Questions Answered

We answer questions all the time from people that contact us directly. However, a lot of questions and comments are online via social media and never get directly asked to us. To answer some of them and to help the citizens better understand why things are the way they are, I will attempt to answer the main ones in this message.

Question – I thought the citizens of Centerton voted a few years ago to have a tax in place to fund water and sewer plants. If I am remembering correctly, can you tell me the status of those developments and what the money is being used for?

Answer – I am not aware of any tax passed by Centerton to go towards a water or sewer plant. I came here in 2012 and nothing was passed resembling a tax for water or sewer since then. Also, by 2012, the Arkansas Department of Environmental Quality (ADEQ) had stopped issuing permits to municipalities to build new sewer plants. This all stemmed from lawsuits where Oklahoma sued several NW Arkansas cities along with several poultry processing plants and poultry farmers for discharging too much Phosphorous into the rivers going into Oklahoma. Too much phosphorous in rivers and lakes causes an overabundance of algae. In a settlement with Oklahoma, ADEQ has required cities to partner up with a neighboring city to treat their wastewater. In addition, ADEQ has lowered the phosphorous limits plants can discharge. This added nearly $10 million worth of infrastructure that each city had to add to accomplish this lowered discharge amount.

During Centerton’s early years, Bentonville took Centerton’s wastewater. Over that period, Bentonville kept raising sewer rates, sometimes twice a year. In turn that caused the fee Centerton had to charge to its residents to be very high. This fee was just barely over what Bentonville was charging us and it was barely enough to cover expenses. Their last increase was back around 2014, sorry no exact date, but we absorbed that rate and did not pass it on to the customer. Then when NACA, a regional wastewater treatment plant came online, Bentonville so much as told us we had to disconnect from them and find another source. We know they wanted us to go to NACA as it would have ultimately saved them money. See below for further information on NACA.

Since ADEQ was not issuing new discharge permits for new plants, Centerton had a decision to make. The options were; 1. Stay with Bentonville (As noted above, not a possibility), 2. Go to the new regional wastewater plant south of the airport called NACA or 3. Find another partner.

1 – Staying with Bentonville was not an option as they wanted us out. In addition, we had no say in anything because we were just another customer to them. They could continue raising rates and there was nothing we could do about it.

2 – When we were looking at options, NACA was one of them. We looked at what our cost would be and as it turned out, their rates were going to be higher than what we were paying Bentonville. It became apparent that our rate per 1000 was going to be near $12-$13 per 1000 gallons. Our rate has been $7.99 for nearly the last 9 years. Also, luckily, we did not go down there. Recently the sewer lines transporting raw sewage to the plant from the Bentonville area failed. The replacement cost is $38 to $42 million dollars. That was not included in the rate structure originally and would have had to have been paid for by all using the line, Centerton & Bentonville. In addition, now with Bentonville’s growth, the plant is having to add on to handle the extra flow. This estimate is $30-$50 million. We too would have been on the hook to help pay for that. Simply put, it would have caused the city of Centerton to shut down as no one could have afforded to pay their sewer bill.

3 – Luckily, the city of Decatur approached us in 2013 and opened discussions about “partnering” with them. They had a new plant but were in extreme danger of defaulting because “Peterson Foods” was closing and ceasing operations. They were a large poultry processor and were the primary customer of Decatur. After studying the option and evaluating the cost, it turned out that sending our waste to them was the best option. Even after spending $10 million dollars getting the lines installed and upgrades to the lift station to transport the sewer over there, there was no need for a rate increase. Actually, this helped stabilize them. We could not decrease the rates, but it has helped us avoid a rate increase.

Regarding a water plant. There are only a couple of cities in NW Arkansas that still produce their own water from wells or rivers. The rest, Fayetteville, Springdale, Rogers, Bentonville, Centerton, Bella Vista, and multiple other cities get all their water from one of two producers, and it all comes from Beaver Lake. It is simply too costly to own and operate your own water treatment plant these days.

So, the short answer to the original question: If a tax was passed, we know nothing about it.

Question – The water rate debate is clearly one that comes up frequently. I believe citizens in our community are starting to get tired of excuses and having their concerns dismissed. I feel like this city could be much better than what it is right now, and a good starting point would be to address the water rate concerns.  

Answer – No complaints that get submitted to Centerton Utilities has ever been ignored or dismissed. However, on social media, a simple one-line sentence can start all kinds of conjecture. For these reasons, we try not to comment on social media. Many times, I have personally addressed complaints and concerns. However, rarely does anyone share our comments back to social media. Don’t know why, but it simply gets dropped until the next person steps up and complains.

