The Demorest City Council approved an 18% water rate increase at Tuesday evening’s regular council meeting. The increase comes on the heels of a water and sewer cash flow and rate analysis study completed by Engineering Management, Inc. (EMI) in December.
Currently, the average outside-city residential water bill is $43.90. The average outside residential water bill will increase to $51.80.
Mayor Jerry Harkness said the council had been discussing this matter for months, and they knew this day was coming.
“I don’t think anybody wants to go forward on going up on anything but costs – everything – has risen so much. We can no longer keep it where it’s at.”
Demorest deficits
The EMI study revealed that in Fiscal Year 2022, the city experienced a decrease in water and sewer revenues, resulting in an overall water and sewer fund deficit. EMI did an annualized study for FY 2023 through last October, and determined the city will again likely face a deficit in its water and sewer fund.
Demorest city leaders addressed this issue last year by raising water rates by 10%. However, the city did not raise sewer rates or change the rate structure. The recently approved FY 2024 budget for the water and sewer fund will result in a net negative balance, officials say.
According to EMI, Demorest is running deficits “because expenses have been increasing much faster than the rates are being adjusted.”
In addition to the water and sewer fund balance deficits, the city is also experiencing issues with meeting its debt service coverage ratio (DSCR).
The DSCR measures the city’s available cash flow to pay current debt obligations beyond operation and maintenance expenses. Demorest hasn’t met its DSCR since 2021. Continued failure to do so may result in financial repercussions and lower the city’s borrowing power in the future.
Much of the increase already built in
Most of the 18% water rate increase approved at the Jan. 2 meeting is already built into this year’s budget. The FY2024 budget the council approved last month included a 14% water rate hike. The additional 4% will get the city back to a positive cash flow in the water and sewer fund, address increasing operational costs, and address the shortfall with their DSCR, officials say.
EMI President Fletcher Holliday explained to the council that the 14% increase was based on their preliminary analysis of water and sewer fund expenses and revenues. However, EMI had just begun the cash flow and rate analysis study when he gave that percentage to the city for their budget preparation in October.
Council member Donnie Bennett thanked Holliday for explaining the report and providing the information so the council could make an informed decision.
