Water, sewer rate increases could be on the horizon for Sherman

Michael Hutchins
Herald Democrat
City leaders discuss a series of agreements aimed at ensuring the stability and integrity of the city's water system in the future. The discussions followed winter storms that cut water service to many residents for multiple days.

Sherman residents could see a $13 increase in their average water bill over the course of the next five years. As a part of the 2021-2022 budget season, the city council is considering a five-year series of increases to the rate that will help offset increasing production costs and infrastructure improvements.

During the city's 2020 budget talks, city leaders opted to hire a firm to conduct rate studies for future years. The proposed increase — the first in nearly four years — comes following concerns earlier this year that the rate was too low and does not cover the city's expense for generating water.

During early budget talks, city officials said the utility fund risks falling below its recommended days of reserve. 

"The central thing that you need to keep in mind is that water is a business. It produces a product — A thousand gallons of water is the equivalent of a gallon of gasoline, or similar to a McDonald's hamburger," said Dan Jackson representing Willdan Financial Services. In other words, there are costs connected with it, it is delivered to the end user, and the rates that you charge are intended to recover the cost of producing that product."

The  average residential customer in Sherman pays about $54.62 per month for about 5,000 gallons of water.

The issue of increased cost for water service is not unique to the city of Sherman, and nationally producers are predicting a 5-6 percent increase for the foreseeable future. The American Water Association predicts that rates could triple over the next 15 years. City officials said about 30 to 40 percent of utility providers do not cover costs and instead are offset by other revenue or outside funding, including transfers from other city funds.

For Sherman, this increase in costs comes as the city has recently invested nearly $95 million in capital water and sewer infrastructure projects.

Currently, the  average residential customer in Sherman pays about $54.62 per month for about 5,000 gallons of water. This places Sherman's rate among the lowest in North Texas. By comparison, the city of Princeton is among the highest with an average cost about $97.34.

"We are still the lowest rate on the chart. We are almost embarrassingly low right now," Council Member Willie Steele said.

Jackson warned that not adjusting rates could have a variety of impacts for the city ranging from lost revenue to potentially risking the city's bond rating.

Despite the city's low rates, consultants applauded the city of Sherman as forward thinking in its practice of whole selling its water and sewer resources to other municipalities and entities, including its raw water contract with Panda Power. 

Currently, the city provides water resources to Knollwood, Dorchester and Gunter, while Howe and Knollwood receive wastewater treatment. While Knollwood and Gunter receive this service at base cost and with a five percent up charge, respectively, Dorchester's rate is capped at $1.53 by contract. City staff said the contract with Dorchester will likely be up for renegotiation soon.

Meanwhile, Howe and Knollwood both pay base residential rates for sewer service. However, the city has recently experienced some loss of revenue from the Howe agreement due to owed payments for service. Last year, Sherman city officials were seeking nearly $384,000 in outstanding debt from Howe.

Jackson presented a series of options for the city to gradually increase its water rate over the course of several years to where it will eventually be able to offset the city's expense and become self-sufficient. Under the first scenario, the monthly service fee — which covers the first 1,500 gallons of residential water — for a 5/8-inch water meter would increase from $22.80 to $26.94 by 2025. This would still put city in the lower range for other municipalities considering many are considering similar increases.

"What we are asking you to do is what everyone in the Metroplex, the state, the country and the world is facing," Jackson said.

The second scenario would attempt to level off the increase over five years with rates varying from a 3.27 percent increase to a 3.79 percent increase in 2025.

The proposed increase received mixed responses from various members of the council, with Council Member Shawn Teamann comparing it to a tax increase.

"For me personally, I think any fee we charge is another tax on the citizens," Teamann said. "So, I understand if our bond rating suffers because we don't have enough revenue in the fund."

Teamann went on to say that he felt he was comfortable the way the fund was managed in previous years. Rather than focusing on raising the rate over a series of years, he said he believes that future growth will help balance the fund with additional customers.

Mayor David Plyler argued against the idea that water and sewer rates were a tax and instead compared them to a product that is sold. However, right now, the city is not selling its product at a rate where it can recoup its costs.

"Really, at the end of the day, the citizens need to know we are serious about maintaining our water and sewer infrastructure throughout the city," Plyler said.