Elk Mound water rate study: reservoir project would put the village in top 25 percent for water rates
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By LeAnn R. Ralph
ELK MOUND — A water rate study by Ehlers Inc. indicates that paying for a new reservoir in Elk Mound and two loops to increase water pressure would put the village in the top 25 percent for water rates.
Brian Roemer of Ehlers presented information from the long-range cash flow analysis of Elk Mound’s water utility at the April 17 meeting.
Roemer, a municipal advisor with Ehlers who specializes in enterprise funds, said he approached the water rate study in three phases: historical funding; future projections; and rate impact.
The Public Service Commission of Wisconsin allows two different water rate increases — a conventional rate increase or a simplified rate increase, he said.
Under a conventional rate increase, municipalities apply to the PSC, the PSC holds a public hearing on the proposed rate increase, and then the PSC reviews the application and testimony from the public hearing and decides if the rate increase is acceptable.
Under a simplified rate increase, the PSC sets a rate increase that reflects the increase in the consumer price index, quite often 3 percent, and then municipalities apply for the simplified rate increase, and the PSC approves it.
Last year, the PSC allowed a 4.5 percent simplified rate increase, which Elk Mound applied for and received.
The rate of return for Elk Mound’s utility was a negative 13 percent, although there has not yet been a full year of the 4.5 percent rate increase, Roemer said.
Elk Mound has applied for and received four simplified rate incases in recent years in 2018, 2019, 2021, and 2022, resulting in an increase in the water rate of 14.2 percent, Roemer said.
The last conventional rate increase Elk Mound received was September 15, 2012, with a 6.5 percent increase on the rate of return, he said.
One way to look at it is whether the water rates are set at an amount that will recover the cost of providing the service, Roemer said.
This year, for 2023, the water rate should be adjusted by 7.4 percent because of the 2023 budget, he said.
Elk Mound’s utility is generally healthy, but the costs are exceeding the simplified rate adjustments, Roemer said.
The PSC has been lax on setting simplified water rate adjustments that reflect the rate of inflation. Usually the simplified rate increase has been 3 percent, although last year it was 4.5 percent, and this year it is 8 percent, he said.
Keeping up with the simplified rate increases and implementing them every year is a good practice to follow, Roemer said.
The rate increases help make sure the municipality can pay for outstanding debt and for operations and maintenance increases, Roemer said, noting that it is typical to see some volatility in operations and maintenance costs.
Regular water rate increases also allow a more gradual increase rather than water rates spiking after staying at the same rate for a number of years.
The future capital investment of a new reservoir could be funded through the Safe Drinking Water Fund loan program, Roemer said.
To make sure that Elk Mound residents have an adequate water supply and adequate pressure for fire-fighting capabilities — especially because of the Settlers Ridge development that could triple the population of Elk Mound when all of the phases are complete — the village has received a recommendation from CBS Squared for building another reservoir and for building two loops in the system: a loop by the school district and one on the east side of town.
A low-interest Safe Drinking Water Fund loan would be the cheapest way of funding the capital improvements, which are estimated to cost $2.5 million, Roemer said.
The water utility will also need a rate adjustment, and the village can apply for another simplified rate adjustment for 8 percent this year on the one-year anniversary of the last simplified rate adjustment, he said.
The rate adjustment is necessary because of the 2023 budget, and an additional rate increase would be needed to pay for the reservoir project, Roemer said.
The reservoir project would be a 70 percent add-on to Elk Mound’s water system, he noted.
A rate comparison by county in a four-county area shows that Elk Mound is in the 50th percentile for water rates now, and after the reservoir project would be in the 85th percentile and among the top 25 percent for water rates, Roemer said.
One question that was not part of Roemer’s report was the impact an additional reservoir and increased water pressure for fire-fighting capabilities would have on the fire department’s ISO rating and whether that would have an impact on homeowner’s insurance in Elk Mound.
An ISO fire rating is a score the Insurance Services Office provides to fire departments and insurance companies that indicates a community’s preparedness for fighting fires.
An ISO rating is mostly based on the local fire department and the water supply available.
Another question is whether there are other funding sources available for the reservoir project, such as Tax Increment Finance District funding, Roemer said.
Elk Mound has set up a second TIF district for the Settlers Ridge development.
The village board has agreed to $800,000 in incentive payments for the Settlers Ridge development.
No information was provided at the April 17 meeting about how much money TIF 2 is expected to generate over the next 20 years.
