Liberty Hill consultants say water capital needs and growth could require about 9% annual rate increases

Liberty Hill — Consultants from HDR told the City Council on Tuesday evening that planned water-supply and storage projects and assumed customer growth would more than double the city’s water expenses by fiscal year 2029, and that the city would likely need roughly a 9% annual rate increase over the planning period unless project timing or funding changed.

Grady Reid, a consultant with HDR Consultants, told council members the city’s current water budget is about $3.6 million and that modeled expenses rise to about $8.4 million by 2029, driven largely by new debt for major projects. “Most of that is being driven by debt service cost,” Reid said. He listed two large planned projects as primary drivers: a Butler Farms elevated storage tank (estimated at $21,600,000 in 2026) and the Seward Junction Loop (estimated at $19,000,000 in 2028). Together, HDR’s project list shows just over $64,000,000 in water projects over the next five years.

Reid said HDR is modeling residential consumption at about 5,500 gallons per month and assumed 1,840 connections currently. The firm used a residential growth assumption of about 7.5% in the upcoming fiscal year, increasing to roughly 9.5% by fiscal 2029; commercial growth is modeled at about 6% annually. Reid cautioned that those assumptions are uncertain and that if growth is slower than projected the city could face sunk costs from projects already built. “Growth is good, but we always wanna make sure that as best we can that we’re a little bit conservative because if that growth does not occur, that debt or those additional expenses have to be paid,” he said.

Nut graf: The HDR presentation laid out projected budget pressure from major capital projects, proposed using impact fee proceeds to reduce near-term rate impacts, and recommended that the council review rates annually rather than locking in a multi-year increase based on current assumptions.

HDR’s model assumes the city will use some impact fee proceeds to offset debt service and reduce rate pressure. The consultants reported the city’s operations and maintenance (O&M) fund balance at about $11,000,000 and the impact fee fund at about $8,200,000. HDR’s scenario uses impact fees to pay portions of debt service, estimating transfers of about $750,000 in 2026 and increasing to about $2,500,000 annually by 2029 to keep rate increases more manageable.

Under an illustrative 9% annual increase, HDR calculated examples for household bills: a household using 7,500 gallons would see about a $7.37 monthly increase; a 5,000-gallon household would see about a $6.14 monthly increase. Reid said the firm kept the city’s current rate structure and tiers unchanged in the model and did not include potential impact-fee increases in the revenue forecast because fee revenue timing and prepayments are uncertain.

The council questioned assumptions and data consistency. One council member said the CIP in HDR’s presentation differed from prior CIP documents and asked staff to reconcile the discrepancies. City staff responded that they would meet with HDR (including James and other staff) to reconcile numbers and timing. A council member also confirmed that HDR’s rate model excludes transfers to the general fund and excludes administrative and franchise fees from the projections, consistent with prior budget direction.

HDR recommended a reserve target of about 25% (roughly three months of cash on hand) for the utility; Reid noted that the industry norm is often closer to six months but said 25% is the target given the city’s current finances. The model shows reserves dipping in 2029 when the city cash-funds roughly $600,000 in projects that year, but HDR said reserves would recover if cash-funded projects did not continue at that level.

The consultants emphasized uncertainty in long-term projections and urged annual review of rates, especially over the next two to three years while growth and project timing remain uncertain. No formal rate decision was made at the workshop; staff said their hope is to bring water and wastewater rates for council consideration at the next city council meeting.

Ending: Council members thanked HDR for the presentation; staff will reconcile CIP differences with HDR and return with refined numbers ahead of any formal vote or ordinance to adopt rate changes.