‘Substantially lower’ sewer rate increase considered by Hillsboro City Council after auditor’s revisions

After a presentation, a committee meeting, two previous legislation readings and a special meeting, a proposed sewer rate increase for the city of Hillsboro has been “substantially lowered” after the city auditor determined the increases were based on incorrect figures.

At the Oct. 15 Hillsboro City Council meeting, auditor Dawson Barreras issued an apology and asked council to “consider the revised rate schedule in place of the one previously presented” and discussed at multiple meetings.

“I would like to inform council of a little bit of a material correction of the sewer rate projections previously presented,” Barreras said. “After a thorough review of the rate model, I have confirmed that the sewer rate increases required to sustain the 507 fund and finance the planned I&I improvements are substantially lower than the actual figures that I gave to council earlier.”

As previously reported, the city is seeking funding for the first of what will be multiple phases of a sanitary sewer project to address the city’s I&I (inflow and infiltration) issues.

At the conclusion of their regular July meeting, council members attended a virtual informational presentation by Waterworth on water and sewer rates. Utilities committee chair Mary Stanforth said her committee met July 23 to further review Waterworth’s study.

The ordinance authorizing an increase to sewer rates was then introduced in August. Council members had previously approved a 10-percent rate increase in May. 

As almost half of council’s regular September meeting involved discussions of the second reading of the ordinance, a special meeting was held Sept. 23 to give council members another opportunity to ask questions. 

Throughout the past several months, former city auditor and current finance committee chair Gary Lewis has pushed back on the projections, as he argued the proposed increases were too steep even based on the planned debt associated with the I&I projects.

“The original projections were prepared using the rate model developed by Waterworth and then populating that model,” Barreras told council Thursday. “I entered the sewer fund's budgeted revenues and expenditures rather than its year-to-date actual figures, and that was because our audit wasn't complete yet, and that model usually uses our state-audited numbers. Since those are not finished yet, we use the budgeted numbers, and after the year ended, I never did go back and change those numbers to the actual year-to-date numbers.

“The budgeted amounts are, by design, conservative estimates. They generally understate the revenue and overstate expense, and as a result, the model projected a larger operation gap than what actually exists, and the recommended rate increases were correspondingly higher than necessary.”

As a result, the percentage increases are now projected to be in the single digits for the next five years, instead of as much as 20 percent next year as previously recommended. Overall, minimum rates would increase by under $10 in the next five years, instead of by close to $24 by 2031 as previously proposed.

“Upon discovering these discrepancies, I spent probably around three days reexamining the model line by line,” Barreras said. “I replaced the budgeted figures with year-to-date actual revenues and expenditures, reconciled those actuals to the general ledger and rebranded projections, including the debt service for the planned I&I loans, and the corrected model shows that the sewer fund can meet its operating obligations and its capital and debt commitments with a smaller annual rate adjustments than previously reported to council. 

“Going forward, all these rate models prepared by my office will be built on year-to-date actuals, and not just the budgeted figures, which we usually use only for forward-looking assumptions, and these models will be independently verified before presented to council.”

The original legislation stated that the recommended increases would be “20% in 2027, 15% in 2028, 15% in 2029, 7% in 2030 and 4% in 2031.”

The revised legislation outlines the proposed increases as being “6% in 2027, 5% in 2028, 5% in 2029, 5% in 2030 and 5% in 2031.”

The current minimum monthly sewer charge is $34.18. If the revised legislation is approved, the minimum rates would be as follows (but subject to change based on annual review): 

• $36.23 in 2027 (original legislation was $41.02);
• $38.04 in 2028 (original legislation was $47.17);
• $39.94 in 2029 (original legislation was $52.24); 
• $41.94 in 2030 (original legislation was $55.90); and
• $44.04 in 2031 and thereafter unless amended by council (original legislation was $58.13).

“This was absolutely my error, and I apologize for it,” Barreras said. “I recognize that council relies on the auditor's office for accurate financial information when making decisions that directly affect our residents and residents and businesses. I apologize for any confusion or concern that these earlier figures may have caused.” 

Lewis suggested that going forward, he would like to meet with Barreras to also discuss future legislation to address the “designation” for the rate increases.

“The funds that we'll be receiving with these increases, there's no designation as far as that going into the other funds for like sewer improvement and whatnot,” Lewis said. “I think maybe Dawson and I can get together and possibly talk about how we could possibly do that, and maybe possibly consider some legislation later on to just take care of it. 

“Depending on the schedule, 2027, as far as when it comes to loan payoff or anything like that's beginning, that may not begin until 2028, so you'd have those additional funds. I'd like to see those funds still go into either the debt fund or the improvement fund.”

Due to the major changes, the legislation was put up for another second reading Thursday and is set for consideration for a vote in November.

If council approves the legislation, the ordinance stipulates that the matter is to be reviewed by July 31 each calendar year, with the utilities committee making any necessary recommendations.

Check back to highlandcountypress.com for more from Thursday’s meeting.