Five months after raising water and sewage rates, the Sewerage & Water Board of New Orleans is contemplating a new fee — this time to pay for an estimated $356 million in drainage projects in the coming years.
Tuesday, the Sewerage & Water Board’s Finance Committee gave preliminary approval to a $296,000 contract extension with Raftelis, a financial consulting firm tasked with developing a user fee for drainage management.
Raftelis has been researching such a fee for a few years. In 2011 the firm proposed a new drainage fee, which would have started this year. The monthly fee would have been phased in, starting in 2013 at $4.21 for a single family residence and topping out at $22.74 in 2020. By then, the fee would have brought in about $63 million annually, in addition to about $45 million raised by an existing property tax for drainage projects.
In December the New Orleans City Council approved a plan to double sewer and water rates by 2020. The $600 million raised over eight years by that rate increase would fund infrastructure improvements and day-to-day operations, pay off existing debt, and shore up the utility’s cash reserves.
Little noticed at the time of the vote was a proposal for a new fee that would fund about $356 million in drainage improvements.
A December 2012 report by the Bureau of Governmental Research noted that the sewer and water rate increase “would cover only a portion of the S&WB’s capital needs. The new revenue could not be used to address drainage system needs,” estimated at $356 million over eight years.
Raftelis has been working with the Sewerage & Water Board since 2010, when it was first hired to conduct a rate study. Part of that study evolved into the water and sewer rate passed last year.
The fee is not imminent, nor is it a certainty. According to the staff report presented at the finance committee meeting, Raftelis isn’t expected to complete the policy report until mid-2014. The increase would have to be approved by the Sewerage & Water Board.
And while the City Council is authorized to set water and sewer service rates, it can’t authorize a new fee or tax by itself. According to a 1999 opinion from the state Attorney General, such a fee would ultimately require legislative action and a citywide vote.
Sewerage and Water Board spokesman Robert Jackson noted that the committee only signed off on a contract for a report, not a fee. A fee could be years off, if it’s approved at all.
“There’s nothing that’s written in stone,” Jackson said. “This is in its infancy.”
The Sewerage & Water Board’s drainage projects are currently financed by local property taxes, at a rate of 16.43 mills, but a staff report presented at Tuesday’s meeting said the roughly $41 million now produced by that tax doesn’t meet the system’s drainage needs.
The initial contract with Raftelis was for $284,000; it was amended in 2011 and 2012 for an additional $222,000. If the full board approves the finance committee report, that will raise the firm’s contracted compensation to $802,000.
The latest extension calls on Raftelis to identify specific revenue needs for drainage projects, recommend a rate structure and develop a “policy framework” and timeline for implementation of a drainage fee.
The drainage fee would largely be used to cover increased operational and capital expenses for federal drainage projects in New Orleans.
Operations expenses for drainage projects are expected to increase by more than $20 million by the end of the decade, Raftelis wrote in its 2011 report.
The board also faces increased capital costs for its 35 percent local share toward the $1.3 billion Southeast Louisiana Drainage Project, which includes citywide improvements to pump stations and drainage canals. The debt service on the local share will cost $15.4 million a year, according to Raftelis.
