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What’s your rate?

What’s your rate?

water-rateAs a group of residents question why they must pay such high water and sewer bills, Kernersville Community Development Director Jeff Hatling is putting the final touches on a year-long study of that very issue.
Hatling will present the results of the study and an overall master plan for future water and sewer expansion for Kernersville to the Board of Aldermen in September. There’s little doubt there will be plenty of people paying attention given the amount of interest in the subject generated recently.
In the course of asking why Kernersville sewer users pay more than double what Winston-Salem residents pay for their sewer usage, residents such as Brock Williams, Terry Templeton and Cindy Hardison have accumulated numerous documents dating back to a 1996 agreement in which the Town transferred its water and sewer system to the City County Utility Commission (CCUC). At the time, it was agreed that sewer users in Kernersville would pay a higher rate in order to compensate the CCUC for the transfer, but over time, the rate would decrease until reaching a 1.2 rate above the CCUC’s base rate.
In 2002, the Town asked that the CCUC freeze the sewer rate at its then current rate of 2.487 times the base rate, with the CCUC taking in the agreed upon 1.2 rate and Kernersville receiving the remainder each year in what Town officials call the Rate Differential Fund. Since then, anything collected by the CCUC above its 1.2 rate for sewer goes into that fund for the Town to use on utilities expansion.
According to CCUC officials, the account has accumulated as much as $20 million since it was first created and today holds a little over $13 million. In fiscal year 2015, the CCUC will deposit around $2 million into the account. The money isn’t part of the Town’s General Fund and cannot be used for anything other than water and sewer projects.
After reading two articles on the issue in the Tuesday News July 7 and July 14 editions, Town Manager Curtis Swisher said most of the information presented has been accurate, but said some was not. He began by going back to the original interlocal agreement that was first conceived in 1995 and formalized in 1996.
According to Swisher, the agreement stated that while the CCUC was taking over the Kernersville water and sewer system, the Town would be responsible for any expansion of the system beyond its current area at the time.
“At the time of the agreement in 1995, the rate multiplier for water was 1.2 times higher than the city rate for Winston-Salem and the rate multiplier for sewer was 3.439,” explained Swisher.
Swisher said the rate multiplier for water has remained consistent since 1996, never going above 1.2 and the sewer rate did decrease from the 3.439 multiplier and would have continued to decrease until it, too, reached a multiplier of 1.2 in fiscal year 2004-05. In January 2003, the Board froze the rate at 2.487, with the funds generated to be used for covering the cost associated with future expansion of the utility system.
Since then, those funds have been used to make annual payments toward $8 million the Town borrowed to expand utilities to the Abbotts Creek sewer basin, of which $5 million is still owed. The Abbotts Creek area includes what would have been the Caleb’s Creek development, the Carrollton mixed-use development that has since been renamed Welden, Bishop McGuinness Catholic High School, Cone Health MedCenter Kernersville, Novant Health Kernersville Medical Center and, more recently, the VA Kernersville Health Care Clinic.
Swisher and Hatling both agreed that when the Rate Differential Fund was created 19 years ago, Town leaders looked at it as a way to autonomously fund water and sewer expansion without having to borrow the money to do so and as a way to control the Town’s own destiny without being at the mercy of outside forces.
“If you can control your sewer, you can control your growth,” said Hatling.
When the state legislator did away with forced annexation, being able to offer water and sewer to areas municipalities hope to annex became an important tool for towns like Kernersville, said Hatling.
“It is the only tool a community has to attract voluntary annexation and Kernersville has been able to annex over 2,000 acres because of it,” Hatling continued.
Added Swisher, “It’s not cheap to do sewer projects, and it is important to have a revenue source that allows the Town to have growth in the future without having to roll over to city/county utilities.”
The relationship between the CCUC and the Town hasn’t been all smooth sailing. When Kernersville wanted to extend water and sewer to Triad Business Park, the CCUC responded that it didn’t have the capacity to conduct the project, but when Kernersville asked to use $650,000 to pay High Point to extend its lines to the site, the CCUC balked again, Swisher said.
That’s when the CCUC suggested a new agreement might be in order.
“We began negotiating a new agreement with CCUC in mid-2011 in order to address some changes to the original agreement,” Swisher explained. “In December 2011, the Board of Aldermen adopted an amendment to the 1996 interlocal agreement that stated the Town wanted to use $650,000 from the Rate Differential Fund to pay High Point. It also stated that the Town wanted to have a new agreement in place by June 30, 2012.”
Swisher said if a new agreement was not reached by June 30, 2012, the CCUC would distribute the funds in the Rate Differential Fund to the Town and lower the sewer rate to the 1.2 multiplier as originally agreed upon in 1996.
“We continued working on the agreement but realized one wouldn’t be reached by the deadline. At the June 2012 Board meeting, the aldermen granted a 180-day extension for negotiations to continue,” Swisher said.
It is at the end of this 180-day extension that Williams, Templeton and Hardison question, with Williams unable to find any documentation that a new agreement was reached. He contends that if no new agreement was put in place, then the Town’s sewer rate should have reverted to the 1.2 rate in January 2013.
However, Swisher said negotiations have never stopped and have been ongoing for the last two-and-a-half years. One of the areas where the Town and CCUC have failed to find middle ground is the CCUC’s contention that Kernersville would be responsible for approximately $20 to $30 million in upgrades to multiple treatment plants and pump stations under any new deal.
That’s where Kernersville and its Town officials balked.
“We briefed the Board of Aldermen on this and it was agreed that Kernersville was not responsible for this and we should continue negotiations,” Swisher said.

