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Once the municipal water system is constructed, costs to customers will include yearly fixed and variable costs, as well as one-time costs associated with connecting to the system. Fixed costs are those that must be paid, even if not a single drop of water is used, such as the debt service on loans. This cost is represented by the base fee. The more customers that sign on to the system, the lower the fixed costs are for each. Variable costs reflect the amount of water actually used, which will be measured by a meter. This is called the use fee. One-time costs include the cost to extend the water line from the right-of-way to the building as well as the connection fee, which, among other things, covers the cost of a meter. These costs and more are explained in detail below.
Project Construction Costs The initial cost to construct the water system is projected to be $7.6 million. This includes costs for construction, source exploration and drilling, legal services, administration, easements, engineering, permitting and other related costs. This cost will be offset by grants and a portion of connection fees, resulting in a "local share" that will be rolled into a long-term loan as shown in Table 1. The decision to include fire protection adds approximately $1.36 million to the cost of the project. This includes the cost of 16 hydrants (approx. $3,000 each, installed), a 12-inch water main instead 4-inch or 6-inch lines, and a 400,000 gallon water storage tank rather than a 100,000 gallon tank. Planning, Design, & Engineering Costs About $500,000 has already been spent over the 10+ years since the planning, design, and engineering work began. This includes costs associated with exploring water sources, drilling test wells, hydrogeologic studies, construction of the Reed Road well, preliminary design and engineering studies, surveying, and permitting, easements, legal services, and helping to assemble the funding packages from state and federal sources. These costs, as well as projected future costs for final engineering and construction services are projected in the construction costs and the total bond amount.
In addition to the debt service to pay back the long term construction loan, annual costs will include operation and maintenance (O&M) costs such as labor, utilities, testing, and administrative costs such as billing and insurance. These projected costs are shown in Table 2. The costs include repayment of two no-interest loans totaling $311,000 extended to the Town for the planning and engineering. If the project does not go forward, payback is scheduled to begin in 2012 over 5 years and would require annual payment of approximately $62,000. Annual Project Revenues Revenues to pay the annual debt service and O&M (operation and maintenance) costs will come from the connected customers, which includes two components: a Base Fee and a Use Fee.
Base Fee The Base Fee shown is the amount each customer is projected to pay toward debt service. The base fee will be charged as a multiple of the property's designated ERU value (i.e. a property with 2 ERUs will pay twice the amount as a property with 1 ERU). Metered Use Fee The Use Fee shown is the average amount a typical customer will contribute to offset the annual O&M costs and is expected to be based on the amount of water used. Properties with higher water uses will pay an equitably higher share toward the O&M costs. With this model, the use charge would be in the range of $3 per thousand gallons of water used. The rate schedule will not be finalized until the project is in construction, as it is anticipated some properties will elect to wait until the pipeline is being installed past their home to agree to connect. Reserve Fund A reserve fund is needed to provide a contingency for replacement of equipment and other incidental costs that are not budgeted in a given year. A minimum fund balance (typically 10% of the annual debt service) is required as a condition of the long-term construction loan to ensure that annual debt service payments can be made. The Reserve Funds will be established with a portion of the initial connection fees; future connection fees and accrued interest will provide additional revenue sources for the systems. One-Time Costs to Customers During the initial construction phase and each time a new customer connects to the system, two one-time costs must be included. Table 3 provides a breakdown of the one-time and annual costs for a typical household that connects to the water system. Figure 1 shows that as more customers connect to the system, both the base fee and use fees will be reduced as the debt service and annual costs are spread over a wider base.
Connection Fee A one-time connection fee of $2,000 per ERU will be charged for each new property to connect to the system. A discounted connection fee of $500 per ERU will be available for properties agreeing to connect before December 31, 2009. This includes the cost of the stub (or curb stop) to the right-of-way, meter, pressure-reducing valves, backflow prevention devices, associated fittings, and an allocation to a maintenance reserve fund. This is possible because the stub and appurtenances installed to the right-of-way during construction will be subsidized by the grant funds. After December 31, 2009 customers will be responsible for all of those costs. Cost to Connect Service to Structure from Right-of-Way Property owners will be responsible for the cost to extend the water service from the edge of the right-of-way to the building. This cost will vary from property to property depending on the distance of the structure from the edge of the right-of-way, obstacles such as ledge or landscaping features, and who the property owner hires to do the job. Generally, however, costs from $30 to $75 per foot can be estimated. Customers whose properties are not located on the same side of the road as the water line, and who sign up after the project has gone out to bid, will also need pay for the costs associated with boring under the sidewalk and Main Street. Funding Sources The funding package secured through USDA Rural Development requires that the entire cost of the municipal water project be borne by those connected to the system and not the broader tax base. Thus, a town-wide assessment to help offset the debt service would not be an option. Grants & Loans USDA Rural Development. This federal agency has funded small community water and wastewater projects in Vermont for decades. Rural Development (RD) typically offers a grant/loan package, with the grant portion set as a function of local income level, expected user rates, and funding availability. The Town did secure a grant and loan package through RD of more than $5.5 million. Vermont Agency of Natural Resouces. The Water Supply Division of ANR administers a revolving loan fund (RLF) for public water supply projects. Unfortunately, funding is not available for construction because eligibility is limited to existing water systems and not the development of new systems, such as Waitsfield's. The Town was able to take advantage of a planning RLF, which was used for the preliminary engineering and source exploration phases of the project. Two 5-year, no interest loans totaling $310,747 were obtained through the RLF, with repayment slated to begin in 2012. State and Tribal Assistance Grant (STAG). The Town successfully applied for three earmarks totaling $3 million from this federal program though the Vermont ANR and our Congressional delegation. After administrative costs are subtracted, approximately $2.9 million is available to be applied toward either the water or wastewater projects. Approximatley $2 million has been allocated to the water project, which will reimburse the Town for up to 55% of the planning, design, and engineering costs incurred. Other Sources of Funding Connection Fees. Future connection fees will provide revenue to help build a reserve fund and/or stabilize water rates. Tax Increment Financing. Tax increment financing (TIF) allows the Town to "divert" new tax revenue from future developed properties within the district to be spent on infrastructure within the district. The Town continues to explore the use of this financing tool to offset the debt service costs. If approved by the state, approximately $2 million may be available during that 20-year period. Costs to Customers The costs to customers, both the on-going costs and the one-time connection costs, will depend on a number of variables, including the number of ERUs each property represents and distance of the structure from the right-of-way (physical hook-up). Table 3 illustrates a potential scenario. As shown in Figure 1, the higher the number of connected users, the lower the costs. Costs to Non-Users in the Service Area Connection to the water system is voluntary. Properties not connected to the system will not have any costs. The fire protection assessment fee included with the original proposal that was voted down in March 2008 has been eliminated. Costs to Taxpayers The Rural Development funding package requires the project to paid for only by those connected to the system. The cost to taxpayers will be limited to the fees associated wtih municipal buildings that connect to the system, such as the Town Office, Elementary School, General Wait House, Fire Department, and Town Garage. If the Town chooses not to connect any of its buildings to the system, the cost to taxpayers for the water system would be zero. Links (Documents and outside links will open in a separate window)
Contacts
Updated October 8, 2009
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