In a TIF district, the property taxes on improvements in the district that would normally be paid to the school district, the village, Dunn County and Chippewa Valley Technical College go into a special fund to pay for infrastructure improvements in the TIF district such as streets and sewer and water improvements.
The taxing authorities still receive property taxes on the base value in the TIF district before the improvements were added.
When the TIF district is closed out in 20 years, any money remaining in the TIF district fund is paid to the various taxing authorities according to their percentage of equalized value in the district.
School districts receive no benefit from a TIF district one way or the other. State law is set up so that the amount of state aid a school district receives is reduced by the amount of money received from a TIF district closing out.
Conventional rate case
The process for applying for a conventional rate increase with the PSC is six to eight months from the application until the water rates can be increased if the PSC approves the rate increase, Roemer said.
On November 15, Elk Mound can apply for a simplified rate increase, and Elk Mound should apply for the simplified rate increase regardless of the reservoir project, he said.
Is there an ability to modify the reservoir project if it is more than the village can afford? asked Terry Stamm, village trustee.
Stamm said he was concerned about elderly residents in the village or other residents who are on a fixed income.
Another big concern, Stamm said, is that Elk Mound is not guaranteed to get a conventional rate increase or a grant from the Safe Drinking Water Fund.
There are no guarantees about a rate increase or a grant, said Jon Strand of CBS Squared, the village’s engineering company.
The smaller part of the award from the Safe Drinking Water Fund would be a grant and the larger portion would be a low-interest loan, Strand said, noting the interest rate would be about 2 percent on a 20-year loan.
The deadline for Elk Mound to apply for the Safe Drinking Water Fund loan is June 30, and the village could apply for next year, said Bernard Lenz of CBS Squared.
The village can apply through the PSC and the state, design the project, get state approval and could start construction before the money is awarded, he said.
The application could be for June of 2024, and Elk Mound would need interim financing before then, Lenz said.
Stamm noted there are still no guarantees.
Representatives for CBS Squared said that the application actually must be completed by some time in May to give the state Department of Natural Resources time to review the application first before it is submitted for the June 30 deadline
“Keep your foot on the gas if that’s direction to go,” commented Mark Levra, director of public works.
Another factor in the reservoir project is land for the reservoir.
The village needs a land transfer, either through an easement or a land purchase, Roemer said.
Acquiring the land could take time and might result in a delay of a year on the project, Stamm said.
Taking a year to acquire the land would put the village in the same position next year of not being able to get the application ready for the June deadline, Strand said.
The application would have to be submitted to the DNR by May 8 for review, so that leaves very little time for surveying and design this year, he said.
“That’s not feasible,” Strand said.
The cost of construction is increasing, he said.
If the project is bid in this calendar year, and construction begins in 2024, materials often take large jumps at the end of the year, Strand said.
The project will cost more than $2.5 million if it is delayed, he said.
The numbers are the best guess from the 2023 bidding season, Lenz said, adding that the cost of the land is not in the estimate.
The cost of the land also is not included in the water rate report, Roemer said.
Motions cannot be made during public appearances because the subject is not part of the agenda, Stamm said,
The reservoir project should be on the agenda for the next board meeting, and it should be kept on the agenda, he said.
Lenz suggested that Elk Mound could acquire the land through a “friendly condemnation.”
A friendly condemnation process has tax benefits for the landowner over a conventional condemnation of land, he said.
Lenz suggested on planning to survey for the project in the fall and then “work backwards”to obtain the land in time to do the survey in the fall.
In other business, the Elk Mound Village Board:
• Learned that the Elk Mound Police Department received 91 calls for service in March, and that the police department handled 80 cases. Traffic stops and citations were the most prevalent activities.
• Learned the the Elk Mound fire department had gone out on four calls in March, including one car crash on I-94, one cancellation en route, one structure fire and one car fire.
• Learned that the fire department is ordering new gear for the firefighters and is applying for grants to help cover the cost.
• Approved appointing Pat Hahn to serve on the Board of Review on May 10. Hahn was elected to the village board in the April 4 election.
• Approved appointing Joyce Price to fill the vacant village trustee position. Stamm was on the ballot for both village president and village trustee. Since Stamm will be filling the village president position, that left one village trustee position vacant.
• Approved purchasing a Phillips HeartStart defibrillator for the village park. The defibrillator cost is $1,800, and the village has been awarded a grant to purchase the defibrillator.