In a 4-3 vote, the Philomath City Council narrowly approved a resolution Monday night to commit to a plan that in a worst-case scenario could raise local water rates in five increments over the next two years while helping secure a low-interest loan to pay for a new water treatment plant.
"Every day that we continue to operate that plant, we run the risk of a plant failure or an infrastructure failure," Mayor Eric Niemann said, following with a reference to a December pipe break and boil water notice. "The longer that we stretch the life of infrastructure of any kind related to water, you run the risk of more incidents like that.
"I think the time is now for us to invest in new water infrastructure," he added, "and the means that we do that is through the proposed rate increase."
The immediate impact felt by residents on their city water bills will be increases of $5 for the monthly base charge and 70 cents per unit of water consumed. One unit equals 100 cubic feet or 748 gallons of water. The resolution gives the city's finance director and budget committee hard numbers to work with in their efforts to finalize the 2019-20 fiscal year budget.
The project's estimated costs come in at $9 million for the physical plant and $3 million for a storage reservoir.
According to a timeline that Niemann put together, construction would take place in 2021-22.
"The new plant would be operational in 2022 and we would decommission the old plant at that time," he said.
By the time that it would be decommissioned, the current water plant would have been in use for 38 years — nearly double its original life expectancy.
"I don't think I've heard anybody say that we didn't need a new water treatment plant; we're all in agreement about that," councilor Marion Dark said. "The question is how are we going to pay for it that's the most effective that will guarantee us getting a loan and be the easiest on the consumer? I don't think I've heard anybody say no water treatment plant."
Single-family residences on city water each month currently pay a base fee of $14 plus a volume charge per unit of water consumed of $4.40. Effective July 1, the approved plan would raise the base fee to $19 and the unit charge to $5.10. Another base fee increase to $24 would then follow on Jan. 1 while the per-unit charge remains at $5.10.
City Manager Chris Workman said the resolution only locks in for now those July and January 2020 rate increases with the rest providing a "road map to get you to where we need to be three years from now."
That road map includes further base fee increases to $28 on July 1, 2020, $32 on Jan. 1, 2021 and $35 on July 1, 2021. The unit charges would go up to $5.30 on July 1, 2020, and $5.50 on July 1, 2021. However, based on the possibility of other funding sources, such as grants, those later increases may be reduced or even eliminated.
Niemann said that every year, the city goes through a process of looking at utility rates and whether they hold steady, go up or go down.
"In any of those cases, we would still have to come to a March meeting to feed a budget that's being looked at by the budget committee in April and vetted and approved by June," he said.
Niemann, Doug Edmonds, David Low and Matthew Thomas voted in favor of the water rate resolution while Dark, Chas Jones and Terry Weiss voted nay.
Niemann opened the meeting with a detailed 25-minute presentation before an estimated 40 people in attendance that went over a history of the water situation in Philomath from a 1905 franchise agreement with Corvallis to the construction of the water treatment plant in the mid-1980s to the needs that exist today with the aging system, outdated technology and frequent maintenance solutions to keep it running.
"We're on Year 34 on a plant that was intended to last 20 years," Niemann said. "We are really at a point where we are struggling to keep the plant together and we're desperately in need of a replacement plant."
The city has been working with Westech Engineering on the "design for a plant that will double if not triple our current capacity in our current water plant," Niemann said. "It utilizes a membrane filtration, which is the latest technology and is much better at separating any contamination from the water that you drink."
Niemann in his presentation provided base-rate comparisons to neighboring cities but focused on Jefferson because that city is currently building the exact same type of plant that Philomath needs and is also using Westech.
Philomath's $24 base rate would rank seventh among a comparison of 12 communities in the region — the highest being Adair Village's $48. Jefferson comes in at $38.93 and Philomath would be at $35 in July 2021 if that worst-case scenario materializes.
Jefferson took the same approach with gradual increases to base rates.
Council members and the public in attendance at the meeting had plenty of questions, however, and wanted to know about other options and how the recommendation advanced out of the public works committee.
Weiss pushed for a public forum so residents would have an opportunity to learn more about the situation.
"Most people realize it's going to happen, that money's going to have to be spent, it's going to be painful," Weiss said. "But when you include everybody from the very beginning and they understand from the very beginning and they feel like they're part of the decision-making, it's an entirely different process than if you just say, 'we're in trouble so we have to do it now.'"
Dark suggested a subcommittee to brainstorm ideas that could provide other avenues.
