Water Rates Unfair

On August 19, 2015 I sent the following letter to the selectmen explaining why Shrewsbury’s residential water rates should NOT be increased at this time:

TO:      Shrewsbury Board of Selectmen

Cc:       Daniel Morgado, Town Manager

FROM:  John Lukach

SUBJECT:  Public Hearing – Proposed New Water Rates: Unfair to Residents

On August 12th a notice appeared on the town website saying that the Board of Selectmen will hold a public hearing on proposed new water rates on August 25th. This is nowhere near enough time for residents to thoroughly review the memo and the materials that the Town Manager supplied with that notice, and suggest changes. But since I have followed the water rate discussions from previous years and in particular, provided the selectmen with detailed comments when the 2012 rates were proposed (e.g. my letter to the selectmen dated September 6, 2012), I am again pointing out a major problem with his proposal. Since I will be out of town on August 25th, please include these written comments in the public record of this hearing.

The overriding problem is that residential rates are substantially higher than commercial rates at medium to high usage levels, under both the current and the proposed rate structures. This is manifestly unfair to residential users. For example, under his proposed rates, a residential user would pay $12.00/Thousand over 60,000 gallons vs. a commercial user paying only $4.30/Thousand over 50,000 gallons. In other words, above 60,000 gallons, the residential rate would be 2.8 times the commercial rate!

There is no economic or conservation justification for this huge disparity in rates. Some town officials have argued that low commercial rates are needed to attract new businesses, but they provide no evidence to support this claim, and in fact, overall Shrewsbury’s low property taxes and fees are attractive to businesses compared to other towns. And do we really want to attract with our low water rates the types of commercial businesses that will use a lot of water, when our water supplies are limited? Of course not.

What has probably prevented some commercial developers from selecting Shrewsbury is the constraint on the town’s ability to pump more water. Raising commercial water rates substantially on current high-consumption commercial users would encourage more conservation, thus making more water available.

Some town officials have also argued that since sewer rates are higher for commercial users, these users’ water rates should be lower. But no detailed study has been published showing the effects of equalizing residential water and sewer rates across residential and commercial users. Until such a study is done, town officials are merely speculating, and this argument has no merit. 

So, if more revenues are needed to support the town’s water system, there is a better, fairer alternative to the Town Manager’s proposal. Raise the commercial water rate for usages over 50,000 gallons from $3.80/Thousand to $8/Thousand. Since current consumption levels in excess of 50,000 gallons is about 105 Million gallons (from page 12 of Town manager’s memo), this would raise about $440,000 ($4.20 times 105 Million divided by 1,000), assuming current consumption levels. This is $75,000 MORE than what the Town manager hopes to realize from his proposal. And even if commercial users reduced their consumption by 20% in response to the increased rates, water revenues would still increase by over $350,000. Thus no residential rates would have to be increased at this time.

What are the benefits of my proposal? It generates the additional revenue that the Town Managers says is needed without having to increase already high residential rates; and it encourages conservation by users with the highest consumption levels. But fairness would be the biggest benefit – reducing the disparity in water rates between residential and commercial users. And note that even at a commercial rate of $8/Thousand above 50,000 gallons, this rate would still be 20% lower than the current $10/Thousand rate for residential users at the same consumption levels.

Recommendation: I ask that the selectmen defer any action on water rate increases until it has more time to consider alternatives to the Town Manager’s proposal, alternatives that spread the burden of supporting the water system more equitably among users. (There are fairness issues with some of the other rate categories that I won’t go into at this time, but their rates should also be reviewed.)


John Lukach

 Encl: Letter to selectmen dated September 6, 2012