Cotulla must raise water rates to meet debts

Cotulla city councilors learned earlier this month that they have few options but to raise water utility rates for their residential and commercial customers every year until at least 2028 if they hope to bring the utility into self sufficiency.

Under discussion at the council table is a vote to set an automatic rate hike of at least 4.6 percent for residential customers and a slightly greater hike for commercial connections, effective every October.

For residential customers using approximately 10,000 gallons a month and presently paying around $53, the proposed hike adds less than $3 to the monthly water bill.

The actual average water bill, however, is under $41, which means Cotulla residents are paying about $22 less per month than those in many other South Texas cities.

Cotulla City Hall reports that it presently services nearly 1,700 customers with water connections.

In a presentation to the council on Thursday, July 11, Capex Consulting representative Jeff Snowden said he has found that Cotulla’s water service ranks among the cheapest in the region in cities of similar size and demographics. That low rate, however, has continued during a time of rising inflation and higher operating costs, meaning that Cotulla’s general fund has been subsidizing the water utility to the tune of more than half a million dollars a year.

Snowden told councilors this month that the city cannot hope to secure a $6 million loan in 2025 to upgrade its water and wastewater systems while its revenues do not meet expenditures.

The city is positioning itself to apply for a $20 million award from the Texas Water Development Board (TWDB) for vital system upgrades, and a large portion of that money will take the form of a forgivable loan, meaning that $14 million is effectively granted. The remainder will be repaid, although that debt service cannot be added to the municipal burden while resources are channeled into supporting the utility.

“You have experienced very modest growth since 2004,” Snowden said at the July 11 meeting.

The consultant said the long-term expansion of the city takes into consideration a spike in activity brought on by the energy industry development over the Eagle Ford Shale. “You have seen some decline in numbers since the high of 2014-15, and since 2018 you have not grown any revenue.”

Snowden and City Manager David Wright said they have tracked inflation as the principal factor behind a rise in the cost of operations while the city has not raised its rates.

“Prior to that, you were a stand-alone utility,” Snowden said of the water service. “You have since had a flat revenue stream, but your expenses have gone up by a minimum of fourteen percent per year.”

The city of Cotulla is currently making payments on a total debt of more than $20.8 million, almost all of which relates to water and wastewater utility service, water supply, pipelines, repairs, water wells, storage tanks, and pumps.

The debt service amounts to over $716,000 a year and will rise to nearly a million dollars per year in 2025 if Cotulla secures a loan from the TWDB.

A rate hike will be necessary, according to Snowden, if Cotulla is to make any progress toward further improving its service.

The council decision may not sit well with many utility customers on limited income.

“You are delivering a high value to your citizens,” Snowden said, adding that the cities of Pearsall, Three Rivers, Jourdanton and Dilley are currently undergoing utility rate studies and may likewise discuss hikes. “You are the lowest in your peer group.”

At its present trajectory, Cotulla will experience what Snowden described as a $350,000 negative revenue by 2029.

Snowden’s suggested rate hikes, occurring annually, will mean that the average Cotulla household may pay around $66 per month for its water by the end of 2028.

“If cities raise their rates by five percent per year, Cotulla still provides the lowest rate,” the Capex consultant told the council. “You will still be the lowest in the area, excluding Premont.

“This rate plan eliminates subsidizing the water utility in ten years,” Snowden said. “These rates bring you to a point of being cash-flow positive.”

“We ran efficiently,” the city administrator said of Cotulla’s water service in the years leading up to the Eagle Ford boom, “but we have sacrificed services to do it. Every department is being subsidized. We have not been able to do any roads. The county has done the roads.

“The ten-year plan is more manageable,” Wright said of the gradual rate increases. “This is probably negligible, compared to other rate increases.”

“We held out as long as possible,” Mayor Sandra Luna said of the city’s unaltered utility rates. “It’s time. Everything went up in price during and after the pandemic.”

The city administrator conceded that Cotulla’s revenues have dwindled, meaning that the general fund will likely become unsustainably constrained and may no longer support utility subsidy.

City finance director Ernesto Garcia III reported this month to councilors that sales tax payments to the city have shrunk, and both he and Wright have attributed the change to continuing road construction reducing access to local shops and highwayside travel centers.

The June sales tax payment to Cotulla from the state of Texas totaled only $167,000. The previous month, Cotulla received over $198,000. While the July payment reached $184,000, Garcia said, the general trend puts the municipal income at ten percent behind pace.

“We are a little behind,” Garcia said. “It’s time to go in that [rate hike] direction. We need to keep up if we are going to provide high-level services.”

Wright said this month that a repeat of the low sales tax revenue puts City Hall at risk of not meeting staff payroll.

Councilors voted at the same meeting to raise the minimum starting wage for municipal employees to $15 per hour. Payroll for less than half a dozen entry-level staffers, however, will be affected by the decision.

“These are the kind of investments you want to make,” City Attorney Steve Pena said of a proposed rate hike that would reinvigorate the utility fund. “Take these actions proactively. The citizens may think they are paying too much, but the only way out of it is to grow your way out of it. Create the pathway for economic development.”

“In the long run, it will affect us if we don’t take action,” Councilor Manuel Rodriguez said on July 11.

Councilors will be offered a rate hike for a vote at their August 8 meeting. Snowden will present the results of his study of the gas and other utility services at the council’s upcoming meetings and may recommend further rate hikes.