Cave Creek council seeks adjustments to proposed 11–60% water and wastewater rate increases

Cave Creek Council Grapples with Staggered Rate Increases and Conservation Trade-Offs in Comprehensive Water and Wastewater Study

On August 23, 2022, the Cave Creek Town Council held an informal workshop to review the draft results of a comprehensive water and wastewater rate and capacity fee study conducted by Wildan Financial Services and Walker Consulting. The presentation laid bare the town's utility cost crisis: wastewater rates must increase 60% immediately to begin covering operations; Desert Hills water rates must jump 25% to achieve enterprise fund status; and even Cave Creek water faces an 11% increase. The financial models projected deficits under the status quo that would force continued general fund subsidies and prevent bonding for capital projects. Yet the council's reaction revealed deep splits over conservation policy, the fairness of the new five-class rate structure, and the methodology underpinning capacity fee increases that would jump from $45.89 to $7,183 for a Cave Creek water meter.

The most contentious issues centered not on the magnitude of increases but their design and timing—particularly a rate structure that reduces volumetric charges for the highest water users, contradicting the town's stated water conservation policy, and a decision to push final ordinance adoption to the newly sworn council in December.

Key Speeches

"We're going backwards in effect with and working towards the goals of becoming true enterprise funds for the town." — Sean Cruz, Utility Director, summarizing the consequence of inaction on rates

"I don't know about the answer—your first ten thousand gallons you get charged three dollars and nine cents, ten thousand one to twenty thousand gallons it increases to four dollars and sixty-four cents correct?" — Dusty Rhoades (Council Member-Elect), seeking clarity on tiered volumetric structure

"It appears that this is an incentive to using more water rather than less and I think you must be talking about those 50,000 gallon users and those households who use the topmost tier are actually having their water rates being decreased." — Charlie Spitzer, Public Commenter, raising the conservation incentive concern

"I think that the major thing I'm seeing coming from this is our concern for the large users not getting a break on that since we need to slow them down." — Robert Morris, endorsing adjustment to high-use tier pricing

"We're in the midst of a little inflationary trend right now and may go down a little bit but the thing is it's still established a standard that is going to carry on for a few years and we're going to have revenue that matches expenditures." — Council Member Roy, supporting the rate increases as necessary

Timeline

• Staff introduction: Sean Cruz, Utility Director, provided overview of system maps, customer counts (~2,900 Cave Creek water; ~1,900 Desert Hills water; ~900 wastewater), and four study goals including 50/50 fixed/volumetric rate split and enterprise fund status by 2027.

• Consultant presentation: Kevin Barnett (Wildan) presented five-year financial projections under status-quo and proposed-rate scenarios. Under status quo, Cave Creek water revenue falls short of expenses by ~$1 million annually (2023–2027); Desert Hills cash balance remains critically low at $165K (target: $867K); wastewater system depends entirely on $1.4 million general fund subsidy and half-cent sales tax ($1.6 million debt service through 2027).

• Revenue requirements analysis: Cave Creek water: 11%, then 5%, 3%, 3%, 3% annual increases. Desert Hills water: 25%, then 5%, 3%, 0%, 0%. Wastewater: 60%, then 5%, 5%, 5%, 5%. These percentages represent revenue needed to cover operations, maintenance, capital projects, and debt service, not direct rate increases.

• Rate structure and capacity fees: Proposed shift from 2-class system (residential/non-residential) to 5-class system (single-family residential, multi-family residential, commercial, irrigation, commercial pools). Capacity fee increases: Cave Creek water $45.89 → $7,183 (3/4″ meter); Desert Hills water $7,451 → $14,565 (~97% increase); wastewater $8,475 → $12,482. Last capacity fee update: 2014.

