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Consultant: Colonial Beach water and sewer funds need significant revenue growth to meet coverage targets
Summary
A consultant told town leaders that operating expenses have outpaced revenues in Colonial Beach's water and sewer funds, leaving thin margins and requiring material revenue growth or rate adjustments to meet a 1.25x debt-service coverage and 50% reserve target; staff will bring updated capital plans to a follow-up work session.
A consultant presenting at a Colonial Beach town meeting warned that the town's water and sewer funds face tightening margins and will need substantial revenue growth or expense reductions to meet basic financing targets.
The presenter (referred to in the transcript as the Presenter) said the water fund's 2024 audited operating revenues were about $1,087,000 and nonoperating revenues roughly $145,000. "Net revenue available for debt service" was about $520,000 in 2024, while current water debt service was about $418,000, leaving only about $100,000 net after debt service, the Presenter said. He noted operating revenues have grown roughly 2% annually while operating expenditures have grown about 13% CAGR over a six-year span.
"Operationally '... we've got operating expenditures that are growing much more quickly than operating revenue," the Presenter said, summarizing the structural problem. He said that, under current assumptions, the water fund had modest capital needs in the near term (about $200,000 between FY26 and FY27) and that the priority project is water-meter replacement (funded through ARPA in the model). The presenter also said there was no expectation of issuing new debt for the water fund under the current capital plan.
On the sewer side, the Presenter described stronger revenues but similarly rapid expense growth: operating revenue for 2024 was reported at about $2.9 million, operating expenses about $2.5 million, leaving net revenue available for debt service about $437,000 and net after debt roughly $38,000. He said the sewer fund finished 2024 with reserves equal to about 83% of the budget and carries roughly $4 million in debt, with payments more front-loaded in earlier years.
The consultant laid out three scenarios and said the most important (operations-only) scenario would require about 13.9% annual revenue growth (roughly 37% over four years) to achieve a 1.25x debt-service-coverage target and maintain cash equal to at least 50% of budget. "We're looking at making increases for revenue growth in that order of magnitude to get the operations back to a sound footing," he said, adding that revenue growth could come from new customers, increased flow, or rate increases, and that expense management or reimbursement (DEQ/ARPA) could reduce the needed revenue.
The Presenter flagged a modeled Capital Improvement Program (CIP) of about $2.8 million (a narrower package than earlier larger lists) and noted that some projects are eligible for DEQ reimbursement and additional ARPA reimbursement if the town spends first and applies for reimbursement. He recommended town management update capital plans (3-, 5- or 10-year) to refine timing and costs and scheduled a follow-up work session to dig into the options and data the council said it wanted.
The meeting record shows council members urging better public education about the trade-offs (costs vs. repairs) and asking staff and the consultant to return with more detailed capital lists and timing. The Presenter emphasized the modeling targets (1.25x coverage and 50% cash) as the basis for any borrowing discussions with lenders.
Next steps recorded in the meeting: staff will coordinate updated capital plans and funding scenarios and present them at a follow-up work session for further council consideration.
