CERCAP rate study: Smithsburg’s systems show operating surpluses but major CIP would require significant rate increases; council asks for a water-loss audit

Michael Harshrom, Maryland state lead for the Southeast Rural Community Assistance Project (CERCAP), presented a preliminary rate study that examined operating finances and modeled debt service for identified capital improvements.

Harshrom said the study found the water system averaged about a $434,000 net positive across 2022–2024 and the sewer system averaged about $129,000 over the same period. He warned that if the town financed the full scope of the engineering-identified capital projects using rates alone, water rates could increase by roughly 83% to cover annual debt service on that borrowing.

The consultant recommended further analysis before any rate change: a water‑loss audit to identify unaccounted water and metering issues, a customer‑class audit to evaluate tiering and commercial rates, and early discussions with USDA and EPA about grant/loan mixes. Harshrom noted industry targets for water loss are typically about 12–15% and said the town’s current losses were “hovering around 21 to 22 percent.”

Councilors asked whether reduced water loss or other operational changes were modeled; Harshrom said that preliminary draft had not included those scenarios but he could incorporate them in a revised report. Councilors agreed to request an explicit water‑loss audit and updated analysis using 2024 numbers, and to consider a commercial/customer tier to better align usage incentives.

Next steps: consultant to provide a revised draft with updated figures and to assist with potential grant and low‑interest loan applications; council and staff to evaluate water‑loss findings and integrate any recommendations into the FY27 budget and CIP planning.