"I just think it would be just so much more acceptable if we could look out in the open at different options," she said.
Thomas agreed with the public forum suggestion but believes that the recommendation out of public works is the only way to proceed.
"There's basically one way to pay for it and that's where we're at tonight," Thomas said. "My water's going up too, it isn't just you guys, the rest of the city, it's mine, too. I don't like it either, but I think that's what needs to happen unfortunately."
Jones, who sits on the public works committee that looked at five other options during approximately six hours of discussions, preferred a different plan that proposed the increase coming through per-unit charges so individual homeowners would have more control over their bills.
"There are an infinite number of ways to pay for it, not just these six options that we actually reviewed," Jones said. "I think there should be more opportunity for the citizens to control more of their water bill and I would advocate for a smaller base fee increase and a higher per-unit cost increase. For that reason, I'll be voting against this."
Niemann responded, "By doing that, it creates enough uncertainty that we could be right back here at this same time next year pushing yet another increase with the same group of people saying we just did this last year, now we're doing it again."
Said Jones, "We are choosing how much risk we're accepting and I would personally be willing to accept even more risk."
Pursuing grants to help bring in money was brought up several times during the meeting. Niemann said those avenues are being explored, but there are no guarantees.
"The challenge with grants and I think the important point is hey, that's fantastic if you get them, but you can't depend on them. And you can't build a plan around getting a grant," he said. "It's gravy if you do and if there's an opportunity for relief of rates. When a point in time comes across when we actually get a grant and we're able to reduce the rates, then we can look at that. But you can't go into the plan anticipating that."
Niemann likened the situation to a someone going into a bank to try to secure a home loan. Basically, he said Philomath needs to demonstrate as a community that it's willing to put up the money to be able to service debt on a loan. That part of the puzzle, he added, is what necessitates the future rate increases.
"This is not a fun thing for me to come and deliver to you but it's part of the reality of the world that we live in currently," Niemann said. "We have to build a new plant."
Workman said the periodic rate increases allow an opportunity for grants to come in and determine impact on the city's finances.
"If it looks like we've been successful at getting grants and low-interest rates on the money that we're borrowing, we'll be able to look at these last couple of rate increases and maybe take those off," he said. "Now we don't want to commit to that and definitely don't want to rely on it, but rather than doing one water rate increase now and then having to scale that back two years from now, we're saying let's ease into it and let's see what those last two rate increases need to be, if at all."
Niemann said the water treatment plant upgrade was put off in past years with other needs surfacing, including the sewer lagoons project in 2012, and economic challenges out of the recession in 2008.
"If we have no plant whatsoever, we're going to go right back to Corvallis for complete reliance that may or may not have sufficient water to sell to us. But whatever they do have, I think history would suggest that they're going to charge us a pricey sum for it," Niemann said.
The city has $3 million to apply toward the project with the need to borrow $9 million.
Although the preferred route from the majority of the council appears to be the pursuit of a low-interest loan through the state's Business Oregon program, Workman said the option remains on the table for the city to go out to a vote for a general obligation bond.
However, Workman said going out for a bond vote is significantly more expensive with various up-front costs in comparison to pursuing a low-interest loan.
Bonds that are based on property tax valuations are required to go to a vote of the people. Weiss said a successful bond vote has been done before and could be accomplished again with a door-to-door campaign to help educate residents.
Weiss said she feels like the project's costs have not been effectively planned and "we might need to know a little bit more before we start making commitments this big."
Workman said that it has been determined that the city will need to borrow $9 million — again the worst-case scenario with other possible monies not figured in — for the project and that the plan would generate enough revenue for Philomath to make its current expense payments plus the principle and interest on the loan.
"I just don't feel comfortable voting for this," Weiss said. "I'd really just like to see what the figures really are and a bond issue going out to the voters."
Edmonds said that the evening's decision will give the lender confidence that Philomath will be able to pay back the loan.
"They also recognize that if we get a grant or something like that, they get their money sooner, we get off the loan schedule sooner" Edmonds said, "and we can get the rates down."
Niemann said the city has collected about $360,000 from the two new apartment complexes going up in town through system development charges. He said, "A lot of that money can be utilized for financing the engineering and design of the new plant that we're talking about."
Making utility bills understandable for customers seems to be a priority for at least a couple of councilors.
Edmonds summed up, "The city council has that responsibility to ensure the sustainability of the city moving forward. If we fail that, then all of us will be drinking murky water."