• Council questions (85+ minutes):

  • Budget reconciliation: Robert Morris, Roy, and Dusty Rhoades pressed staff and consultant to reconcile the financial model's revenue and expense figures to the adopted FY2023 budget (built on FY2022 actuals from June 2022) to ensure the models' foundation was solid. Shirley Fox (Finance Director) acknowledged discrepancies needed clarification and committed to reconciliation before next session.
  • General fund subsidy sources: Council Member Roy objected to the use of the water infrastructure fund ($728K from half-cent sales tax, originally designated for Spur Cross infrastructure capital projects) to subsidize ongoing operations rather than capital, noting this shift had been made without his awareness. Kerry Jerominski (Town Manager) confirmed prior councils had voted to redirect water infrastructure fund revenue; however, Roy insisted the original intent was infrastructure-only, not operational subsidy.
  • Debt service coverage requirement: Dusty Rhoades questioned whether the 1.2× debt service coverage requirement still applied after the town converted some revenue bonds to full-faith-and-credit bonds. Kevin Barnett indicated two types of bonds exist: revenue bonds (1.2× required) and excise-tax-backed bonds (1.0× required). Dusty Rhoades requested confirmation from Financial Advisor Jim Strickland that revenue bonds still carry the 1.2× mandate.
  • Conservation policy contradiction: Robert Morris and public commenter Charlie Spitzer raised the same concern: under the old rate structure (pre-2020), high water users faced steeply increasing volumetric rates; under the new proposal, the highest tier (50,000+ gallons) pays $10.06 per 1,000 gallons vs. the old $15.66—a 36% reduction. This contradicts town water scarcity policy. Kevin Barnett acknowledged the issue arose from attempting to achieve 50/50 fixed/volumetric split while using actual billing data showing most water use falls in lower tiers. Barnett offered to "tweak" the differential between tiers (currently 1.5×) to 2.0× to steepen high-use rates and improve conservation incentive.
  • Capacity fee depreciation methodology: Dusty Rhoades and David Phelps (Public Commenter, former town official) challenged the depreciation deduction in capacity fee calculations. The town paid $18.5 million for Desert Hills water system in historical acquisition; Arizona Corporation Commission records show actual depreciated value was ~$3 million. Phelps stated ~$10 million of the current capacity fee recommendation is based on overpaid acquisition cost. Additionally, ~$9 million of forgiven debt was excluded from the capacity fee base but creates a "double-counting issue." Dusty Rhoades objected to charging new customers for an asset the town overpaid for decades ago. Barnett explained the depreciation methodology as industry standard (AWWA) but did not defend the historical overpayment.
  • New customer classification complexity: Robert Morris objected to the five-class system as overly complicated and lacking transparent justification for fairness. He noted the 2020 study had only two classes; now single-family vs. multi-family (with 300+ multi-family accounts identified vs. 17 before), commercial, irrigation, and pools add layers. Sean Cruz explained the deeper billing data analysis identified material differences (e.g., multi-family units have lower indoor use, little outdoor irrigation, unlike single-family homes). Robert Morris demanded "why" and "fairness" explanation before he would vote, requesting staff provide detailed justification.
  • Growth projections and Desert Hills water security: Robert Morris asked whether planning and county records showed projected new structures; she noted growth conflicts with the town's 50% CAP water allocation cut and projected further drought. Sean Cruz confirmed the town adopted a 2021 water resources policy restricting new Desert Hills connections unless contractual/statutory obligation exists. A single outstanding certificate of assured water supply covers 54 lots and requires the developer to secure new water resources. Robert Morris asked staff to provide growth scenarios (e.g., worst-case: 100 new Desert Hills accounts) and impact on reserves.
  • Dry sewer conversion and wastewater future revenue: Council Member McGuire noted the capital program includes a force main/lift station project to enable conversion of ~150 dry-sewer accounts (subdivisions built with collection lines in anticipation of a future water reclamation facility). The town cannot afford the conversion project until 2027 when wastewater bonds are paid off. McGuire suggested the sewer master plan (being procured this fiscal year, ~one-year engagement) should evaluate whether a force main or new gravity lines are more cost-effective. Once bonds are paid off and the half-cent sales tax debt service ($1.6M annually) is freed up, the town could fund dry sewer conversions.

