At its Oct. 15 meeting, the Pagosa Area Water and Sanitation District (PAWSD) Board of Directors engaged in an often-heated debate of the district’s 2027 budget, its previous financial policies and its future direction.
PAWSD board member Glenn Walsh opened the discussion of publicly disseminating the draft 2027 budget by asking if the board planned to discuss it in detail now or to publish it and then discuss it in more detail in November, as it has in previous years.
PAWSD board chairman Gene Tautges stated that he felt that the board would largely move forward with publishing the budget, but that the board owed staff “a little bit of direction” since it is “crunch time for everybody.”
“My big picture is that big revenues have to be raised. I think we should not hit our full-service customers hard again. Our wastewater customers, who are essentially our full-service customers, have gotten a 53 percent increase over the last three years,” Walsh said. “The water because of a really poor rate study has gotten only 9.27 over three years. … When I look at the big picture, the water district is in trouble, especially over the next two years, because of the double payment and the wastewater district is not in trouble, and … I think to some extent is carrying the water district right now, and that shouldn’t happen … because the folks, our full-service people, carry the whole community.”
The double payment Walsh referenced is an approximately doubled payment on the final two years of payments of the district’s loans for the Lake Hatcher water treatment plant, which will occur in 2027 and 2028.
Walsh continued that PAWSD’s approximately 3,000 water-only customers also send their wastewater to PAWSD through PAWSD’s agreements with the Pagosa Springs Sanitation General Improvement District (PSSGID), where PAWSD treats it at a reduced rate compared to other customers.
He commented that PAWSD needs to “share the pain” and spread increases across customers and fee types, including capital investment fees (CIFs) and short-term rentals (STRs).
He added that one of PAWSD’s principles is that “growth pays for growth” and that, where existing customers would have to pay for growth-related items in the future, he would like to break out these costs into a surcharge so customers know what they’re paying for.
PAWSD board member Bill Hudson stated that he largely agreed with Walsh’s points and that he wanted to have a full board discussion to have staff to answer questions from the board.
PAWSD board member Bruce Jones pointed out that PAWSD’s wastewater operations have been operating at yearly losses between $400,000 and $700,000 for the last three years while the district has undershot the overall rate increases suggested by its 2024 rate study.
He noted that the district’s water operations have been operating at lesser losses or with gains over the same period, although the losses increased significantly in 2026.
“To say that the cost of operation that’s operating in the most negative is somehow carrying the side that’s operating in less of a negative, I would love to discuss that math,” he said.
He commented that District Manager Andrew Connor’s initial budget proposal was “very reasonable” and was “at bare bones bottom” and that the board then requested further cuts, leading to the current budget, which Jones stated he did not support releasing to the public.
He added that the district has been dipping into reserves for the last several years and that the 15 percent rate increases included in the current budget would lead to the district only having 3.5 months of operating expenses in reserves left in 2027, significantly below the 12 months most governments aim for.
Jones commented that the budget is also at the floor to meet the district’s debt-service obligations and has no contingency funding for unexpected events, like freezing events.
He added that the district also has no cash to begin addressing costs from Regulation 31, an upcoming regulatory change to wastewater treatment rules that will incur large costs for the district.
The district would struggle to obtain financing on desirable terms in its financial situation, Jones commented.
“It’s my opinion that we scrap this one, go back to the original one and we raise fees 20 percent on both wastewater and water,” Jones said. “I think that that’s a little bit more than what they asked for, but obviously we’re in a position where we have depleted reserves, so we need to re-up those reserves. Then, when Hatcher gets paid off, that will give us a little more flexibility, hopefully being able to keep our rates with a Reg. 31 coming through at like a 3 to 5 percent for the next five to 10 years.”
He added that the current path would lead to large increases in future years, a situation which would be amplified by the combination of costs for work increasing and PAWSD’s lack of reserves.
“I just feel like we’re trying to bleed a radish here and we’ve done a really good job of it, but right now I think it’s time to be financially responsible and actually prepare for the future we know is ahead,” he said. “Fifteen percent is not that.”
