Austin officials say residents have done such a good job conserving water that the city faces a conundrum: People aren’t buying enough water to keep the delivery system in the black.
The Austin Water Utility took a $10 million hit in water sales for the first few months of this fiscal year, on top of the $27 million loss it logged last year. Correcting that shortfall could require new, higher “drought rates” that raise more money even as people use less water, according to the city.
Utility executives told the American-Statesman they are discussing new rate structures that could be proposed this summer. One idea is rates that rise as the lakes that supply Austin’s water shrivel, a concept similar to one Dallas has adopted. Asked whether the rate increase would be double-digits, water utility director Greg Meszaros didn’t rule the possibility out. To balance its books, the water utility also may deepen internal cuts.
In a sense, Austin has been a victim of its own success: Austinites have been reducing their water consumption … which means the city has collected less money from them … which is leading city officials to conclude rates must rise to bring in the money necessary to fund the 80 percent of costs that utility executives say are “fixed,” such as debt payments and some equipment maintenance.
“For a customer it can be counterintuitive” that water conservation causes higher rates, Meszaros said. “But as we reduce water demand we reduce revenue, and a lot of the costs of our operation cannot be cut. We’re just not built to absorb $27 million in losses year after year.”
This situation may sound vaguely familiar — after all, Austin has been steadily raising rates for more than a decade to pay off major investments, such as a $400 million, federally mandated upgrade of the sewer system. It is not unique to Austin, either; cities across Texas have also raised rates substantially as the drought took hold.
Anyone who has looked at Lake Travis lately saw a powerful argument for conservation. Lakes Travis and Buchanan, which are the main water supplies for Central Texas, are only about 38 percent full. That is approaching the all-time low of 30 percent, with summer yet to come. Nearly every water official says the region is in a crisis.
Largely because of conservation efforts, Austin homes and businesses have used less water each year since 2006, despite population growth and hard droughts. Utility officials say the main reason is the once-a-week watering restriction, which Meszaros said will probably not be lifted for years. Utility officials also credit public education, giveaways of low-flow toilets, rebate programs and the current rate structure, which includes progressive “tiered” rates intended to discourage profligate water use.
In the 2006 fiscal year, per-person water use in Austin averaged 190 gallons a day; in the 2013 fiscal year, daily use had dropped to 136 gallons per capita. A more sophisticated analysis, which uses a five-year average to smooth out unusually wet and dry years, shows a similar trend. Likewise, the total amount of water pumped by the water utility peaked in 2007.
Even the summer scorchers of recent years haven’t changed the basic picture.
“It used to be that in dry years, water utility revenues would go up, and in wet years it would go down. It’s still down in wet years, but now it also is down in dry years,” said Daryl Slusher, an assistant director of the water utility who oversees its conservation efforts.
The revenue shortfall is happening despite rates that have more than doubled over the past 12 years. And it is happening despite one of Austin’s worst-kept secrets: Some houses are watering during days on which watering is not allowed — and producing revenue the city would not be collecting were it enforcing its conservation rules more vigorously.
Fiscal conservatives question whether the utility should cut rebates and other programs that kneecap revenues. Environmental activists say the city should not have added nearly a billion dollars worth of debt, to be paid back over 30 years, for a water-treatment plant now under construction, particularly at a time when citywide use is declining.
For years the city had also given developers steep discounts on water-and-wastewater hookup fees, a practice the City Council recently concluded should be curtailed because it pushed water-utility costs onto everyone else.
Even Mayor Lee Leffingwell recently alluded to nonvital expenses while trying to persuade his City Council colleagues to be more cognizant of the city’s bottom line. Leffingwell noted that a few years ago, the council decided to use Austin Water Utility revenue to maintain the Balcones Canyonlands Preserve, a high-profile nature conservation effort, “because that’s where the money was.”
To deal with the expected budget crunch, the water utility has begun cutting. Its plans include: reducing conservation advertising; hiring fewer consultants to help fashion conservation strategies; signing fewer contracts, such as those for leak detection and assessment of the utility’s water distribution system; creating less-generous rebate programs; and deferring maintenance of pumps and other equipment. But utility executives expect those cuts to yield only about $4.5 million in savings.
Last year, the utility dealt with the $27 million shortfall partly by refinancing some of its outstanding debt, which saved about $5 million, said David Anders, an assistant director who oversees the utility’s finances. The rest of the shortfall was covered by borrowing money to finance some construction projects, instead of paying for them with cash. Meszaros, the utility director, said it may do an even more pronounced shift from cash to borrowing in the coming years, which would save money in the short term but adds interest payments.
Meszaros added that the utility is looking to save more money by delaying more construction and maintenance projects.
“When we’re in a cash crunch, that’s one of the big knobs we can turn,” Meszaros said.
Marty Toohey has written about local government since 2005, and has reported on Austin City Hall since 2009. He has taken in-depth looks at how Austin Energy revenue supports the city budget, the rise in government pension and health care costs and the combined burden of various local tax entities on area property owners.
By the numbers
190: Average daily water use, in gallons, per person in Austin in 2006
136: Average daily water use, in gallons, per person in Austin in 2013
$27 million: Shortfall in Austin Water sales last year
$10 million: Shortfall in Austin Water sales for the first quarter of this year
Source: Austin Water Utility