• Public comment: Five speakers participated. Charlie Spitzer (Public Commenter) raised conservation concern via comment card. David Phelps (former town official) challenged capacity fee methodology. A resident (name not clearly stated) compared his projected $30/month bill increase to retirees on Social Security facing 10% inflation annually, arguing $30/month is "relatively large." Dusty Rhoades (Council Member-Elect, also addressed council formally) sought clarity on rate tiers. Jeff Burkett (Water Advisory Committee, Desert Hills representative) attended in person.

• Council discussion and requests for changes:

  • Adjust high-use tier volumetric rates to increase conservation incentive (increase differential from 1.5× to 2.0× or higher).
  • Reconcile FY2023 budget with financial model assumptions; provide written reconciliation before next session.
  • Provide detailed written justification for five-class customer rate structure and fairness rationale.
  • Confirm with bond counsel whether 1.2× debt service coverage requirement remains mandatory for revenue bonds.
  • Explore debt restructuring options (combined pledge between Cave Creek and Desert Hills systems for coverage calculation; revised phasing of Phoenix interconnect debt draw-down) to lower initial rate increases.
  • Provide growth and worst-case scenarios for Desert Hills.

• Council direction: No motion or vote was taken. Town Manager instructed staff and consultant to reconvene before September 19, 2022 (scheduled Notice of Intent date) to present revised analysis incorporating council feedback. The council agreed another informal study session before September 19 would be beneficial to "finalize" the study and ensure unified messaging before the 60-day statutory notice period begins.

Opposition

Number of speakers against: 2 (Charlie Spitzer, David Phelps, plus implicit concern from Robert Morris and others, though not framed as formal opposition)

Main concerns:

1. Conservation incentive eliminated: High water users (50,000+ gallons/month) face 36% reduction in volumetric rate compared to old structure, creating disincentive for conservation contrary to town water scarcity policy.
2. Capacity fee methodology overstates value: Town paid $18.5M for Desert Hills system; actual depreciated value ~$3M per Corporation Commission records. Capacity fees embed ~$10M in overpaid acquisition cost, unfairly burdening new customers for historical mistake.
3. Double-counting in capacity fees: ~$9M in forgiven debt excluded from calculations; creates ambiguity about whether new customers are paying twice for same infrastructure.
4. Five-class rate structure unexplained and unfair: New system (single-family, multi-family, commercial, irrigation, pools) lacks transparent justification; awwa standards may not fit desert community; too complex without clear fairness rationale.
5. Desert Hills rate increase inequitable: 25% first-year increase significantly exceeds Cave Creek 11%, despite all customers' reliance on common infrastructure and shared water resources; Desert Hills ratepayers already subsidized by Cave Creek historically.
6. General fund subsidy concealment: Water infrastructure fund ($728K annually) originally intended for capital infrastructure, now used for operational subsidy without explicit council re-vote in recent memory.
7. Timing disadvantages new council: Final ordinance adoption (second reading and passage) pushed to December 5, meaning newly sworn council votes on rates without going through town budget process and limiting their deliberation time.

Most compelling arguments:

• David Phelps' specific citation of Corporation Commission records showing $3M actual value vs. $18.5M paid: concrete evidence of historical overpayment now being perpetuated via capacity fees.
• Robert Morris insistence on written justification for fairness of five-class system: absent transparent reasoning, rate differentiation appears arbitrary.
• Conservation policy contradiction: town policy restricts water growth and preserves resources; yet new rate structure incentivizes high consumption. Structural incoherence.

Organized groups: None identified; Water Advisory Committee invited but only Jeff Burkett (Desert Hills representative) attended in person. Richard Johnson (WAC member, recently resigned) received materials but did not attend. Bill Mattingly (former WAC member) reviewed materials offline and sent comments. Alex Madison (WAC member) was invited but not yet online at time of discussion.

