http://www.azcentral.com/community/tempe/articles/0303tr-water0303Z10.html

Tempe water savings a Catch-22

Jahna Berry The Arizona Republic Mar. 3, 2006 12:00 AM

The city's water fund, which encompasses water, sewer and flood irrigation services, faces a projected $9.4 million shortfall this fiscal year.

While the city will probably cover the losses with its estimated $63 million water fund reserve, decreased water consumption and infrastructure costs may spur annual deficits for several years, Tempe's city manager and financial expert say.

The Tempe City Council will hear a presentation on the issue March 23.

"The good news is our (water) conservation program is working," said City Manager Will Manley. "The bad news is that our conservation program is working."

The predicted red ink comes after the council approved a three-year water rate increase in 2005, starting with a 9.5 percent hike that took effect in November.

Even before the recent projections, the city's staff has said that more rate hikes could come in the future, Tempe Financial Services Manager Jerry Hart.

Several factors have created the shortfalls, Hart said.

The water fund is almost entirely dependent on consumers water use for revenues and overall water use is down, though this year's long dry spell may change that, he said.

"My guess is the (consumption) numbers will go back up a little because we haven't had rain," Manley said.

Also, Tempe is in the midst of a five-year $200 million capital program to upgrade its water and wastewater facilities. And while Tempe residents are using less water, the city still must pay for fixed overhead.

"Because of the city's huge capital program in wastewater and water, for the foreseeable future we would need several rate increases," Hart said.

For now the city will probably dip into the water fund's reserve to cover the shortfalls, but it's unclear what the city's long-term strategy will be.