LONGMEADOW — Addressing the fallout from a 2024 change to the way water and sewer usage is billed, the Longmeadow Select Board voted on April 7 to use a combination of retained earnings, a reduction to the water operating budget and an increase in water meter rate to cover a combined $530,000 shortfall.
The issue dates to July 2024, when the Select Board, in its capacity as the Water Commission, sought to change the way the water and sewer bills for the last quarter of a fiscal year had been calculated. Because the water is used in April, May and June of one fiscal year, but billed in July, the first month of the new fiscal year, the town had billed users with the new year’s water rate. Wanting to avoid retroactively charging residents, the board decided to end this practice and bill the final quarter of the year with that year’s water and sewer rates.
Because the last quarter of fiscal year 2024 was charged at the FY24 rate, instead of the higher FY25 rate, it left FY25 with less revenue than it otherwise would have brought in. When the change was made, Finance Director Ian Coddington explained that this would cause a one-time shortfall. The water division’s shortfall is $400,000, while the sewer division has a gap of $130,000.
Town Manager Lyn Simmons presented the board with three options to make up for the gap in water revenue. The first option was to completely liquidate the $273,000 Water Enterprise Fund Retained Earnings account, cut $50,000 from the water operating budget raise the water rate 12.85%, from $4.52 to $5.10 per unit, and increase the water meter rate by 20%. Alternatively, all 5,719 users’ water meter rates could be increased by a flat $70 for one quarter or hike the water rate for a single quarter by 85%, from $4.52 to $8.38 per unit.
To fix the sewer shortfall, the options were to use all but $43,835 of the Sewer Enterprise Fund retained earnings; raise the sewer rate 40%, from $3.51 to $4.90 per unit, for a single quarter or a combination of the two; raise the rate by 20% for one quarter, while using $70 of retained earnings.
Coddington recommended the first option to address the water shortfall and the sewer option combining retained earnings and a one-quarter rate increase. While it would take “a few years” to build the retained earnings accounts back to their current balances, he said these options would not unfairly disadvantage any one category of water users. “Our goal is to minimize the impact to our residents,” he said, noting some people do not have the disposable income to absorb a large rate hike.
Select Board member Josh Levine added that the idea of using the entire Water Enterprise Fund retained earning balance made him “squeamish,” particularly as the town’s upcoming report from Tighe & Bond will recommend maintaining a retained earnings balance of $1 million for both the water and sewer enterprise funds. Coddington acknowledged that the move would put Longmeadow “one accident away” from an infrastructure funding issue.
Levine opined that people on a fixed income likely do not use much water, but said he wanted to ease the water rate up instead of implementing a large hike, even for one quarter. On the other hand, the water meter rate is “still way too low,” he said. He floated a flat $35 increase to the meter rate.
Select Board member Andrew Lam agreed with Levine that the water meter rate was too low, with the least expensive meter cost of $7.25 per quarter. He was also not convinced that using the whole of the water retained earnings balance was a good idea. Any rate increase would be retroactively charging residents, the very thing the board was trying to avoid.
Select Board member Dan Zwirko said he would prefer a change to the flat rise in the meter rate because users would know exactly what the one-quarter increase would be, unlike a hike in the water rate, which depends on usage.
Select Board Chair Vineeth Hemavathi agreed with the other board members and said he would like to maintain a retained earnings balance of $400,000 to an emergency. He preferred a combination of methods.
Taking a different approach, Select Board member Mark Gold said retained earnings is essentially a stabilization fund to correct for years when the weather is wet, and less water is used and maintain the balance in dry years when more water usage leads to higher revenue. He said it had been “co-opted” for infrastructure projects and become a “water slush fund.” Instead of using the retained earnings balance, Gold suggested borrowing to fund the shortfall and building the debt service into the FY26 water rates. Lam responded that a loan may be “overly complicated.”
Hemavathi suggested a modification to the first option to fix the water shortfall. Instead of using a water rate increase, the town could reduce the operations budget, use $173,000 from retained earnings and implement a $35 flat, one-quarter water meter increase. Gold objected and said water meter rates are proportional. After some discussion, the board agreed to increase the meter rates proportionally to make up for the water shortfall.
Similarly, the board voted to close the gap in sewer revenue by using $70,000 from the enterprise fund retained earnings and implementing a one-quarter proportional increase to sewer meter rates to raise the needed $60,000.
Roadwork bonding
On a separate funding matter, Simmons said a decision needed to be made regarding the road resurfacing package funding. Borrowing for project, which bundled several road projects to address the town’s backlog, was approved for up to $5.9 million at the fall 2024 Town Meeting. At the time, the board reviewed bonding repayment options for $5.19 million and $4.78 million over 15 years, the longest term available for road projects. The higher amount builds in a cushion for contingencies. Should the entire amount not be needed, the article was written so that the balance could be used on other roadwork projects.
Simmons explained that the repayment estimates of $350,000 annually that she presented to the board erroneously included only the principal and not the interest on the bond. If the town borrowed the full $5.19 million, the yearly payments would average $442,421, with the highest payment being $492,725. If $4.78 million were borrowed, the payments would average $414,727 and top out at $446,350. The town would save more than $415,000 by bonding for the lower amount. Either way, Simmons said higher payments would impact future capital projects, as the repayment would come from the capital budget.
Levine proposed paying more the first year to lower future payments. Because the proposed police station project is delayed until a study is completed, he suggested using that funding to pay down some of the bond. Simmons told him the FY26 budget is balanced using the assumption of a first payment of $350,000.
On the question of how much to bond, Hemavathi said having a “cushion” makes sense. Similarly, Levine said the cushion may be needed considering the country’s financially volatile state. “I don’t know what the turmoil will do to our road prices,” he said.
Zwirko supported bonding for the whole $5.19 million. He said the town is obligated to fix as many roads as possible and their condition was the result of “years of neglect” over the past few decades. Hemavathi noted the town will continue using its Chapter 90 state funding to work on roads not included in the package.
Lam said he was concerned the board would be “hamstringing” the town in the future, and Gold agreed. Ultimately, the board decided to bond for the lesser amount, which will save the town more than $415,000 over the life of the loan.