PAWSD board member Alex Boehmer commented that, despite being a fiscal conservative, he largely agreed with Jones that the district is “kicking the can down the road” and that costs will only increase in the future.
He also stated that he researched CIFs for comparable districts and that their CIFs were uniformly lower than what PAWSD is charging and that any substantial increases in these would “make the growth problem even worse.”
He added that the district has a variety of large projects that it needs to do in the next decade and that the increased funding from not making payments for the Lake Hatcher plant would likely need to be dedicated to these projects, meaning that the district’s overall budget would not be less tight after 2028.
Jones commented that he is opposed to adding additional costs as a surcharge since it is more unpredictable and large increases could “break” many members of the community.
Walsh commented that the district’s previous rate study did “kick the can down the road” in terms of water funding and argued that looking at the budget in front of the board supported his conclusions about which fund is supporting which fund in terms of debt-service coverage.
The board then debated how much PAWSD followed the rate study and how accurate it was, and discussed how the board arrived at the idea that costs would be evenly split between growth and existing customers, which Walsh stated came from the district’s capital investment plan and how it apportions costs.
Following further debates about the division of costs between growth and existing customers and the financial status of the water and wastewater — where Walsh repeatedly expressed strong opposition to focus increases on existing full-service customers — Tautges asked how Walsh proposed to address Regulation 31 costs.
Walsh stated that Regulation 31 could cost $100 million in upgrades and that it would not be possible to accumulate enough funding to meaningfully save for the costs through rates.
“It’s going to be the mother of all debt,” Walsh said. “We can’t save our way for that.”
Jones commented that the board was not discussing saving for the costs, but improving its position to obtain more favorable debt-service terms on future debt.
“We still have to acknowledge that where we’re at right now is terrible and what we’ve asked our staff to put together here with the 15 percent on both sides of the minimum is a joke because it’s just going to increase our rate payers for the next 10 years substantially because we’re not willing to rip the Band-Aid …” he said.
Walsh objected to this assessment, commenting that he wants to increase fees more broadly across fee types, which led to a debate between him and Jones about the reasoning for PAWSD’s increases to CIFs, how to fairly distribute costs and what the economic conditions were in recent years.
PAWSD Comptroller Jack Dossett commented that he needed collaborative guidance from the board to “point me in the right direction.”
He also raised the issue that additional legal analysis and guidance would be needed before increasing rates for STRs to reduce legal exposure.
This led to a lengthy debate about how the district calculates the impact of STRs and what legal risks increasing rates for STRs would create, followed by more arguments about the division of costs between growth and existing customers.
“We owe staff some direction,” said Tautges, adding, “We need to leave this meeting getting some direction to staff.”
Walsh proposed that the board publish the current budget and that the board continue debating the budget over the upcoming months, as well as getting public input.
“We do have 30 days’ worth of public input and staff input, but on day 29 I’m afraid we’re going to still be sitting here and staff’s going to be going ‘OK, we discussed it. We had five different ideas, now we’ve narrowed that down to three, board what do you want us to do?’” Tautges said.
Walsh proposed that the board could consider the issue further and present ideas over the next 30 days and then vote on a direction to take in November.
Tautges commented that he was concerned that the staff could make very little progress on preparing the budget during those 30 days since they would lack clear direction from the board on what approach to take.
Connor commented that he brought the board the cuts and recommended rate increase it requested, “but right now there’s no path forward. I just have five different fingers going five different ways. So, what do I do with the budget?”
He added that he has been getting input from the board on the budget for the last 45 days and is on version five of the budget, but still lacked direction from the board on how to proceed.
Connor asked if the board was content with the proposed cuts included in the budget, adding that it would be helpful to have guidance on this in the meeting.
In the discussion of a proposal from Walsh to meet in a week to look at the cuts, Hudson stated that he had not looked at the cuts.
“You’ve been looking at this for 45 days, Bill,” said Connor.
“I haven’t looked at this. I don’t know what this is,” Hudson replied.
Connor stated that he had only made minor changes since the last version in September.
Hudson explained that he had not looked at the cuts since he was focused on “other things.”