Support

Number of speakers in support: 3 Council Members (Roy, McGuire, Robert Morris—conditional/cautious support with requested modifications)

Main arguments:

1. Rates necessary for financial solvency: Wastewater system runs $1.4M annual general fund deficit; failure to increase rates perpetuates subsidy and prevents bonding for capital projects. Inflationary environment and loss of 550 Carefree customers eliminate historical cost recovery. "Backwards" trajectory without action.
2. Desert Hills subsidy reflects fairness: Town invested in Desert Hills infrastructure; system supplies >50% of Desert Hills' water from Cave Creek. Allocation of 50% debt service to Desert Hills recognizes reality that Cave Creek infrastructure subsidizes Desert Hills survival. 25% increase, while steep, is necessary catch-up and preferable to privatized operator (would have escalated rates multiple times over).
3. Stepped approach reduces long-term pain: Large first-year increase (60% wastewater, 25% Desert Hills, 11% Cave Creek) followed by moderate 3–5% annual increases allows reserves to build and stabilizes future rates. Better than spreading cost over longer period at higher total.
4. Enterprise fund model is prudent long-term policy: Freeing general fund from utility subsidies by achieving rate-funded operations allows redirection to roads, fire, other services. When wastewater debt is paid (2027), $1.6M half-cent sales tax can be repurposed. Conservation of scarce water mandates pricing that discourages waste.

Organized support: Town staff and financial consultant (Wildan).

Project Details

• Case number: Not assigned (rate study workshop, not a development case).
• Applicant / consultant: Wildan Financial Services; Walker Consulting, LLC.
• Attorney: Not involved (bond counsel Tim Stratton invited but did not attend; Jim Strickland, financial advisor, out of state).
• Location / system coverage:
  • Cave Creek water system serves ~2,900 customers within Cave Creek municipal limits, extending into Carefree (500+ customers being transitioned to Carefree Water Co. in 2020–2022) and small unincorporated Maricopa County area.
  • Desert Hills water system serves ~1,900 customers in unincorporated Maricopa County east of Cave Creek.
  • Cave Creek wastewater system serves ~900 customers, largely within town core and commercial corridor along Carefree Highway; collection system much smaller footprint than water system.
• APN: Not stated.
• Current zoning → Proposed zoning: N/A (utility rates, not land use).
• Density / units / square footage: N/A. Study projects 10-year capital improvement needs: Cave Creek water $6.2M cash-funded plus Phoenix interconnect (debt-funded); Desert Hills water $3.7M; wastewater $3M. Growth projections vary by system; appendices cited but not detailed in transcript.

Study Scope & Financial Goals

Cave Creek Water System:

• Current rates last updated June 2020 (effective September 2020); prior update March 2009 (11 years).
• Proposed FY2023 revenue increase: 11%, followed by 5%, 3%, 3%, 3%.
• Financial goal: Achieve 50/50 fixed/volumetric rate split; maintain 1.2× debt service coverage on revenue bonds; build fund balance reserves to three months O&M (~$867K targeted eventually); achieve revenue sufficiency independent of water infrastructure fund subsidy ($728K in FY2023 to zero in future years if rates sufficient).
• Key changes from 2020: Loss of ~550 Carefree customers (revenue decline ~$1.2M); new wheeling rates for Desert Hills interconnect (6.82/1000 gal for NIA CAP water, $8.10/1000 gal for MI water); 5% treatment/transmission loss allocation to Desert Hills; new five-class customer rate structure (vs. two-class in 2020).

Desert Hills Water System:

• Current rates last updated June 2020.
• Proposed FY2023 revenue increase: 25%, followed by 5%, 3%, 0%, 0%.
• Financial goal: Achieve enterprise fund status; build reserve to three months O&M ($867K); eliminate general fund subsidy (none budgeted post-2223).
• Water supply constraints: NIA CAP allocation declining (50% cut expected next year); wells produce <50% of system need; town secured NIA CAP subcontract for 386 acre-feet/year (insufficient; actual usage >500 acre-feet). Town policy restricts new connections without contractual obligation.
• Debt allocation: 50% of original Cave Creek water system debt service allocated to Desert Hills (fairness principle: Desert Hills reliance on Cave Creek infrastructure justifies sharing infrastructure debt burden).

