Raise water rates or seek sales tax increase — paying for city projects

ADRIAN O'HANLON III | Staff photoMcAlester city officials say they are going to raise $32.5 million over a period time to pay for water line and sewer improvements — but are still discussing how to do it.

City officials say they are going to raise $32.5 million over a period time to help pay for badly-needed McAlester water line and sewer improvements.

The only question is how they're going to do it — through increases in water rates to the city's water utility customers,  through a sales tax increase, or both.

Those are some of the questions city councilors are expected to ponder over the next few weeks until the second city council meeting in July — when they are expected to vote on one or more of the options.

City councilors can raise water rates at anytime by passing a rate increase through the city council. However, any additional sales tax increase must be approved by a vote of the people. City councilors considered several ideas during a non-action agenda item at their most recent regular council meeting, when Jon Wolfe, of Municipal Finance Services, spoke about the options.

"The key for us it look at how the city of McAlester is going to address this," Wolfe said, referring to the water projects. He said financing $32.5 million in improvements would cost the city a little under $1.5 million per year, over the next 30 years.

He said $640,000 of the annual $1.5 million is already being addressed through sales of city water to rural water districts, which saw price increases from the city go into effect in 2020.

"We need to pick up another $860,000," said Wolfe, referring to the additional amount the city needs to come up with to reach the $1.5 million annual total.

One way to do that is by raising both the base rate McAlester city water customers would pay, along with the volumetric rate, based on how much water the customer uses, he said. Wolfe suggested any rate increases could come in stages.

Implementing Phase 1 should raise around $22 million, while a second phase could be implemented the following year, he said.

Another option is increasing the city's existing sales tax by a quarter-cent, Wolfe said. An existing quarter-cent sales tax already in place raised approximately $991,000 in 2020, he said.

That sales tax would be sufficient to cover the $860,000 portion of the debt, he noted.

"We looked at it conservatively," Wolfe said.

He said the city could raise the existing water rates. "But give the voters an option, those rate increases would not take place if a quarter-cent sales tax is approved," Wolfe said.

Regarding Option 1, Wolfe said the city could do a rate increase and still be in the bottom 40% of water rates in the state.

"Our goal is to address these options tonight," he said, adding he plans to return to McAlester for the July 27 city council meeting, when the council could pass a resolution calling for an Oct. 12 election on the sales tax proposal increase.

Mayor John Browne interjected a comment about the city's water, lines and sewer improvement plans.

"These are things that have to be done and are going to be done," Browne said, saying the city could choose between the water rate increase option and the sales tax option.

"We can't continue to have water outages that drain the city," Browne said. These are critical to improving our infrastructure where we don't have boil orders."

Ward 3 Councilor Stave Cox agreed.

"It has to be done," Cox said. "We have a lot of failing infrastructure." Cox presented another option.

"We could have the rate increases on water, then go after the sales tax for roads and other infrastructure," he said.

No one mentioned the half-cent city sales tax to benefit city infrastructure voters already passed in a February 2018 election, along with separate one-eighth cent sales tax increases to benefit  McAlester Public Schools and to go toward construction of a new cancer treatment center to provide cancer care and ancillary services at the McAlester Regional Health Center.

Browne said passing a new sales tax increase it would pass some of the cost to people who don't live in McAlester, a reference to those who live outside city limits but make purchases in the city. He said a utility rate increase would have an effect on those living on fixed incomes and the elderly.

Wolfe noted McAlester is a hub for Southeastern Oklahoma.

"You can generate the same dollars by a quarter-cent sales tax," he said, saying a quarter-cent sales tax increase in McAlester would generate more than it does in the average community.

Ward 5 Councilor Billy Jack Boatright suggested asking voters to pass a half-cent sales tax increase "instead of puttying the biggest portion on the water residents."

Browne said the thinking is if a quarter-cent sales tax increased is passed, it would bring the city's total sales tax up to 10%. While the city gets 3.75% of that and the rest goes to the state and the county, Browne indicated he didn't think it was a good idea to have the total sales tax charged in the city go higher than 10% — or a dime on the dollar.

Wolfe noted his numbers on costs are based on current  interest rates the city could conceivably get at under 2% interest over 30 years. Economic forecasters say that interest rate is likely to increase.

Ward 1 Councilor Weldon Smith said the city has "bargain rates" on water and voters elected city councilors to make the tough decisions. He suggested an increase in water rates might be the best way to proceed.

"To me, sales taxes is one of the most regressive taxes you can have," he said. Smith said it would hurt people on lower incomes much more than those with higher incomes.

Former Ward 2 Councilor John Titsworth addressed the council, saying the city is already on the upper end of sales taxes.

"I won't vote for a tax increase," Titsworth said.

He was told at least 110 communities in Oklahoma have higher sales taxes than McAlester.

Since the item required no action at the time, a final vote on how to proceed is not expected prior to the July 27 council meeting.

Browne said it's important that the city have a plan in place before presenting anything to the voters.

"I think if we put another quarter-cent in there without a plan, it's doomed to failure," he said.

Contact James Beaty at jbeaty@mcalesternews.com.

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