At a June 25 work session, the Pagosa Area Water and Sanitation District (PAWSD) Board of Directors discussed the district’s current revenue issues and loan obligations, ultimately deciding that no fee increases or surcharges would be needed this year.
This decision contrasts with previous discussions where the board talked of large fee increases and the imposition of surcharges to cover shortfalls in capital investment fee (CIF) revenues.
PAWSD Comptroller Jack Dossett opened the discussion by recapping the district’s budget situation and its impact on the district’s debt service coverage.
He explained that the district has a budget shortfall due to lower-than-expected CIF collections this year.
This situation is exacerbated, Dossett added, by the fact that the district’s budget this year counted grant revenues as part of its income for the purpose of debt service coverage when grant revenues cannot be counted as income for the purposes of debt service.
He stated that he previously estimated that the district was between $800,000 and $825,000 behind where its revenues needed to be.
However, since then, he explained, he had learned that the district’s most stringent debt service coverage ratio for its debt was 1.1 instead of 1.25, reducing the shortfall by about $550,000 to around $250,000.
Debt service coverage is a ratio of income to expenses for a lendee that is required by lenders to ensure that the lendee can continue to pay back its loans.
As Dossett previously explained, violating these debt service coverage requirements could make getting favorable terms on loans more difficult in the future.
PAWSD District Manager Andrew Connor stated that the lower deficit is “a lot more manageable.”
Dossett added that he and Connor believe that this smaller shortfall can be managed with budget cuts, assuming no large unexpected expenses emerge in the remainder of 2026.
Next, Connor reviewed the proposed budget cuts to make up the shortfall, with a focus on large items that would significantly impact the debt service calculations.
He explained that the cuts include scaling back pipe upgrades for pipelines that are currently functioning well, removing funding intended to cover equipment failures at booster stations for equipment that is functioning effectively and which PAWSD currently has spare equipment for, and cutting operations funding for plants where the district is currently running below budget and has backup equipment.
He noted that these reductions reflect the reality that the district is halfway through the year and that the annual budget must be built around potential worst-case scenarios, which have not occurred at the district’s facilities this year.
Connor stated that he also recommended reducing the maintenance budget for the new Snowball water treatment plant since progress on the plant is slower than expected and the construction contractor is handling warranty claims that PAWSD would otherwise have to find money to cover for before getting reimbursed if equipment fails.
He also recommended reductions in the chemical budget for the San Juan water treatment plant since it is running below budget, a small reduction in the water line maintenance budget to reflect that the district did not incur expenses from significant water line freezing this year, a cut to the fire hydrant maintenance account since the system was assessed last year and a cut to the budget for consultant services, which is currently tracking below budget.
Connor then moved to discussing cuts for the wastewater system, including cuts to the sewer line maintenance account due to the large amount of ongoing capital projects happening on the system and to the maintenance account for the Vista wastewater plant due to it tracking below budget.
Dossett commented that he believed these cuts, along with other smaller cuts, would meet the budget shortfall, making an additional surcharge unnecessary.
Connor added that he would advise holding off on a surcharge for at least 60 days to allow him to complete some of the capital projects and get a clearer understanding of whether or not any projects would overrun their budgets.
He added that the account for the transportation of sludge from the greenhouse at the Vista wastewater treatment plant is currently between $20,000 and $30,000 over budget, but that he has been able to absorb that cost into the overall wastewater budget.
He explained that this increased cost was partially driven by the sludge being hauled to the landfill more frequently, which helps reduce smell issues associated with its presence at the plant.
Connor recommended that the board review the finances again at its August meeting to check if any surcharges would be needed once more projects are complete.
PAWSD board member Bill Hudson asked if the board could transfer money from its general fund to its enterprise funds and if that would play into the district’s debt coverage, which Dossett confirmed is possible and would be considered in the debt coverage calculations.
Board member Bruce Jones asked if the cuts to the budget in 2026 would create a higher budget in 2027 due to deferred costs.
Connor replied that the cuts cover issues that PAWSD has not experienced that he had anticipated at the beginning of the year and would not cause an increase in 2027 or involve deferring maintenance.
Jones commented that he wanted to make sure that PAWSD is not delaying an increase in fees it knows will need to occur in the future since he would prefer to make a smaller increase now instead of a larger increase later.
Connor replied that the changes he was recommending for the budget would get the district through 2026, but that an increase would be needed in 2027 due to lower CIF revenues.
However, he added that the issue was not as “black and white” as a choice between doing a small rate increase in 2026 and one in 2027 versus a larger one in 2027.
Connor commented that he would know more in August and as the district’s budget takes shape for next year.
“I hate to implement another fee, especially right now when we already have our extra fees in place for the drought management,” Connor said. “I hate to get ahead of ourselves and over collect.”
PAWSD board member Glenn Walsh commented that staff did a “great job” and that he would support looking at new fees next year assuming no catastrophic expenses arise.
PAWSD board member Alex Boehmer commented that he would prefer the district to stay ahead of potential costs and to make sure that no unexpected expenses occur in October, where a large fee increase would be needed to make up a budget shortfall.
Connor replied that he is carefully paying attention to the district’s situation and is ready to act if unexpected costs arise.
Hudson commented that it sounded like the board did not need to move forward with raising fees at that meeting.
Archuleta County Commissioner John Ranson, who was in the audience, commented that he would recommend that PAWSD consult with the county on any large financial actions it must take, which he indicated is required.
However, he added that he understands PAWSD’s situation and the challenges of rising costs.
josh@pagosasun.com
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