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Water rate claims full of holes

  • 5 min to read

Postcards circulating around Rapid City ahead of the Feb. 20 special election on city water rates make false claims and direct people to a website full of dubious conclusions, a Journal analysis has found.

The postcard is paid for by the “Don’t Get Squeezed Committee,” a municipal ballot question committee chaired by local Citizens for Liberty member Tonchi Weaver, according to a statement of organization document filed with the city.

Along with claiming Rapid City has the “highest residential water rates in South Dakota,” is writing “blank checks for future water rates hikes,” and is “diverting water fund cash to other projects,” the postcard directs recipients to visit reformrapidcity.com to “get the facts before you vote!”

Once there, a 3,000-word document provides supporting information intended to bolster the postcard’s claims along with questions Rapid City residents “should ask" before casting their vote.” But independent research and discussions with city engineers and finance officers reveal the answers to those questions are at odds with what the site purports.

Highest rates in South Dakota

In a Journal analysis of water rates across South Dakota, Rapid City’s current per unit rates, unchanged since 2013, appear to fall in the middle of the pack.

Aberdeen ($2.40), Pierre ($2.60), and Mitchell ($3.10) provide less expensive water per one hundred cubic feet (CCF), or 748 gallons, compared with Rapid City’s current rate of $3.11. A single family residence in Rapid City averages 7.5 units per month, or about 5,600 gallons, according to HDR Engineering, a consulting firm hired to study the city's water system. The city’s per CCF rate rises to $3.32 once usage eclipses 10 CCFs.

But Custer ($3.23), Sioux Falls ($3.68) and Hill City ($4.49) charge more than Rapid City per CCF for their lowest tier of usage, with Sioux Falls’ second tier (8-50 CCF) rate jumping to $3.93.

One set of claims — that water rates will increase 52 to 74 percent if approved on Feb. 20 — is accurate, though those figures are only related to the per unit charge, which constitutes most but not all of Rapid Citians’ water bills. Meter charges are also incorporated into the overall bill, which currently sits at $7.39 per month for a 5/8-inch pipe, but would rise to $8.08 this year and $11.18 by 2022.

Overall, a single family residence can expect their monthly water bill — excluding wastewater — to rise from its current average at $30.72 to $46.66 in 2022, a 52 percent increase. Wastewater rates are not part of the special election decision.

Blank checks for future rates hikes

The assertion that "voting no" on Feb. 20 will prevent citizens from giving the city a “blank check” for future water rate hikes is a complicated statement. As reported last week, the Feb. 20 special election won’t determine whether the city can raise the water rates but rather, whether city water rates are set by city ordinance or city resolution.

The claim about “blank checks” appears to address that city ordinances require four public hearings and two votes — two hearings before the city’s Legal and Finance Committee and two hearings and votes before the Rapid City Council — while resolutions require one hearing before both bodies and one vote by the council. In previous interviews, Weaver said her biggest qualm with the rate hikes was the attempt to move the rates into a resolution rather than an ordinance, characterizing it as “kind of sneaky.”

But an official opinion by former South Dakota Attorney General Roger Tellinghuisen in 1990 on the topic of municipalities setting water and sewer rates is, though cloudy, clear in one regard.

“No specific statute exists that requires water rates to be set by ordinance or resolution,” the opinion states, adding that South Dakota Codified Law 9-19-1 and 9-19-3 authorize a municipality to set its water rates in either an ordinance or a resolution.

Tellinghuisen adds that in practice, a municipality would ordinarily set the methodology of calculating water rates in an ordinance and would then pass resolutions from time to time to implement the purposes of the ordinance.

Though two fewer public hearings and one fewer council vote would be required if Rapid Citians vote yes on Feb. 20, it appears misleading to equate that with giving the city a “blank check” for future water rate increases.

Diverting water fund cash to other projects

The final claim on the postcard is that the city diverts money from the water fund to other city projects. On reformrapidcity.com, reference is made to a November supplemental appropriations ordinance that, among other things, transfers $1.25 million from the city’s Water Fund to its Utility Facilities Fund.

