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Town facing costly water woes after decades of deferred funding

May 24, 2011

NEAL P. GOSWAMI
Staff Writer
BENNINGTON — Decades of deferred attention to the town’s aging and depreciated water system is likely to cause significantly higher rates as town officials look to fund overdue improvements.

The Select Board is weighing whether additional funds raised from ratepayers should fund immediate improvements or cover the system’s depreciation. A decision on setting the water and sewer rates was delayed Monday as confusion over proposed increased rates — and how the additional funds would be used — intensified during Monday’s meeting.

Bennington Town Manager Stuart A. Hurd and Finance Director Melissa Currier have said the town should first cover the system’s depreciation. The system, a hard asset, loses value every year and the town should add cash to the fund balance to keep it level — and have money on hand to replace a fully depreciated system. Not doing so causes the system to show an annual loss.

The town is in a large hole because the practice of budgeting for depreciation has never been followed.

The water system, first constructed by Henry W. Putnam, dates back to the late 1800s. He turned it over to the town as a gift in 1912, but with stipulations. Users would pay just one-half of the their rate after the hand over was completed, and a separate fund for repairs would be established from annual fees.

“For years, the water department and the water system operated in the red, substantially in the red,” because of the restrictions in Putnam’s gift, Hurd said.

The town finally went to court in the early 1980s to drop the restrictions. Hurd said it allowed the town to set more reasonable rates and sell off land no longer used, which was used to build up cash reserves. But since then Select Board members have never addressed depreciation because of the resulting increase in rates, he said.

“The board has always been reluctant to tackle that depreciation issue because it would mean a big spike in the rates,” Hurd said. “We have to do that. It’s the best way to manage this business that is the water department. We’ve done it in the sewer department. We’ve done it without breaking people’s backs.”

Some board members expressed concern Monday over the age of the system and the threat of a major system failure in the near future. Currier presented the board with a three-year plan to raise rates and cover overdue depreciation. But that money would not be spent until the fund balance was level again.

Currier said the town’s auditors have recommended that water system depreciation be covered before other reserve funds are created for repairs.

“We need to be covering our depreciation before we can set aside money for improvement,” Currier said. “If you’re operating in the red because you’re not covering your current expenses, you shouldn’t be setting aside money for something. That’s my opinion.”

The board has received three proposed increases from the current $298 yearly flat fee. The lowest increase, with a first year increase of 16 percent, followed by 12 percent and 3 percent increases in the following two years, would result in a $400 yearly fee in the final year. An 18 percent yearly increase over three years would result in a $491 fee, and a 20 percent increase would lead to a $516 fee in the final year.

Current rates are well below the average for similar sized systems, according to Hurd. They’ve been kept artificially low because depreciation has not been factored in, he said.

In the meantime, a major system failure could be addressed by further raising rates to draw down additional money or borrowing, Currier said. Back-filling the depreciation of the system and budgeting forward in the future will allow the town to address maintenance issues down the road, she said.

“We want to do maintenance and keep things up. It hasn’t happened in the past,” Currier said.

The town has been making improvements where needed, Hurd said.

“I think that, overall, the system is in pretty good shape. Over the years we have been upgrading the system where we knew we had problems,” he said. “It’s not like the whole system is old, but certainly the core, the downtown, the old village, is.”

Terry Morse, the town’s water resources superintendent, said he believes the system requires major attention, however.

“I would say probably 60 percent of our current water main infrastructure is either in excess of 100 years old or the pipelines are too small to carry adequate water flow … or it’s a poor quality pipe that was put in the 40s, 50s and 60s,” Morse said.

Old pipes pulled from below County Street during a recent replacement project were dated to 1885, Morse said. “We believe that most of the downtown infrastructure that hasn’t been replaced in the past 30 years is of that same era,” he said. “We’ve got a lot staring us in the eye.”

A long, deep freeze could lead to serious problems, Morse said.

“I don’t think we need to press the panic button, but we need to get serious and make some improvements,” he said. “We do have to get serious about this and we do have to ask the ratepayers to really kind of start (paying more).”

The town has been completing about 700 feet of repairs each year, which costs more than $300,000, Morse said. He said the town should be completed at least $500,000 of work each year. The town has 65 miles of pipe.

“All I can say is it’s old, it’s not great pipe and we’ve got a lot of it,” Morse said. “We’re kind of on the edge. We’re playing with a little fire here. My concern is that when it happens it’s going to be a really catastrophic event.”

Morse said the Select Board has been debating the issue for several years “but when the economy tanked the board didn’t want to raise rates.” Now something must be done, he said.

“The rainy day is here and the flood is going, so where do you go? It’s a tough one. I have a hard time looking people in the eye and saying I need $100 more of your money this year. People are really struggling,” Morse said. “I don’t envy the decision the board has to make. They know that people are struggling, and some may get voted out of office, but they’re doing the responsible thing.”

Select Board Chairman Joseph L. Krawczyk Jr., who is serving his fourth term on the board but was elected chairman earlier this year, said the board has always been concerned with rate hikes.

“The goal was to keep rates down. It’s a laudable goal, I guess,” Krawczyk said. “We probably did wait too long because we know we have aging pipes.”

Krawczyk said he believes the towns should cover the depreciation of the system first and then look to set aside additional funds for repairs. The Select Board will likely have to ask voters for permission to borrow money for water system improvements, he said.

“Let’s find out the problems. I’m not afraid of coming on TV and talking about it and saying, ‘Hey, we’ve got a problem, let’s talk about it,’” he said. “I think sooner or later we’re going to have to go to the voters and say, ‘Here’s the problem and here’s what it’s going to cost to fix it.’”
Contact Neal P. Goswami at ngoswami@benningtonbanner.com

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