our destiny, especially if we expanded [water service further] outside of town,” said committee member Don Richwine.

Calves also said he was concerned that possible future state mandates could be costly. Calves noted he had contacted American Water Works, which serves 20 developments on the Northern Neck. He said the company operates in 32 states and its local rate structure is regulated by the Commonwealth of Virginia.

Paying for water

Urbanna is still paying on a pair of 40-year loans for the water system and two other loans. A total of $377,000 for water-related loans is still owed.

On top of a hill at the edge of town stands Urbanna’s water tower. Built in 1981 at a cost of $172,000, the debt was financed at 5 percent for 40 years. The town still owes $86,000—half of the original debt.

The monthly payment of $840 will continue 11 more years until 2021, and the total cost to the town will be $403,000.

(Note: According to the U.S. Department of Labor’s Bureau of Labor Statistics, $172,000 in 1981 would equate to $890,000 in 2009.)

In 1976, the town borrowed $95,000 at 5 percent interest for 40 years to install main water lines. The town still owes $31,600 on this debt. The monthly payment is $463 and the debt will be paid off in 2016 at a total cost of $222,000.

The $95,000 in 1976 equates to $361,000 in today’s dollars.

The town has financed two recent loans for shorter terms, which saves interest. For example, in October 2004 the town borrowed $110,000 to drill a new main well. As of August 2009, the balance was $62,000. The debt will be paid off in 2014 at a total cost of $133,000.

Another 10-year note, for $150,000, was incurred in 2003 to upgrade water lines on Rappahannock Avenue, Howard Street and Obert Street. The note balance is $57,000, and the total payback will be $177,600.

No rainy-day fund

Richwine said the town has had little success building a reserve fund for water improvements because the water rates have not been increased annually. “We can’t keep going 5 years and not raising water rates,” he said.

In June 2009, the in-town water rate went up $2, from $22 to $24 per two-month billing cycle on the minimum usage of 6,000 gallons. Above the minimum, the cost went up 20 cents, from $2.20 to $2.40 per 1,000 gallons.

The out-of-town minimum water fee increased from $50 to $52 per two-month billing cycle; and from $5 to $5.20 per 1,000 gallons.

The 2009 water rate increase was the first in several years.

Filling said, “Our rates are not adjusted to break even. As costs went up, we never got (our rates) in line.”

The town system has 700 customers and could handle 15,000 customers with no upgrades other than running lines, said Filling.

Calves said he was concerned that a huge amount of the water revenue goes just to cover debt. “We’ve got to get out of debt,” he said, and suggested rate increases to “start paying off the debt faster.”

Selling the water system would not eliminate the debt. “You’re always going to owe someone,” said council member Bill Thrift.

Thrift also noted that central water systems eventually become the responsibility of the residents of a subdivision, not the developer. “After they (developers) sell a lot, they don’t care how much it costs,” he said.

Committee chair Rich Donoff said the town is eligible for grants while a private company is not.

Filling also read an email from Dan Kavanagh, the executive director of the Middle Peninsula Planning District Commission, who had experience working with privately-owned American Water Works Corporation when he was a county administrator. Kavanagh said the rates increased, in part, because American Water Works had to make a profit for the company and pay taxes.

Kavanagh said Urbanna would have more control if it owned the town water system.

Committee member Lee Chewning added that “it’s critical that the town keep control of its water supply. That’s an advantage we don’t want to give away.”

posted 01.13.2010

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