by Joseph Back

The Hastings Council heard from Stacie Kvilvang of Ehlers Public Finance Advisors at its August 17 meeting, with Kvilvang updating the council on the City’s utility rates and finances.

“Nice to see everyone, albeit not in person,” she said. “It’s been almost four years since we had a discussion of your utility rates.” Among the points she made to the council was that much of the hard work had already been done.

“You guys did a lot of the hard work and made a lot of the hard decisions in 2016,” she said of utility rate adjustment and corrections, saying that any increases from the night were inflationary. “Which is to be expected,” she said.

Kvilvang next brought up that utilities were enterprise funds, meaning that they were run like a business and meant to be profitable, being used to pay for such things as capital outlays and debt.

“When we talk about these funds we say they’re flush and they should be,” she said. “A lot of cities use these for their internal borrowing purposes as well, for all those things you have to buy and do as a city.” Among the hard changes made from the 2016 utility rate study was making sure that fixed charges paid for the fixed costs of the system, with “fixed costs” defined as “what is there, no matter what.”

“So it’s paying for your staff that’s related to it and some of the water meters that you have,” she said of the utility fixed costs. “And then paying for some of the stuff that you have to maintain your system with.” In 2016 the fixed costs were paid for by fluctuating user rates that went up and down in revenue, but that had been fixed, Kvilvang said. In addition to fixing the rates, a new four-tier structure had been put in use for water use and conservation, with “significant rate increases in the early years to build and maintain cash balances. A mixture of cash and bonding for capital project funding and a 25 percent rate cut in the Sewer Access Charge (SAC) from $945 to $709 along with a similar 25 percent cut in the Water Access Charge (WAC) from $3,075 to $2,306 had all been done as a result from the 2016 study. With the exception of the SAC and WAC reductions, following this general plan had put the city in good shape as of 2020, though the plan had been modified somewhat due to less capital needs.

“The big thing here, the big takeaway from this is that the 2020 projected balances, they’re all larger than was anticipated,” Kvilvang said of the current fund balances. “So you’re in good shape.” After projecting $2.3 million in the 2020 water fund as of the 2016 study, Hastings registered a surplus of $1.4 million to come out with $3.7 in the 2020 Water Fund balance. Similarly, the Sewer Fund had seen an increase compared to projection of $1.5 million, coming out at $2.9 million in the 2020 Sewer Fund balance. For the Storm Water Fund, a projected 2020 balance of $526,000 had instead turned out to be $725,000, meaning a surplus above projected funds of $199,000. Additionally, a reduction of almost $14 million in capital project needs meant that there was less bonding needed, with this down 70 percent from 2016 and occurring at lower amounts from 2018 through 2020. Not all news was good though, or welcome.

“Reducing your SAC and WAC, it likely didn’t spur your development,” Kvilvang said, saying that developers expected to pay these fees anyway and understood they went to the larger system. For water, the rate reduction had resulted in $175,000 less revenues, while the sewer fund had seen a decrease of $65,000 in revenues.

Going forward, Kvilvang told the council that they had about $25,000,000 in capital projects over the next ten years. But this wasn’t a stationery number.

“Now again, like we talked before, this is not a static document,” she said of the capital projects and equipment rundown. Staff looked at it every year to see how it was balancing out with regard to the rest of the plan.

“And those area highlighted in grey, those are just highlighted because those are the years we anticipate that you will likely have to issue debt,” Kvilvang told the council. Of the highlighted areas, water had the most, with $1.6 million for water tower painting in 2021 and a cost of $2.2 million for Well number 9 and Elevated Storage in 2026, with the total water expenditures figure for 2026 coming out closer to $4.5 million.

“So again, as we look at it, most of your bonding is going to be over on the water side, which is not atypical,” she said. Shifting to customer rates next, there was some good news. For the residential customer, their utility bill was projected to go up less than $3.00 per quarter in 2021, with current annual inflationary rates increases included with this figure. For commercial users, the rate of increase was projected to be less than $25.00 per quarter.

“At the end of the day, you have to be very comfortable as a council for what you’re charging your users,” Kvilvang said, “and you have a very valid system and plan in place that shows that what you’re charging is what you need to have to maintain your system in the long-term.”

Folch Motions For Hastings:Council member Tina Folch raises her hand to motion for approval of the consent agenda at the August 17, 2020 Hastings Common Council meeting. Image courtesy Hastings Community TV channel.