Brewer water facts

On June 11, Brewer voters will have the opportunity to decide whether to consolidate the operations of the Brewer Water District with those of the city of Brewer, or whether to leave the district as an independent entity. There has been a substantial amount of information and misinformation circulated about the vote. In making your decision, here are a few fact of which you should be aware.

The water district is currently well managed. Water rates have risen dramatically over the past ten years, however, these increases have primarily been the result of projects needed to comply with the federal Safe Water Drinking Act. During this period the district has successfully obtained more federal grants and loan subsidies than any water utility in the state, saving customers millions of dollars in water rates and keeping water rate increases below the level of sewer rate increases. Simultaneously, the district has improved service dramatically:

? Reducing the number of line breaks by almost 80 percent between 1991 and 2001;

? In 2001, being named by the Maine Rural Water Utilities Association as the Best Tasting treated water in the state of Maine;

? Having a minimal number of consumer complaints to the Public Utilities Commission;

? Improving fire protection, with an expected improvement in its Fire Suppression Rating from 32.18 (out of 40) to 36-37 when it is next rated in 2004.

Water rates will not decline after the city assumes control. Water rates are a function of two principal factors: debt service costs and operating costs. Debt service costs, which are approximately 60 percent of the district’s budget, hypothetically could be reduced only through strategic refinancing of existing debt. However, due to the extended term and subsidized interest rates associated with existing debt, there will be few, if any, opportunities over the next few years to refinance this debt in a manner that lowers annual debt service payments. Similarly, the district has already substantially reduced operating costs over the past few years. Further reductions are almost certainly possible, but not at a level that would be immediately apparent in rates.

The district is not in financial trouble. The district has been criticized for not maintaining sufficient cash on hand and for financing projects over 40 years. However, Public Utilities Commissions rules limit the cash on hand that can be maintained by a public water district. This makes perfect sense. A consumer-owned utility should not be putting large amounts of its customer’s money into its bank accounts. Rather, projected cash shortfalls should be dealt with when they occur through PUC-approved rate adjustments. Similarly, 40-year debt keeps annual debt service requirements (and current rates) at the lowest possible level. It also makes sense for projects with 100- year lives.

The city can bring greater operational efficiencies and financial strength to the operations of the water district. Having described the existing structure of the water district, let me say that I believe consolidating the district’s operations with the city will bring benefits to its customers over time. Many possibilities exist with respect to operations. For instance, consolidation of operations should provide the opportunity to share services such as financing, billing and purchasing. It should provide better coordination of construction scheduling and contract bidding. It may provide the opportunity for the City to provide repair services to the District that, due to its size, the District currently performs using outside contractors.

With respect to financial strength, the city’s excellent credit rating and larger size provide it with more options to financing future capital additions, such as the proposed Whiting Hill standpipe and connecting transmission line. Today, the district relies primarily on the U.S. Department of Agriculture’s Rural Development Authority and the Maine Municipal Bond Bank for its long term financings. In addition to these sources, the city has the ability to access the private tax-free bond market at favorable rates. The city is also able to maintain cash reserves for emergencies that the District is prohibited from maintaining due to PUC regulations.

If managed effectively, over time the city’s opportunity to implement operational efficiencies and its financial strength should result in lower rates and better service for water customers. For this reason, I support approval of the referendum question to transfer the operations of the Brewer Water District to the city of Brewer.

Andrew Landry has been a water district trustee since 1995 and is the current chairman.