The Inverness City Council took a step toward implementing utility rate hikes after directing its city manager this week to write up the paperwork that would enable the price increases.

Behind the likely 2.5% rate hike are city staff and utility consultants’ warnings that the department’s revenues are not keeping up with operational costs and needed capital improvements.

Four of the five city council members, with Councilwoman Linda Bega absent from this week’s council meeting, supported the rate hike.

“The rate increase appears to be nominal,” said Councilman David Ryan.

He said the proposed increase would not significantly harm customers.

“I don’t think it will hurt them,” he said.    

Councilwoman Jacquie Hepfer said that the operation must have enough money.

“I’m in favor of going forward with it,” she said. “Gotta function.”

The council voted to direct City Manager Frank DiGiovanni to create an ordinance raising the rates for its customers 2.5% annually for the next five years. The council will hold its first and second hearing on the rate hike next month.

“The increase is modest,” said Councilman Cabot McBride, adding that the increase would provide “a lot of bang for the buck.”

Currently, the utilities rates are tied to the country’s consumer price index, which measures changes in the price level of household goods and services. That would change with the annual 2.5% hike.

In the spring the city hired Maitland-based Public Resources Management Group Inc. to review the city’s utility rates and whether there would be enough money to pay for about $10 million worth of improvements and expansions to the utility. The utilities serve about 4,200 water customers and 2,400 wastewater customers.

If the council approves the 2.5% increase, an average residential family would see an increase of $1.53 per month. Currently, the average residential bill for both water and wastewater service is $61.53 per month.

The utility consultants recommended the hike to begin fiscal 2019-2020. Even with the hikes, Inverness’s rates would be about average compared to neighboring municipalities.

If rates remain the same, the city’s water and wastewater revenues for fiscal 2019-2020 are projected to be $3.88 million, according to Public Resources Management Group, Inc. That’s expected to increase to $3.95 million by 2024-2025, due mostly to additional customers.

The problem is that within two years, revenues won’t be enough to cover expenses, according to the consultant’s report.

Expenses include new capital improvements, operating expenses, debt-service payments and transfers to the general fund.

The utility also pays about $400,000 annually in debt payments for the system.

So, expenses for both water and wastewater for 2020-2021 are expected to reach $4 million. Revenues are expected to be about $100,000 short of that in 2020-2021, according to the consultant’s report. The proposed 2.5% hike each year would generate enough to cover expenses into 2024-2025.

With the increase, the utilities department would also be able to transfer an additional $50,000 annually into the general fund for a total of $525,000.

The utilities department has about $2.5 million in reserves.

Consultant Murray Hamilton said that in the past the city has had to subsidize some utility projects.

“Obviously, that strategy is not sustainable,” he said.

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Contact Chronicle reporter Fred Hiers at fred.hiers@chronicleonline.com or 352-397-5914.

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