“I see availabilities as the ultimate Ponzi scheme.”
– Mayor Kwasi Fraser

By Valerie Cury

For the eight years Purcellville Mayor Kwasi Fraser has served as mayor, he has been asking, without effect, management to direct the Town’s utility consultants to base their water and sewer rate predictions on innovation such as the selling of nutrient credits, stream water credits, and available grants. 

Every year the utility rate recommendations come in based on growth predictions, known as availabilities, which estimate the amount of residential growth needed to lower the rates. 

Using this model exclusively for years has made it not only unpredictable for the Town to set rates accurately, but it also recommends adding more residential growth which is not properly factored into the Stantec and management estimates. This would also increase operation and maintenance costs.

If these availabilities are realized, the additional operational and maintenance costs would increase rates for citizens. However, the management team has not been accurate in its estimation
of availabilities. 

Director of Finance Liz Krens said, “We may go below our target from time to time. In fact, reality may be very different from budget.”  

The water revenue comes in at 4 times the water debt, and the sewer revenue comes in at 2 times the sewer debt. Most of the revenue is going toward operations and maintenance expenses for both funds, which include chargebacks – time charged for work from the General Fund when staff operating in the General Fund does work for Utility Fund employees. 

“We don’t have a debt problem,” said Fraser. 

The General Fund, for this year, takes approximately $905,000 from the Utility Fund in chargebacks. 

The utility debt was inherited by the current Town Council, from the previous Lazaro Town Council.

Stantec, the consultant company Town management hired to recommend utility rates, gave a presentation in collaboration with the Town’s financial consultant Davenport at the May 24 Town Council Meeting. Last year they advised Council to set the rates at 3 and 5 percent for both utilities for several years. Now they are advising a base line annual increase of 7 percent for both the water and sewer funds, starting in the FY24 budget, and based on the next 10 years.

The operations and maintenance of the water and sewer systems comes with ongoing rising costs, including chemical, personnel, electricity, and Capital Improvement estimate costs to name a few.

After Stantec’s presentation and recommendation to raise the rates of both utilities to 7 percent each, Council Member Tip Stinnette said that Council set the rates last year at 3 and 5 percent “in our mind, but stuff happens and I’m willing to buy the resulting difference.”

Council Member Stan Milan said, “You are saying that the availabilities are low and with the availabilities being low, we are not generating enough to offset our debt or pay toward the maintenance. 

“On the flip side of that, I am hearing that if we increase in development, it would increase our availability, and with the increase in availability we are also increasing the maintenance cost.”

“I love a good model; and I love picking one apart,” said Vice Mayor Chris Bertaut. He added that the discussion of availabilities doesn’t “tie in any increases in maintenance costs that might be occasioned by the advent of those availabilities … nor does it give consideration to additional CIP [Capital Improvement Projects] expenses, whether within the Enterprise Utility Funds or outside them, that could be brought on as a result of accepting those availabilities.”

Bertaut pointed out that Stantec was “assuming a specific value or an average value” to availabilities, “but some availabilities have different dollar values than others … so we don’t always charge the same amount for the same provision of service.”

He said that although the ARPA funding [American Rescue Plan Act] is a one-time infusion for the Town – totaling 10.5 million over two years – it mainly goes to large projects for the next four years. This would give the Town more time “to not only consider options like long term financing for expensive capital improvement, but we also have more opportunity and time to seek alternative means of funding other than debt or additional rate increases … and that is of course being grants.”

Fraser said he was surprised by some of the numbers. “A year and a half ago we were anticipating ARPA funds of $2 million. We received $10.5 million. So these numbers, I understand some on Town Council are not surprised by them [but] I am surprised.”

“We have had eight years of slow growth,” Fraser explained. He then questioned why they would anticipate high numbers of availabilities. 

Town Manager David Mekarski said that predicting availabilities based on the model used is “not a perfect science, and because it’s impacted both by micro and macro-economic conditions, it could greatly change.” 

Regarding operational maintenance, Fraser said, “We are talking about availabilities, and I have heard this many times – and I see availabilities as the ultimate Ponzi scheme. The reason I say that is residential growth on average – for every one dollar we receive in tax revenue, we are spending $1.62 and some say $1.83 in operation costs.

“As we increase availability a cost comes with that. So, availabilities are not a panacea … It seems like operations are what is driving our expenses up, and what we need to consider is this availability is not the answer to it.”

Fraser asked Stantec for data about “our operation and maintenance costs compared to other municipalities – then we can do a deep dive to see what we can do to reduce those expenses and increase efficiency… We need to question the modeling of our forecast.”

Fraser pointed out that the Town’s previous utility consultants recommended raising the rate each year for both utilities to 9 percent each. At the time Fraser called that number “mythical.” 

“We did not take that 9 percent rate increase,” Fraser said. “Now Stantec is recommending 7 percent for both utilities. Those projections are just guess estimates.” 

“How can we get this additional revenue stream to cover those long-term projects? We did good with the nutrient credits of $926,000 (that equals 19 availabilities and no operational costs) … I would submit … we have over 1,200 acres in the watershed property. We need to look at stream credits … What’s going to get us out of this? … We need to lean into innovation,” Fraser continued.

“Never in the history of this country have we seen $1.3 trillion going into infrastructure. If we as a body are not able to capture some of that money, then we are failing our citizens.” 

Fraser advised management to apply for grants, as grants would help pay for long term Capital Improvement Projects. He said he understood that “the Bloomberg Foundation is actually looking at small municipalities like us to help us capture those dollars, and bring it back into our towns.”

In a phone call, Town Manager David Mekarski said he is checking Stantec’s availability for a meeting with the Town Council in September, so the Council could recommend different models for Stantec to try in real time.