At the risk of confusing the narrative in advance of Part III…
Let’s flashback to remember that many of the municipal W&S systems in the state made very questionable financial assumptions during the recent boom times that will continue to put upward pressure on rates and fees.
In order to get the lowest interest rates possible on the biggest possible debt package floated, many cities and authorities entered into covenants with the bond markets specifying that incoming revenue would hit certain targets. (Leave aside the question of whether banks and other entities who stood to maximize their commissions unduly influenced these decisions.)
Those targets, however, included hook-up fees from real estate boomtimes. Usage revenue targets also did not anticipate drought conditions and water use restrictions. Combined these elements have “forced” some systems to hike rates 15 percent or more in the past year to make up for the bad assumptions — to do otherwise would break the debt covenants and result in higher — sometimes much higher — borrowing costs, which would itself probably require rate hikes to afford.
Yet hiking rates during a recession may well reduce overall water usage, which could produce less revenue, which would break the covenants, requiring a rate hike… You can see what a horrible treadmill some of these systems may soon find themselves on.
The upshot as it applies to annexation is that there may, in fact, be no way for these systems to have a clue what their rates and fees are going to be in a year or two. There is a huge disconnect between annexation law which seems to assume stable predictable rates and the reality on the ground.
Imagine that.