Rates are usually what everyone talks about. Well, here are the facts and the reason the rates are where they are.

Centerton is a new city. Yes, it has been around since the early 1900s but it had no infrastructure. There were only a little over 300 residents as recent as 1990. The city didn’t start growing until the middle ’90s. That means the city, for all intents and purposes, is only about 30 years old. Why does this matter? Simply put, Centerton, only in the past 30 years, has had its infrastructure installed. It was installed at material costs from the ’90s until now. Almost every other city around us has had their water and sewer lines in the ground since the early 1900s and most of them were paid off a long time ago. Most of those cities obtained free funding, or grants, back in the WPA days after reconstruction acts. We have never received any grants. Everything we get installed is at full cost. We are trying to get some of this “American Recovery Act” money that is floating around out there but it is not easy. NWA is considered to have a higher affluent population and does not always qualify for some of the free money out there.

As mentioned earlier, Centerton Utilities receives no tax dollars from the city. Everything we do is solely paid for by money collected through the rates for service, that are paid by the customer. We do not have a water plant, as most in NWA don’t, we do not have a sewer plant and cannot get one, so we are extremely limited on what we can do.

• We are just recently able to build an administrative office. Before that, we were working out of a shop building.
• For a city our size, we are extremely short-handed. It is hard to put people on to keep up with the growth, but we are slowly doing that without raising rates.
• The city has grown so fast that now the system is going to have capacity issues unless we do some more upgrading. We have over $30 million in infrastructure needs that somehow need to be funded. As mentioned, we are doing everything we can do to get some of the “American Recovery Act” money. However, there are no guarantees. To help determine the correct path, we have contracted a firm called “Tischler/Bise” to conduct an evaluation of our system and determine how we can charge builders capacity fees to help offset these upcoming projects and not have to pass it along to the ratepayer.

The rates we charge just barely cover what is required for debt coverage, which is required by State law and the bonding agencies. We have had only one rate adjustment since I have been here (9 years). That adjustment was not an increase in the per 1000 rate but all we did was simply remove the free 1000 gallons which were built into the base rate. All rates are made up of two parts: the “Base” rate and a “per 1000” gallons rate. The base rate is dedicated to paying for bonds and any fixed costs. The per 1000 rate pays for the O&M costs (Utilities, payroll, repair parts, supplies, any non-fixed fees). Currently, we as a system are paying for close to $30 million in bonds and loans.

Another Question – Why are the rates so high?

Answer – It all stems back to our bonds and how much is owed on the system. We currently have a system debt of approximately $30 million. (The cost of building the infrastructure needed to maintain the system and its extraordinary growth) Monthly bond payments run over $150,000 per month. By the time you add all other costs to operate the system, it takes every bit of what we bring in to cover the current costs. As mentioned earlier, we are waiting on the study to come back to tell us how we can get the builders to help pay for some of the new debt, another $30 million, that is going to be occurring within the next 1 – 5 years.

It is not legal for us to charge “Too Much” in rates. By state statute, we can only charge what is necessary to maintain and operate the system and set a small portion aside for upgrades and repairs. Yet, on the other hand, we are required to charge enough to cover all expenses. A new law just passed, requires systems to do rate studies every five years and charge what the study shows. If we as a system refuse to do that, the state will step in and take us over. They will then get another nearby system to assume our debt and assume operations. Believe me, Centerton does not want that.  

There is a lot that goes into calculating these rates, which includes bonds and other loan debt, Utilities, payroll, depreciation, general O&M costs, and the very difficult task of trying to predict what is needed for the future growth of the city. Please note, other water systems whose rates are close to ours, are also cities that have and are experiencing growth similar to us.

To keep up with the growth, that is still happening here in Centerton, we are going to need several major projects funded and completed. As it sits now, that can only happen with rates and additional fees charged to builders. The only other option is for the city to pass a new tax and dedicate it to paying for some of the new bonds/money needed. However, that’s not a good option as Centerton does not have a large commercial presence (tax base), so that too would be very difficult, and the required tax would be too large.

As we all know, no one wants to have a tax increase. The new “Capacity Fees” currently being developed, will be charged to builders and not the ratepayers. Development has brought many nice things to Centerton, but it comes at a cost. It is our stand that it is only fair to have the ones creating the need for the upgrades and new infrastructure, help cover these costs.

If you have questions, please ask us. Honestly, the best way to get answers to your questions is via email and not social media. I am happy to answer what I can as quick as I can. As you can imagine, we are busy, so please be patient. You can CLICK HERE to send a message to me directly. We really want people to know what is going on.

Frank Holzkamper, Director for Centerton Waterworks and Sewer Commission