Connor requested that the group go through the revisions now, which included only minor changes, adding that he only made minor changes because he received no clear direction from the board on what changes to make.
He commented that he introduced the budget early this year because he knew that it would be a difficult budget season and that he had met with or discussed the budget with all the board members, but had not received any direction from the overall board.
Walsh stated he was “impressed” with the cuts and with the “pain in the capital budget.”
Tautges added that he was also “very pleased” with the cuts.
Connor stated that the changes cut about $2 million in capital projects.
Connor then enumerated the changes, with Jones highlighting the poor condition of the infrastructure and equipment not being replaced for most of the cuts and the potential issues with not replacing them.
“These cuts were things that I can deal with moving down until another year, but they get more expensive every single year, so I’m just coming back in 2028 telling you now instead of seven breaks on this we’re up to 12 breaks and it went from $100,000 to $125,000,” Connor said. “I just want everyone to be aware of that.”
Walsh commented that he would potentially be interested in moving some of these capital projects if CIF revenues are higher than expected.
Connor stated that the projects could be left in the budget with the understanding that they should not be addressed unless the district has excess revenue.
Dossett raised concerns about this approach, given it would create a budget that outpaces the district’s actual capital funds, and that doing a budget amendment later in the year would not be extremely difficult.
Walsh commented that keeping the projects in mind and doing a budget amendment to add them if more funding is available would be a “great approach, too.”
Boehmer commented that he opposed cutting the water line repairs at North Pagosa Boulevard and Capriccio Circle and that he believed that the district needed to raise the approximately $1 million that these improvements would cost and keep it in the budget.
Tautges commented that he trusted Connor’s judgment on what projects to remove.
Connor added that he removed these projects to attempt to move the fund balance of the general fund in a positive direction and that, while he would not recommend removing these projects and having additional revenue to do them would be helpful, he could “live with” removing them.
Boehmer commented that his opinion was unchanged on the issue.
Jones stated that he also did not approve of the cuts.
“Andy has made all the cuts he’s made because … the board requested him to do it. He came to us the first time. He said this is the floor. Just because we didn’t listen to him when he said, ‘This is the floor,’ and we said ‘Hey, make some more cuts and more vulnerable-ize us,’ which is kicking the can down the road,” he said. “Then, so, if I am wanting to post the budget, I’m wanting him to post the budget that he gave us at the first meeting and if we wanna work from there, I’m fine with it.”
Jones added that he respected Walsh’s comments about the water and wastewater funds and that he would potentially support a variety of ways to get to a 20 percent increase in rates, but that he believed that the district needed to be at this level of rate increase.
“I am not a proponent of posting a budget that keeps us kicking the can down the road that’s going to put us in a massively vulnerable spot,” he said.
Connor asked if the board was content with the budget for the operating enterprise funds, which Boehmer and Jones indicated that they were not and would prefer the initial, larger budget.
Walsh stated that he was content with these budgets and with the operating accounts at present, with the possibility of adding projects back if additional revenue is collected.
Dossett commented that the budget needed to be posted for the public that night and that, in terms of changes, staff were “kind of paralyzed at this stage” without a collective direction from the board.
Tautges polled the board and highlighted that three board members, himself, Hudson and Walsh, supported a 15 percent rate increase.
He added, “You’ve got your direction now.”
Connor thanked the board for giving direction and for giving staff a starting point.
Jones commented that publishing a budget with a smaller increase now and increasing it later would create public perception issues and decrease the board’s credibility.
“We’ve gotta have a start,” Tautges said, adding that he was focused on being “totally transparent” and not on being credible.
“We’ve accomplished what we came here for, which is a starting point, and that’s gonna change, there’s no question,” Tautges said. “What direction it changes to, I’m not sure, but we owe these folks. For the next month, we can’t have sitting around doing this. They’ve gotta have direction now. We’ve given them food for thought and they can move forward, so that’s my two cents.”
Walsh commented that staff were actually “ahead of the game” compared to previous years of PAWSD budgeting processes, although he added that he knew staff did not believe him.
Connor commented that he wanted to remain ahead of the game.
josh@pagosasun.com
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