Albuquerque will need a water rate increase beginning as soon as next July to help the metro area’s water and sewer utility dig out of a growing financial hole, according to a report from the utility’s staff to its board Wednesday evening.
The Albuquerque Bernalillo County Water Utility Authority is the victim of three converging financial problems: declining water sales revenue as a result of community water conservation and slowing population growth, the accumulated costs of decades of under-spending on decaying infrastructure, and a $500 million improvement to the metro area’s water delivery system that the agency largely paid for by borrowing.
The water sales problem is the most immediate concern, agency managers said in recent interviews. Their current budget projected a 2 percent decrease in water use in the 2013-14 fiscal year, but actual use dropped 18 percent.
Rewarding water users with a rate hike in response to their success at using less water will be a difficult political sell, officials acknowledge.
“It’s difficult for the customer,” said Bernalillo County Commissioner Art De La Cruz, a member of the utility’s governing board.
The water authority staff has asked a consultant to look at a possible rate structure.
Last year, the agency approved a rate hike amounting to between 6 and 7 percent for typical residential and commercial customers. That money was supposed to provide a down payment on fixing years of neglected infrastructure, including most importantly an aging sewage treatment plant.
But as water sales dropped last fall, revenue dropped along with it, agency records show. In response, the agency is shifting money that had been earmarked for the sewage plant and other infrastructure upgrades to meet current operating expenses and contemplating another rate increase.
The agency also faces more than $700 million in debt, a significant part of which paid for the metro area’s new San Juan-Chama Drinking Water Project. The project, which began operations in 2008, allows Albuquerque to use river water for its municipal supply, decreasing reliance on groundwater pumping. But it cost substantially more than expected.
When the city of Albuquerque launched the project in the 1990s, officials approved a series of seven rate hikes to raise money to pay for what was then supposed to be a $180 million project. The original intent was for the rate hikes to pay the entire cost, said Mark Sanchez, executive director of the water utility, which took over the water system from the city in 2004.
But the revenue from the rate hikes fell short of the actual cost of the project, leaving a lingering debt load that the utility must still pay back, Sanchez acknowledged. The utility currently still owes $357 million on San Juan-Chama Project bonds, according to water utility chief financial officer Stan Allred. This year’s debt service payments on those bonds totals $37 million, according to Allred.
The combination of those issues suggests the utility’s problems go beyond a simple revenue shortfall as a result of reduced water sales in the past six months, said Elaine Hebard, an Albuquerque community activist. “Is it just this year? No. It seems like the perfect storm,” Hebard said in an interview.