Why should I pay attention to this email?

As we mentioned at the last annual meeting, rates are going up significantly. And by significantly we mean double or more.

Why do we need to raise rates?

Rates have not changed in almost ten years. Simple inflation mandates an increase. In addition, the community has not collected sufficient funds to pay for major maintenance to the system. We’ve only collected enough to cover operating expenses and do a project here and there.

That’s not enough to ensure safe, high quality water service into the future.

What work do we need to do to the water system?

Some components, like our main water distribution lines, are 50 years old. These lines, along with every other component of our system, must be replaced over time. Certain items have exceeded their expected lifespan. Other items will soon.

We need to get ahead of this and do proactive maintenance before it becomes an emergency and far more expensive. We also must build the capital reserves to deal with emergencies and ongoing maintenance into the future.

How much do we need to raise?

In 2016, Garrison engineering estimated $600K in needed capital repairs and risk-reducing measures like drilling a second well. Adjusted for inflation, this same estimate is now $800K. And, this estimate did not include other things we’re responsible for, such as culvert and ditch maintenance on our community property.

Short story: we need to double our annual income. Where today we raise roughly $50K each year, we need to raise $100K.

How did we come up with that number?

Our primary goal is to be awarded the State Revolving Fund low interest loan to pay for the engineering-recommended capital repairs. We’re talking about a 2-2.5% interest loan as opposed to 7% from a bank. This is a huge cost savings.

To qualify, we have to demonstrate financial viability in our rate structure.

Per state law, and common sense business management, each HOA must maintain a 30 year financial projection. This projection has all expenses, including annual operating costs, major maintenance project costs, and capital reserves we need to build. It then compares that against our annual income to prove we have the financial means to pay for everything. This is the “financial viability” we must demonstrate to the state in order to secure the low interest loan.

So, we created one, and determined this is what we’d need to pay for each year.

Expense	Estimated Annual Cost
Estimated annual operating expenses, increasing with inflation 3% per year	$35,000
Annual loan payment on a $100K 0%10-year loan in 2025 to pay for engineering, Small Water System Maintenance Plan documentation, cultural and environment reviews needed to apply for the State Revolving Fund low cost loans.	$10,000
Annual loan payment on an $800K 2.5% 20-year loan in 2026 to pay for new distribution lines, a second well, pumphouse fencing, storage tank replacement, and other maintenance items.	$51,000
Annual deposit into a Capital Reserve account to build up a $250K reserve in 25 years to pay for future major projects.	$10,000
Annual deposit into an Operating Reserve to cover operations costs if we fail to collect dues from members to build up a $25K operating reserve in 5 years.	$5,000
Total	$110,000

To pay for these items above over thirty years, we need to raise ~$100K each year. And, this income must increase with inflation each year to accommodate inflation-increasing costs. This project is detailed year by year in this budget forecast spreadsheet.

Okay, already. What are the new rates and how are they going to work?

Across the board, everyone pays double the base fee. That’s $1,200 instead of $600.

On top of that, the overage fees for exceeding 20,000 gallons per quarter are increasing slightly. That means those of us who water lawns and gardens, run water theme parks for their kids or other water-intensive activities will pay more on top of the base.

When do the new rates go into effect?

On Oct 1, the new water overage limit and overage rates go into effect. If you use over 7,500 gallons of water in Q4, you’re going to pay a higher overage fee in January.

Starting Jan 1, 2025 the new annual base fee goes into effect, along with the new overage fee schedule.

When will we be billed these fees?

Starting next year, everyone will be billed quarterly. This means you will be billed $300 per quarter plus any overage from the previous quarter starting in January 2025.

There will be no “statement fee.”

If you want, you can pay $1,200 in January and carry a credit on your account, but you will still be billed quarterly.

This is a lot of money. How can I be sure we will use the money properly?

Our thirty year forecast is, by definition, an estimate. Each year costs, priorities and unexpected circumstances will cause plans to change. Therefore, it’s imperative that the board communicates all plans, shares all financial records, and that members actively participate in member meetings.

All capital funded projects will be done per recommendations from a third party engineering firm and in accordance with recommendations from Washington State. These projects will be communicated to members early for feedback and questions.

Our annual budget process will detail the money we earmark for certain projects each year. All expenses are tracked in our online accounting system Wave, reconciled against the community bank accounts, and made available for inspection by members. All board documents are now stored in a centralized, online location, so that future boards will have all the information the board maintains over time.

These shared systems ensure we maintain transparency so everyone knows where the money is going and why.

What if I have questions?

We understand that this is a big change. We will be available to discuss and answer questions at the upcoming meeting on July 21st at the Stanwood Library at 2pm. You can also contact us at board@livingstonbay.org.

Thanks,
Tom Watson
President, LBCA