Those negotiations are still underway.
“Beginning in 2013, the CCUC started revising the future costs that it believes Kernersville will be responsible for and then in 2014, the Town commissioned a study to determine the future liabilities of the Town in regards to water and sewer,” Swisher said.
Those continuing negotiations are the reason the amended interlocal agreement adopted in December 2011 was never enacted, he continued, “causing the rate to remain at 2.487 and the Rate Differential Fund to remain open.”
Hatling and Swisher said it isn’t unusual for them to hear from citizens who have been told by the CCUC that their water and sewer bills keep increasing because of the rate multiplier Kernersville charges, but Swisher said that’s just not true.
“Increases have occurred because CCUC has raised the rates every year since 2000. Kernersville has not changed the rate multiplier since 1996 for water and since 2003 for sewer. Water is still 1.2 times the inside rate of Winston-Salem and sewer is 2.487 times the inside rate of Winston-Salem,” Swisher said.
Swisher said a Kernersville resident who used 1340 cubic feet of water in 2008 paid about $93.82. For the same amount of usage in 2015, their bill would be $165.08, almost double what they paid seven years ago.
“This increase is from the increase in rates put into effect by CCUC and has nothing to do with the rate multiplier Kernersville uses,” said Swisher.
The question becomes how much is enough when it comes to accumulating money in the Town’s Rate Differential Fund to pay for future utilities expansion. That’s what Hatling hopes the new study will shed some light on when it is presented in September.
Some of the subjects the study tackled included where the Town hopes to expand in the future, how much it will cost and if and when the sewer rate multiplier can be lowered as the Town reaches build out.
“Decisions have to be made on what liabilities exist as far as how much it will cost to continue to expand the system, paying off the loan and demolition of all our old water treatment facilities. We still don’t have sewer in areas to the north, east and south,” said Hatling. “We also have to look at what our revenues are going to be. We hope the multiplier will be able to come down.”
Swisher said estimates place the Town’s sewer liabilities, including growth outside its current area, at more than $25 million. If the Rate Differential Fund is eliminated altogether and the sewer rate dropped to 1.2, the cost of the projects would then be paid for using tax dollars.
That would mean a substantial tax increase.
“To pay for $25 million in projects using tax revenues, a tax increase of 12 cents or more would be required using today’s tax rate,” Swisher said. He hopes the upcoming study will shed more light on just how much a reduction in the rate the Town might be able to accomplish, but noted that any rate changes would have to be agreed to by the CCUC.
Kernersville Mayor Dawn Morgan is one Town official who supports eliminating the rate multiplier.
“I’m not sure there should be a multiplier given what is going on with water and sewer rates,” said Morgan.
Morgan also noted that as money has been taken from the Rate Differential Fund to fund expansion, those projects have also brought in revenues.

“The fund has gotten replenished through growth,” said Morgan. “Major companies have located here because we have a plan with our sewer system. It has allowed for great things. At the same time, the fund is growing at too fast a rate. I know the Town has been working on this study and it should go before the Board in August or September, but I would like to see the sewer rate reduced dramatically.”

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