Auditor says city water rates may need to increase

An annual city audit says the city may need to eventually consider increasing water rates after lower-than-normal water revenue in the 2002-2003 fiscal year.

The low revenues caused the city to be out of compliance with covenants that govern about $8.4 million in bonds the city sold to upgrade the city water plant, auditors said. The covenants require the city's water bill revenue after paying for its operating costs to be 125 percent of the principal and interest owed in a given year. Part of the money is meant to be put aside into a reserve fund.

The city needed to raise $850,000 to cover the 125 percent. The city's revenues were about $390,000 short of that, said Jody Hellegaard, an audit supervisor with Hamilton Consulting Group, which conducted the audit.

Hellegaard told the Havre City Council on Monday night that technically the city could be made to pay off the bonds as a result, but added that it's unlikely since the city brought in enough revenue to service the debt.

The cause of the low revenue was that water usage was at an 11-year low in the 2002-2003 fiscal year, Hellegaard said. Restrictions on lawn watering in the summer of 2002 contributed to that, as did a particularly wet, cool spring in 2003, she said. The restrictions were put in place while the water plant was being upgraded and because of drought.

Hellegaard said Tuesday the recommendation didn't mean the city needs to consider raising rates right away. The recommendation was "long-term," she said.

"We'll just have to see what happens this year and the next year," she said.

The last time water rates were raised was in December 2002, midway through the fiscal year. That 4 percent increase was approved to finance improvements to city water lines.

Gordon Thompson, a partner with Hamilton Consulting Group, said after the meeting that a normal usage year with a full year of that rate increase might correct the problem.

City Council member Tom Farnham said that if the city does eventually need to increase rates, he favors doing it gradually, in 2 percent-per-year increments, for example, rather than in one chunk. He said the Water and Sewer Committee will need to evaluate how much the city fell short of the 125 percent mark and discuss the situation this spring.

The city had no other problems with its audit, Thompson said.

"It was very clean. It was a good report," he said.