St. Louis Water Division warns budget shortfall; master plan and rate study slated to guide multi‑hundred‑million dollar needs

Neeraj Patel, director of public utilities for the City of St. Louis, told the Budget and Public Employees Committee on May 19 that the Water Division expects FY26 revenues of about $81.2 million against estimated expenses of about $89 million and will use roughly $4.14 million from its contingent fund to cover the gap.

The shortfall comes amid rising treatment chemical costs, higher electric costs and long‑term needs for the city’s two treatment plants and 1,300 miles of water main. “We like to think of ourselves as a water utility first,” Patel said, framing the division’s proposal as an enterprise fund that must cover its own operations and capital needs through rates and other water revenues.

The division produces an average of about 134 million gallons per day, maintains roughly 15,500 fire hydrants and more than 93,000 service connections, and operates two treatment plants with substations and pumping units that in some cases date to the 1950s–1970s. Patel said industry guidance would target replacing 1%–2% of mains annually (about 13–26 miles) but that the city’s backlog and aging assets could drive capital needs into the hundreds of millions or more.

Why it matters: The Water Division is an enterprise fund whose accounts are separate from the city’s general fund; rate revenue and grants must cover operations, capital and debt service. Committee members said they want an expedited plan so the city can sequence work, seek state revolving funds and other financing, and limit the annual impact to ratepayers.

Patel described two near‑term steps the division is pursuing: a Water Master Plan, budgeted at roughly $1.3 million, to prioritize capital projects and estimate total program cost (Patel said it could show needs “over $500 million possibly over a billion dollars” depending on findings); and a cost‑of‑service study to align rates by customer class. He said a comprehensive master plan will likely take at least a year and should be refreshed periodically.

Patel also highlighted the drivers behind the operating shortfall: a recent emergency rate increase and a forthcoming 3% CPI adjustment on Jan. 1, but continuing escalation in water‑treatment chemical costs (the division anticipates about $15 million in chemical expenses next year, up from roughly $6.2 million several years ago). The FY26 personnel services line is about $34–34.7 million; the division currently has 365 full‑time positions authorized and 275 filled, a roughly 26% vacancy rate.

Patel said the division has used contractors for electrical, HVAC, pump and motor repairs, hauling and large main‑break response while recruitment improves, and that those contractual costs total roughly $33 million. He reported 391 main breaks in FY23, 372 in FY24 and 274 so far in the current fiscal year — numbers that include both small leaks and large failures that can require months and major equipment to repair.

The Water Division is pursuing federal and state grants and has used ARPA funding for a $1 million customer assistance program and $1.2 million for capital improvements. Patel said the division also received grant funding under the Bipartisan Infrastructure Law for lead service line inventory work (initial grants of ~$200,000 plus an award and amendment totaling about $633,000) to verify service line materials and do outreach. He said the system’s 90th‑percentile lead test results are well below the 15 parts‑per‑billion action level.

Committee members pressed on financing options: bonding, rate design and how to avoid using one‑time funds to backstop long‑term needs. Patel said the master plan and cost‑of‑service study will identify priority projects, estimate debt needs and help sequence improvements so rate increases and subsidized loans (for example, state revolving funds) can be blended with available grants.

Patel gave examples of critical capital items: pumping units that can cost $2 million to $5 million each with long lead times, a $12 million intake structure project already designed, filter and chemical‑handling upgrades at older plants, and meter replacements (about 16,000 meters) and large valves in the distribution system. He said some projects could be debt financed, but the division needs rates that support debt service and noted that low rates can reduce grant eligibility under some state scoring criteria.

The committee did not take formal action on the Water Division presentation; no motion or vote was recorded. Members requested the Water Master Plan and the cost‑of‑service study be prioritized so elected officials can evaluate financing, sequencing and mitigation for low‑income customers as the division updates its rate assumptions.

Ending: The Water Division will return with details from the master plan and a proposed cost‑of‑service schedule; officials told the committee they expect the master plan to be a year in duration and that capital priorities and funding options will be essential for any future rate requests.