Ocean City Hires Consultant To Study Water, Sewer Rates

OCEAN CITY — When it comes to investing in water and sewer infrastructure while maintaining relatively low rates for consumers, Ocean City does it better than most communities, but there are likely challenges ahead.

Consultants from NewGen Strategies and Solutions are about to embark on a study that could determine the water and wastewater rates for Ocean City’s consumers for the next five years. The last study, and the rate recommendations that followed it, was completed in 2015 and is about to expire at the end of the current fiscal year.

Ocean City has contracted with NewGen to complete a new study that will set the water and sewer rates for consumers for the next five years. The town’s water and wastewater systems are enterprise funds, meaning they are subsidized entirely through user fees. Ocean City sets water and sewer rates based on the number of fixtures, and while the town has been successful in maintaining well-operating systems while keeping the rates relatively low for consumers, some adjustments will likely be needed in the rate structure at the completion of the new study.

NewGen Vice President Edward Donahue told the Mayor and Council recently Ocean City is somewhat unique in terms of water and sewer demand because of the large swings in population at different times of the year.

“Water and sewer systems are the most expensive investments a community can make,” he said. “It’s exacerbated in a town like Ocean City because of the influx of visitors. You don’t need a system that meets the needs of just your year-round residents. You have a system that can serve 300,000 people on a peak summer weekend.”

Donahue said the town has done a good job in maintaining water and sewer systems capable of meeting the demands of the masses during the summer months, but will have to continue to invest in some of the aging systems.

“I hate to be the bearer of depressing news, but you have a lot of deferred maintenance for your water and wastewater infrastructure,” he said. “You’re getting to the point some of this stuff is wearing out and you need an aggressive plan for repairs and replacement.”

That aggressive plan could mean increases in water and sewer rates for consumers, but the challenge is to continue to invest in the infrastructure without whacking the users with big spikes in rates in a single year, for example.

“The cost of water and sewer is going up,” he said. “People are used to getting water and sewer for a nominal fee for a long time and they don’t understand when it suddenly goes up. Somebody is going to have to pay for this and it shouldn’t come out of the general fund.”

While some of that sounds ominous, NewGen Executive Consultant Eric Callocchia said Ocean City has positioned itself well against major infrastructure investments and the associated costs to users.

“You all are in pretty good shape,” he said. “You’ve done a good job over the years in maintaining your system compared to places like Baltimore City. They ignored their water and sewer systems for 50 years and now they are paying the price.”

Callocchia said Ocean City has done a good job in maintaining its systems, but must continue to do so to avoid a major system overhaul and the costs associated with that.

“Your system has to be self-sufficient and the fees have to pay for the service,” he said. “The objective of this is to keep the rates as low as possible while maintaining the systems. We could maintain the same rates for the next five years and abandon maintenance, but sooner or later, 10 years down the road, that would catch up to you.”

Donahue reiterated Ocean City’s need to maintain systems capable of meeting the needs of hundreds of thousands of visitors, even if it only nears capacity a fraction of the year.

“You’ve invested a boatload of money in your infrastructure that is largely used three months out of the year,” he said. “The challenge is getting those who use the system to pay for it and not just your year-round residents.”

During the presentation, the NewGen consultants revealed many communities around the country have neglected their water and sewer infrastructure to the point they have to make major one-time investments on the backs of the ratepayers. One slide in the presentation graded most communities with a D or D-plus on several indicators. When asked where Ocean City graded out on the same preliminary indicators, Callocchia said the town was doing much better.

“You are in a better financial position than most are,” he said. “I would probably put Ocean City’s water and sewer system at a solid B-plus or A-minus.”

While any rate adjustments will likely come at the completion of the study, Donahue said the recommendation will likely be modest increases phased in over five years.

“Your rates should increase a little every year just like inflation does,” he said. “What you don’t want to see is suddenly a 20% increase in a single year. That’s what’s happening in a lot of communities.”

Donahue said the town has done a good job in maintaining reserves in its water and wastewater funds, but determining just how much to hold in reserve is a balancing act.

“What is the right level of reserves?” he said. “You need the right amount of reserve in case of an emergency, but you also don’t want to have too much in reserve to the point people say why are these things going up. We will likely recommend some nominal increases phased in over the next five years.”

Councilman Dennis Dare said the town should remain consistent in the amount of reserves in the water and sewer funds.

“I think we want to remain conservative with the amount of reserves,” he said. “What we have been doing has been successful. In the past, we’ve never raised the rates higher than the projections. We have lowered them, however.”

About The Author: Shawn Soper

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Shawn Soper has been with The Dispatch since 2000. He began as a staff writer covering various local government beats and general stories. His current positions include managing editor and sports editor. Growing up in Baltimore before moving to Ocean City full time three decades ago, Soper graduated from Loch Raven High School in 1981 and from Towson University in 1985 with degrees in mass communications with a journalism concentration and history.