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Cape council to consider utility rate hike

By Staff | May 16, 2009

Cape Coral City Councilmembers are expected to vote on utility rate increases Monday that could cause the average monthly bill to nearly double over five years, from $81.97 to $157.79.
Council members are not eager to pass the increase but say it may be needed to stave off defaulting on bonds related to the utilities expansion project.
“I haven’t heard any other options,” Councilmember Dolores Bertolini said. “I’m really sitting on the fence right now,” she added.
The city went into technical default on the bonds on Sept. 30, prompting a rate study and the proposed increase that waits the council’s decision.
Besides the prospect of default, the rate increase also is needed to issue more debt related to the UEP and pay for operations costs, Financial Services Director Mark Mason said.
An actual default would drop the city’s bond rating to junk status, making it expensive and difficult to borrow money.
“In order to issue the debt I need to have sufficient rates,” Mason said.
Councilmembers point out the proposed increase would not go into effect until Oct. 1, and say plans to move forward with the UEP should be in progress by then, bringing new customers into the utility system and spreading out the cost.
“It’s unfortunate you’re going to have to pass the rate hike even though you won’t actually see that,” Councilmember Tim Day said.
Recently, however, the project has experienced a series of stop-and-go votes, making progress hard to come by. Councilmembers, including Day, had cited large assessments and fees — as much as $17,000 in the SW 6/7 region — that would befall residents during tough economic times as the main reason to halt the UEP. Facing large increases and the prospect of default, council members voted to go forward with the UEP earlier this month in concept, although no specific plan is in place.
The current proposal would boost utility rates 30 percent starting Oct. 1, but Councilmember Eric Grill is counting on restarting to UEP to mitigate that increase.
He also wants to ensure that customers in SW 6/7 and North 1-8, targeted new phases of the UEP, do not have to make any payments for two years and reduce the cost of tie-in fees from an average of $1,200 to $800 by bidding them out to local plumbers.
“Once we move forward with the UEP, that (the rate increase) will come down slightly,” Grill said.
The controversial project has divided the council, but there is a general consensus on the dais that defaulting on the bonds is an unthinkable option.
A precautionary tale can be found in Jefferson County, Alabama, which contains part of Birmingham, the largest city in the state.
Jefferson went into technical default on a $3.2 billion sewer project last year and is currently being sued by its bond insurers to put the project into receivership, which would mean an outside company would take hold of the project with the ability to raise the revenue to run the system.
Jefferson County Commission president Bettye Fine Collins said the county’s adjustable rate bonds reset to much higher rates, skyrocketing the cost of the project. The county has signed multiple forbearance agreements to stave off bankruptcy. The current agreement lasts until the end of May.
“We’re not giving up, we’re not filing bankruptcy,” Collins said.
If Jefferson County does default on the bonds it would constitute the largest municipal bond default in U.S. history.
“It’s a sad story and probably one of the worst in government history,” Collins said.