Water authority OKs reduced budget

After years of living off the spoils of growth, the Southern Nevada Water Authority might have to rely on rate hikes to pay for pricey construction projects and replace revenue lost to the economic downturn.

That was the message Thursday as the authority's board signed off on a $491.8 million budget for the coming year.

Authority chief Pat Mulroy said she wants to hire a consultant to perform a comprehensive rate study aimed at shoring up the regional agency's finances.

"We'll look at all of our rates and charges," she said. "We can't continue to deplete our reserves."

Basically, the valley's wholesale water provider could be in the market for an entirely new funding scheme, one better suited to a world without rapid growth.

The current system, which relies heavily on funds from new water hook-ups, was designed to make the valley's development boom pay for any necessary expansions to water infrastructure.

Then along came a record drought on the Colorado River, which sent Lake Mead into a free fall and spurred the authority to build a third intake to draw water from deeper in the reservoir.

Just as that project got under way, the economy slumped, the housing market crashed and the authority's main source of construction money dried up.

As a result, the authority's reserves fell from $602 million in March 2008 to a projected $328 million this July.

Meanwhile, the more than $700 million third intake project is still under construction, its completion date pushed back at least a year by major problems at the underground work site.

Next spring, the authority plans to issue up to $400 million in bonds, most of it to pay for the third intake. Without sufficient reserves in place, Mulroy said, the agency could have trouble selling those bonds.

Between 2006 and 2010, the authority saw its key revenue sources drop dramatically. That includes a 23 percent drop in sales tax collections and the near-total loss of revenue from new customers hooking up to the water system. The authority collected more than $184 million in connection charges in 2005. Last year, that revenue fell to $3.5 million.

The authority also used to receive a portion of the proceeds from the sale of federal land in the valley, but that stream has dried up as well, toppling from $80 million in 2004 to just $700,000 in 2010.

In response, officials have cut operational costs by $56 million, including $26 million in payroll cuts since 2009. The authority has trimmed its staff by 226 full-time, part-time and contract employees.

The spending plan for the coming year is $66 million less than the $557.9 million budget approved last May. Most of the decrease in spending is because of deferred debt service payments and reductions in construction expenditures.

The new fiscal year begins July 1.

Next year's budget includes a 3.5 percent increase in the wholesale delivery charge, a fee paid by the member utilities for Colorado River water.

Mulroy said the delivery charge is going up in part to help cover an expected spike in energy costs in 2014.

Roughly one quarter of the authority's operational budget goes to buy the power needed to pump water from Lake Mead and deliver it to its member utilities.

The delivery charge increase is not expected to show up on local water bills. Mulroy said the utilities have agreed to absorb the higher rate rather than pass it to customers. Including the increase budgeted for the coming year, the authority's wholesale delivery charge has gone up nine times in the past 10 years.

With the proposed rate study, Mulroy and company are looking for funding help in Carson City, where they are lobbying the Legislature to extend a sales tax measure for water and sewer projects. Mulroy said every county in Nevada has taken advantage of the quarter-percent sales tax since it was adopted in 1998.

The levy is scheduled to sunset in Clark County in 2025.

The authority wants lawmakers to eliminate that sunset clause and keep that money flowing to the authority.

"It's the only revenue source we have that allows the tourist to pay," Mulroy said.

Contact reporter Henry Brean at hbrean@reviewjournal.com or 702-383-0350.