A 2017 state law forced the Tuckaseigee Water and Sewer Authority to reset the fees — formerly called impact fees, now known as system development fees — according to a specific process outlined in the legislation. When that process concluded, TWSA found that existing fees were higher than the new legal ceiling for system development fees in the northern end of the county, though the process generated a ceiling above current rates in the southern end of the county around Cashiers.
The proposed budget, which Executive Director Dan Harbaugh presented to the board June 12, planned for system development fee revenues to come in at 62.5 percent of the amount collected in 2017-18. However, Harbaugh said, that number is only a placeholder and will change once the board makes its final decision as to how the fees should be charged.
“The average amount that was going to be generated from these options (for new fee amounts) is about 60 percent of what we would have generated based on the old impact fees,” he explained June 12. “There is a savings for the customer.”
Upfront fees have been a topic of contention in Jackson County in recent years, with opponents saying that TWSA’s rates are unreasonably high, deterring businesses from opening or expanding and therefore impeding economic development. Supporters, meanwhile, say that the fees are a fair way for new users to buy into the system and that eliminating or reducing them would be unjust to existing users who have already paid the fees — they would find themselves paying higher rates to make up the difference for new users. The 2017 law pushed that debate to the forefront, and now the board must decide how to restructure its upfront fees under the new regulations.
Recommendations for change
Over the past several weeks, TWSA’s finance committee has spent more than four hours in meetings about system development fees and various methods for setting them, and the group came up with several options for the board to consider.
The simplest method of charging fees would be based on a unit known as an ERU — equivalent residential unit. Basically, an ERU is the number you get when you divide the total amount of water or sewer that residential customers in the system use by the number of residential customers. Use for other, larger users can then be based on how many average residences their use is equal to.
This method would be the simplest to calculate, but the problem is that it’s based on the actual amount of water or sewer that each customer uses — and the state requires TWSA to plan its capacity based on a substantially larger figure. The upfront fees are intended to pay for expansion of the system to replace the capacity that each new customer takes up, so calculating the fees based solely on ERUs wouldn’t provide enough revenue, Harbaugh said.
The other options involve dividing TWSA users into “bands” based on the size of their meters. In the past, TWSA had 19 meter band categories, but in the proposed budget that would go down to eight. Because some bands would be combined, users could see a shift in what they’re being charged. For example, someone whose meter is on the low end of their band could find themselves paying more than they used to while someone on the high end of that same band could pay less. The trick will be to set the rates in such a way that they’re fair for users of all meter sizes.
The finance committee recommended that TWSA achieve this by calculating the average fee for all current TWSA meter categories inside the band. Those customers would be charged the lower of that average rate or the legal ceiling for the band.
The committee also wants to see parity between fees for northern system and southern system users, recommending that the board adopt a uniform system development fee schedule countywide. This means that the ceilings calculated for the northern system will control, because they’re lower than those for the southern system.
In addition, the committee recommended that the board charge different fees for commercial customers than for residential — the existing impact fees for residential customers are about 67 percent of what commercial customers pay, but the board will have to decide how that should translate into the new fee system.
The big picture
While TWSA expects to see $141,000 less in its capital reserves account for 2018-19 than for the current year budget — partially due to an expected $43,500 decrease in system development fee revenues from the 2017-18 budget — the proposed operating budget will be level with the amended 2017-18 budget. However, most fees will see a 2 percent increase.
“For the first time since FY 2012-13, the budget does not require a transfer from reserves to supplement revenues for current debt service,” Harbaugh explained in his budget message.
In 2017-18, TWSA had to take $197,000 from reserves in order to cover its $643,000 in annual debt service payments. In 2018-19, those payments will be covered by actual incoming revenues, a better financial practice than drawing from reserves.
However, in coming years TWSA will have to come up with another way to cover its debt payments, because the slate of projects listed on its 20-year capital improvements plan means that debt commitments will increase, and it won’t be feasible to pay them solely out of fee increases.
That’s why TWSA’s finance committee is recommending that the organization decide on a target minimum for its reserves account.
“Going forward when we’re going to write budgets and understand what rates need to do and fees need to with respect to increases, we need to know what your ground zero is going to be in your savings account,” explained Mike Byers, a member of TWSA’s finance committee and Vice Chancellor of Administration and Finance at Western Carolina University.
Other public bodies like cities and counties typically adopt such minimum levels, letting elected officials know that it’s OK to fund projects from savings so long as a certain amount of money remains in the account. According to the University of North Carolina School of Government’s Environmental Finance Center, TWSA has $10.7 million in reserves, enough to fund its operations for 1,205 days — 3.3 years. The center uses audited data from fiscal year 2017 to generate its statistics.
The TWSA board plans to pass its 2018-19 budget during a meeting at 5:30 p.m. Monday, June 25, at the TWSA boardroom on 246 West Main Street in Sylva.
During a June 19 meeting, which fell after The Smoky Mountain News went to press, the board discussed the finance committee’s options for setting system development fees and held a public hearing on the proposed budget.
The proposed budget is online at https://bit.ly/2JOICKh.