That money, the site asserts, is “to pay for the West Memorial Park Improvement construction project,” which will begin construction in July and include landscaping, grading and irrigation improvements. The link between the money transfer and the West Memorial park project, though, is nonexistent. More blunt, it appears to be untrue.

In reality, the $1.25 million transfer was the first installment of a loan repayment after the Water Fund originally borrowed $1.7 million from the Utility Facilities Fund, city Finance Director Pauline Sumption explained in an interview with the Journal. 

In the early 2000s, the city paid $2.7 million for water storage rights at Pactola Reservoir. At the time, the Water Fund paid about $1 million and borrowed the remaining $1.7 million from the utility fund. The $1.25 million transfer brought down the loan to $450,000 plus $51,000 in accrued interest, for a total of $501,000. The utility fund — recently combined with the city’s Capital Improvement Plan Fund for city infrastructure projects — will be paid that remaining balance in 2018, according to city documents.

A final fact check

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Though not mentioned on the postcard, accusations about a surplus in the city’s water fund and ill-timed city bonding for water projects are also made on reformrapidcity.com.

Using the city’s comprehensive annual financial report and independent auditor’s report from 2014 and 2015, the site calculates that the water enterprise fund has an average net income of $4,473,529 per year from 2004-2015, which resulted in a cumulative net income of $49,208,822 over the same time frame.

Sumption said if someone wants to make real claims against the city’s finances, they should look to its cash flow statements, not its cash balance sheet. The balance sheet doesn’t show expenses related to infrastructure improvements, equipment, capital outlay and debt repayments.

“If you look at cash balances, that’s not going to be where the numbers are,” she said of the document the website used for its accusations. When asked about the alleged $49 million surplus, she said the money went to capital outlay purchases and the repayment of debt.

The repayment of debt from past city bonding is also addressed on reformrapidcity.com. Among other things, the site claims the city over borrowed approximately $28.8 million for the construction of the Jackson Springs Water Treatment Plant, which was completed in 2013 at a cost of $28.5 million (the site claims it cost $22.3 million).

Two bonds were issued by the city in 2009 at $6 million and $45.1 million. But the Jackson Springs facility was only part of the puzzle. The first bond — $6 million at 3 percent interest with a 2031 maturity date — was used for the facility’s upfront engineering and design costs as well as the membranes that are the core of the treatment system, Sumption and Public Works Director Dale Tech said. 

The second bond — $45.1 million at 4 to 5 percent interest with a 2039 maturity date — was used to purchase the land and construct the facility along with other project costs, like a $3 million project to connect the city’s water system to the facility. A number of smaller projects were also funded with the bond, Sumption explained.

The most egregious claim about the city’s bonding comes when it assumes that the city’s third bond in 2015 for $46 million was for the city’s upcoming project to construct a new water treatment facility in the next five to 10 years. The city’s current Mountain View Water Treatment Facility, constructed in 1962, has been characterized as nearly obsolete in past city meetings.

“Why would the City of Rapid City borrow an additional $46.03 million in May 2015 when the earliest that construction would start for WTP (water treatment plant) Project Phase II is March 2019?” the site asks.

Sumption’s answer is simple: it didn’t.

The 2015 bond is actually an advanced refunding bond which, in essence, allows the city to pay off the 2009 bonds with the 2015 bond proceeds that are currently invested in an escrow account. At a lower interest rate, the 2015 refunding bond will help save the city about $4 million.

“Let’s not confuse their opinions with facts,” Sumption said of reformrapidcity.com and the postcards. “The truth is boring. The books are open.”

Weaver declined to comment, saying she would save her response for a future date.

Contact Samuel Blackstone at samuel.blackstone@rapidcityjournal.com and follow him on Twitter or Facebook @SDBlackstone.

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City reporter

City reporter for the Rapid City Journal.