At a June 25 special meeting, the City Council approved no increases to Water & Sewer volumetric rates for Fiscal Year 2025. Retained Earnings (past profits run by the Water and Sewer enterprise funds) and Free Cash were used to balance the two enterprise fund budgets for FY25, but these were stopgap measures just to make it through FY25. We'll have to wait to find out the ramifications for the City in terms of future Water & Sewer rate increases and potential delays or cancellations of some of the flooding mitigation projects in the pipeline. But how did we get here?

This was the culmination of a tension that began 12 months earlier when the council narrowly approved a revised FY24 Water & Sewer rate proposal, but indicated we wanted to see movement on filling vacant positions in Water & Sewer next time around to reduce additional costs borne by ratepayers to pay for outsourcing required as a result of mass vacancies. A number of us were explicit that we wanted this staff vacancy issue addressed with increased compensation during FY24 or we would take a different view of rate increases in FY25.

To be clear, the additional costs of outsourcing water and sewer maintenance and repairs is not the main driver of these rate increases. In FY24, for example. the total cost of outsourced work -- including overtime and emergency repairs -- was around $2.4 million. Meanwhile, there were 10 vacant Special Heavy Motor Equipment Operator (SHMEO) positions in Water & Sewer. These positions paid $60,000 per year, but it's not just a matter of $2.4 million being four times as expensive as doing that work in house ($600,000 = 10 vacant positions multiplied by the $60,000 salaries).

Now, it's been pretty well proven that we can't fill those vacant SHMEO positions at that salary. From looking at nearby communities, a more reasonable salary figure is $70,000 for these positions. And employee compensation doesn't consist of salary alone. It's a general rule of thumb that employee benefits cost an employer the equivalent of an additional 50 percent of salary. So let's say the true cost of fully-staffed Water & Sewer SHMEOs is just over $1 million ($700,000 total salary costs multiplied by 1.5 to account for employee benefits, for a total of $1,050,000).

Now, that $2.4 million paid to the contractor who did Water & Sewer maintenance and repairs in FY24 represents both work we're forced to outsource because of vacant positions as well as work that would need to be performed by an outside contractor regardless of our staffing levels. (Typically because specialized equipment is required that we don't own ourselves.) When I've asked for a rough breakdown of this work, I'm told between 25 and 35 percent of that work still would need to be done by an outside contractor even if we were completely staffed and operating at full in-house capacity. So let's be conservative here and say $1.8 million of that $2.4 million was for work that could've been done by City employees if we were fully staffed up.

That means that the true cost of outsourcing in this scenario is around $800,000, or an additional 80-percent premium on what it would cost us to do this work internally:

While nowhere close to the 400-percent premium as might initially appear to be the case if you weren't considering the factors mentioned above, this is still a decent amount of money we spent because we couldn't figure out how to pay competitively. And it definitely contributes to a small degree to the need to raise Water & Sewer rates.

A much more consequential factor is the looming debt service obligation when we bond out $84 million for the Poplar Street Pump Station later this fiscal year. That one bit of borrowing alone is going to immediately add around an additional $4.5 million in debt service in FY26. A number of City Councilors have lamented the decision to only dedicate $10 million in American Rescue Plan Act (ARPA) funding toward the cost of the Poplar Street Pump Station. Had we taken a different approach and spent, say, an additional $20 in ARPA funds (bringing the total to $30 million) to reduce the bond required for the project to $64 million, we're looking at a very substantial debt service savings over the course of that bond repayment.

And had we done both -- dedicate more ARPA funds to sewer infrastructure work and staff up Water & Sewer -- we likely wouldn't be staring at daunting Water & Sewer rate increases year after year to fund these sewer projects. But that's not the world we live in, so we were given a choice as a council of continuing to aggressively raise Water & Sewer rates to pay for the work that needs to be done, or causing financial upheaval and potentially imperiling planned crucial sewer projects if we opted against these rate increases.

Meanwhile, we routinely hear from constituents who aren't sure whether the large Water & Sewer bill they just received is due to rate increases or the very problematic issue with the City's old water meters ceasing transmitting, resulting in estimated bills and then large true-up bills when those non-transmitting meters are replaced and actual water usage is billed. And renters are being told by their landlords that significant rent increases are due to increased water and sewer costs. 

When councilors are presented with proposed Water & Sewer rate increases, it's common for this to be explained in terms of the average increase to a customer's bill. While this can be helpful to consider the real-world impact on rate-payers, it also tends to psychologically minimize the effects of a rate increase. Hearing that the original proposal of 9.5% (Water) & 5% (Sewer) only would increase the average single-family property's annual bills by $69 and the average triple-decker's annual costs by $187 in FY25 tends to sound pretty innocuous:

The problem with looking at increases like that every year is that these year-upon-year increases build on past increases. From FY22 to FY24, our Water rate already had jumped over 23 percent and our Sewer rate over 27 percent in just two years. When Water & Sewer presented their initial FY25 rate proposal to the Finance Committee, I pointed out that Somerville customers already pay the second-highest total among all 61 Massachusetts Water Resource Authority member communities. The 2023 Annual Water and Sewer Retail Rate Survey by the MWRA Advisory Board estimates the cost paid for the same typical amount of annual water usage by a customer in each MWRA member community using FY24 rates:

And this was just Year Three of what now was going to be seven years of planned steep increases to pay for this necessary infrastructure work:

The FY25 rate proposal presented to the City Council on June 17 had a typical single-family annual Water & Sewer bill going from $1,017.39 in FY22 to $1,962.93 in FY29 -- essentially doubling over a seven-year period. The Finance Committee signaled we would not be recommending approval of the original FY25 Water & Sewer rate proposal that would've raised Water rates by 9.5 percent and Sewer rates by 5 percent.

The Administration then came back with a revised FY25 Water & Sewer rate proposal of an 9.5-percent increase for Water and no increase for Sewer that narrowly failed to gain council approval by a 5-6 vote on June 20. This meant the only option left was no increases for Water or Sewer in FY25, and these unchanged FY25 rates were approved unanimously by the council on June 25.

I did debate voting No on the unchanged rates just because I expect we'll now see one or two really vital flood mitigation projects already in motion get put on hold or possibly even canceled altogether. With climate change resulting in more extreme rain events with each passing year, we need to be addressing flooding in our city. So it feels irresponsible to be putting these projects on the chopping block by refusing to approve even the modest 3% averaged increase in the revised FY25 Water & Sewer rate proposal.

I'm also concerned that even if we hit the pause button on one or more important sewer projects and Water & Sewer manages to fully staff up in FY25, we'll still be backed into a corner as far as the FY26 rates, with the debt service for the Poplar Street Pump Station going onto the books next year. Look at the projected rate increases in FY26 and beyond with the unchanged rates this year:

The temporary funding to keep things afloat this year won't be possible in future years, and the correction to get our Water & Sewer enterprise funds back on track financially is going to result in steep increases. All this adds up to a very messy situation where we need to pay for significant, important, overdue infrastructure projects but it feels like we've already raised rates substantially and are putting too much of these on the backs of rate-payers. This year the council chose to kick the can down the road, so we likely will be faced with some really unpleasant choices next June as a result.