Consultant Advises Rate Hike, Other Changes After Water/Sewer Audit

A consulting firm hired to evaluate the village of Lake Zurich's water and sewer fund suggested that a rate increase may be in order to shore up the fund's cash balance.

Village officials hired engineering consultants Baxter and Woodman of Illinois to audit the water and sewer fund. The firm presented its findings to the village board Aug. 1.

“We took a comprehensive, big-picture look at water and sewer management and budgeting,” said Kristin Rehg, project manager for Baxter and Woodman. “The goal was not to reduce the budget, but to spend money as wisely as possible to reinvest in the system.”

Rehg said her company focused on the overall expenses and revenues coming in to the utility, relative to other comparable suburbs in the Chicago area.

“Utility rates are not enough to sustain the budget as it is; there is a cash balance of $1.9 million (in the water and sewer fund) and it will be $1.5 (million) by the end of the year,” Rehg said. “The recommended amount is just under $1 million, and it is drying down so there will be a need to adjust rates to cover expenses.”

Trustee Tom Poynton, however, said more analysis is needed before the village looks at increasing rates during these difficult economic times.

“There would have to more justification for me to support even thinking about supporting a rate increase," said Poynton.

Baxter and Woodman also looked at water and sewer fund-related expenses. Rehg said it is necessary for village administration to keep replacement and maintenance of infrastructure in mind for the future.

“There is a need for additional investment, for infrastructure renewal and replacement; for example, water main, and pump and sewer replacement,” Rehg said. The company estimated that the village should save about $2 million per year to meet those current and future costs.

The village also should set aside funds for projects like water tower painting, which can cost up to $800,000 and should be done every few years, Rehg said.

Baxter and Woodman recommended that $1.6 million per year be charged to the general fund to cover expenses for the water and sewer fund.

“The difference of (the current) allocation represents $250,000, and the village needs to determine the change needed in rates,” Rehg said. “Water and sewer needs to be reimbursed for all of the services it provides.”

In the past, the charges were made to the general fund due to the water and sewer fund providing a utility service, similar to other utilities like the gas or power company.

Concerns about a $500,000 transfer from the water fund to the general fund were a major reason for stalled budget talks in April, and those apprehensions remain.

“This board has had a lot of conversations about the $500,000 transfer,” said Trustee Jeff Halen.

He added that the transfer is still in question, as is the consultants’ suggestion that an additional $250,000 be channeled into the water and sewer fund to properly reimburse it for work done to run it.

“Administration still has to bring back the budget to the board to determine if the $500,000 transfer, in addition to the $250,000 additional dollars suggested by the consultant, is warranted,” Halen said.

He added that the important thing is that the audit should be used as a guide for village staff and the board to look at together and agree upon what will be taken from it.

The firm suggested a number of cost-saving moves, including:

• Outfitting staff with a way to remotely monitor each plant and treatment station, potentially saving $36,000 per year in overtime costs. The remote monitoring system would cost about $20,000 to install.

• Allowing field maintenance workers to take their breaks in the field, saving about $41,000 annually in drive time, salary costs, and wear and tear on vehicles.

• Teaming up with other communities to purchase salt in bulk for a considerable cost savings.

• Reducing hydrant flushing from two times to one time per year.

The firm also suggested the village could combine or eliminate lift stations once they are at the end of their useful life, and revise purchasing policies for electricity and chemicals.

“This is a major policy juncture that the village is at, we are looking at the full cost of allocations services,” said Village Administrator Bob Vitas. “It gives us a chance to look at policy ideas and at the implications on the water and sewer rates to make up these annual deficits.”

No decisions will be made until October, when the board and administration will be focusing on the village’s Capital Improvement Plan.

“This is perhaps the most complex discussion that any board could have, to look at where we are at, where we want to be and how to get there,” Vitas said.