There is an ongoing debate in our country about how the costs associated with operating our society should be allocated. Southern Nevada - which has been among the most severely affected by our nation's economic woes - is a microcosm of the challenges facing our nation.
As our community was growing from 800,000 to 2 million, there was a question of who should pay for the water treatment and delivery facilities needed to provide a reliable water supply. During the 1990s, a citizen's advisory committee argued that the burden for this infrastructure should be shouldered largely by developers.
In response, the Southern Nevada Water Authority Board of Directors approved a funding formula that had nearly 60 percent of revenues for capital projects derived from new connection charges. These fees, ranging from a few thousand dollars on a new home to hundreds of thousands of dollars for high-volume customers, provided our community with a reliable water system while maintaining some of the West's lowest water rates.
Fire lines, it should be noted, were not subject to those connection charges.
The formula worked until the national economy collapsed in 2008, a disaster that hit Southern Nevada especially hard. Revenues from new connections, which reached nearly $190 million in 2005, plummeted by 95 percent in 2008. The water authority foresaw that high levels of growth would abate and planned for a slowdown. No one, however, could have anticipated the virtual cessation of new construction.
Not wanting to burden an already-beleaguered citizenry, the water authority refinanced bonds, cut staffing by 25 percent and deferred $400 million in projects in an effort to stave off fee increases.
As the water authority's reserves were depleted, though, it became apparent that the funding formula must be reworked. An external economist developed dozens of options, three of which were presented to the board for consideration. After meetings with business representatives and public workshops, the water authority approved an infrastructure surcharge based upon the size of each service meter.
People have been supportive of the need to pay for this existing infrastructure, much of which was completed years ago but is paid for with 30-year bonds similar to a home mortgage. However, as the new surcharge has appeared on water bills, some businesses have questioned the funding formula. Specifically, they have expressed concerns about paying for fire line meters, which are required by code.
The fundamental issue: Who should pay for fire protection?
To be clear, if fire line surcharges are reduced, someone else will have to make up the difference. So the question becomes, is commercial fire protection everyone's responsibility, or is it incumbent upon the property owner to pay for the facilities that protect their investment, employees and customers?
Costs associated with the fire line surcharge are based upon the water treatment and distribution infrastructure necessary to support a fire suppression system. A typical 8-inch fire line can deliver 168,000 gallons of water an hour - a volume equivalent to 80 homes running all faucets full-blast. Based upon the $5 monthly fee assessed to single-family customers, the rate for fire line meters is comparable. While a business owner might argue that he never uses the fire line, the premise of fire protection is that water must be instantly available at full volume without warning. Therefore, the treatment facilities, laterals, pumping stations and associated facilities must be sized, designed and built to meet their flow requirements.
While non-residential customers with fire lines do pay monthly service fees for backflow systems - which prevent water in fire lines from re-entering the water system to protect water quality - and a monthly maintenance fee, these costs are relatively modest and do not help reimburse the water authority for the regional infrastructure that supports fire protection for individual properties.
For a typical 8-inch fire line meter, which again was not subject to an original connection fee like all other meters, the infrastructure charge is $13.47 per day. This cost, however, is at least partially offset by the fact that Southern Nevada's businesses enjoy some of the country's lowest fire insurance rates due largely to mandatory fire systems.
In retrospect, it would probably have been prudent to charge these customers from the beginning, as this issue has arisen largely because businesses were faced with a new fee, rather than an increase of an existing charge.
During the months to come, the water authority will convene a citizens advisory committee to consider a number of issues related to water resources and infrastructure, including the distribution of costs associated with providing a reliable water supply. The business community will be well-represented on this panel, and I hope that people concerned about these issues will contribute to the discussion. Our ultimate goal is a solution that is fair to all concerned.
Pat Mulroy is general manager of the Southern Nevada Water Authority.