In order to meet its bond obligations, Hollister would need to
up rates 26 percent
Hollister’s sewer rates could increase by as much as 26 percent
during the coming fiscal year and 2 percent more during each of the
next five years.
This is the proposal that has been suggested by MuniFinancial,
the consulting firm that has been working on the city’s sewer
analysis. The rates need to increase in order to allow the city to
have enough money to support its bond debt.
In order to meet its bond obligations, Hollister would need to up rates 26 percent
Hollister’s sewer rates could increase by as much as 26 percent during the coming fiscal year and 2 percent more during each of the next five years.
This is the proposal that has been suggested by MuniFinancial, the consulting firm that has been working on the city’s sewer analysis. The rates need to increase in order to allow the city to have enough money to support its bond debt.
If the city does not raise rates, it would not meet its bond obligations. If that happens, it would dramatically affect its bond rating, which would affect the city’s ability to raise capital in the future.
The rate hike would push monthly single-family rates from $24.75 to $31.30; multi-family rates from $22.50 to $27 and mobile homes from $15.75 to $19.15 (Hollister bills in two-month increments, so these rate hike figures were halved to reflect the monthly rate.) The increases will increase revenue to meet the obligations during the next five years, the increases will increase debt service to meet all the costs and obligations over the next five years, said Jim Seagraves, a consultant with MuniFinancial who gave a report to the Hollister City Council at its Jan. 10 meeting.
In contrast to Hollister’s rates, Gilroy residents pay $29.74 per month for single family; $21.12 for multi-family; and $21.12 for mobile homes. Likewise, the starting single-family rate in Morgan Hill is $32.57, and multi-family rates start at $22.33. The rate for mobile homes was not available.
The new Hollister rates would mean a single-family residence would pay 4.9 percent more than the same family in Gilroy.
Hollister officials say that there isn’t really a basis of comparison between the cities since Gilroy and Morgan Hill may have different debt service on their bonds.
In 1993, the city issued $16 million in bonds and is currently in the process of repaying the debt. In 2003, bond rating service Standard & Poors downgraded the city’s bond rating from the level of BBB to BBB-.
The down-grading meant the city must pay more in obligations.
Without the rate increase, the net revenues wouldn’t allow for servicing of the debts and the city would be in a hole, Seagraves said. If the city is downgraded again, its bonds would be considered to be high-risk (so-called junk bonds), dramatically affecting its ability to float bonds in the future.
“Basically, the next time you want to borrow, the markets will have a hard time finding buyers,” Seagraves said.
The lower the bond rating, the higher the interest bond issuers must pay.
A public hearing for the increases will be held on March 6.