Cave Creek Wastewater System:

• Current rates last updated June 2020.
• Proposed FY2023 revenue increase: 60%, followed by 5%, 5%, 5%, 5%.
• Financial goal: Achieve O&M revenue sufficiency by FY2728 (when half-cent sales tax debt service for wastewater reclamation facility is paid off). Currently $1.4M general fund subsidy + $1.6M debt service from half-cent sales tax.
• Capital needs: Dry sewer conversions (~150 accounts); force main/lift station or gravity line improvements; master plan study (procurement ongoing, one-year engagement expected to begin fall 2022).

Capacity Fees

Last updated: 2014 (8 years prior; overdue).

Proposed increases:

• Cave Creek water: 3/4″ meter $45.89 → $7,183.
• Desert Hills water: 3/4″ meter $7,451 → $14,565 (97% increase; high cost reflects limited growth capacity due to water constraints).
• Cave Creek wastewater: 3/4″ meter $8,475 → $12,482.

Methodology: System valuation using industry standard (AWWA):

1. Original fixed-asset cost inflated to current replacement cost.
2. Less accumulated depreciation (recognizing system age and wear, though replacement cost assumes new).
3. Less debt principal paid through rates (to avoid double-counting debt service in both rates and capacity fee).
4. Plus fund balance from prior customer connections.
5. Plus new capital required for system expansion.

Controversy: Accumulated depreciation deduction challenged by Dusty Rhoades and David Phelps as inflating fees based on historical overpayment. Town paid $18.5M for Desert Hills system; Corporation Commission records show ~$3M actual depreciated value. Capacity fee calculation reflects ~$10M in value based on overpaid acquisition cost, perpetuating the historical mistake to new customers.

Vote Breakdown

No vote taken. Council requested staff and consultant reconvene with revised analysis before September 19, 2022 Notice of Intent deadline. Council did not formally move or pass any resolution to proceed with or reject the proposed rates.

Outcome & Next Steps

Statutory Schedule:

• September 19, 2022: Scheduled Notice of Intent to raise water and wastewater rates. This initiates 60-day statutory period (ARS § 34-224).
• October 19, 2022: Final report due (30 days before public hearing).
• October 21, 2022: Public hearing (tentative, required under statute).
• November 2022: First reading of ordinance (month of meeting not finalized during workshop).
• December 5, 2022: Second reading and final adoption (new council sworn in first Monday of December).
• January 4, 2023: Rates effective (customers see impact in February bills).

Council-Requested Adjustments Before Finalization:

1. Modify high-use volumetric tier rates to increase conservation incentive (increase differential from 1.5× to 2.0× or steeper).
2. Reconcile FY2023 budget with financial model; provide written reconciliation.
3. Provide detailed written justification for five-class customer rate structure explaining fairness of each class.
4. Confirm with bond counsel (Tim Stratton, or through Financial Advisor Jim Strickland) whether 1.2× debt service coverage requirement remains mandatory for revenue bonds after conversion to full-faith-and-credit structure.
5. Explore debt restructuring options:
   • Combined pledge between Cave Creek and Desert Hills systems for debt service coverage calculation (could lower Cave Creek rates).
   • Revise Phoenix interconnect debt draw-down schedule to better match debt service phasing (could lower initial rate pressure).
6. Provide growth scenarios and worst-case analysis for Desert Hills (e.g., impact of 100 new accounts on reserve projections).

Anticipated Council Session: Another informal study session before September 19 to review staff responses and finalize rates before Notice of Intent is published.

Public Engagement: Staff to develop web page with rate information and direct-mail campaign to all customers (Cave Creek water, Desert Hills water, and wastewater) before public hearing, but timing of campaign deferred pending final study adjustments to avoid unnecessary agitation.

Controversies & Context

1. Conservation Policy Contradiction

The town's adopted 2021 water resources policy restricts new Desert Hills connections and limits growth to preserve water resources in a region facing 50% CAP allocation cuts and projected multi-year drought. Yet the new rate structure reduces volumetric charges for the highest water users (50,000+ gallons/month: $15.66/1000 gal → $10.06/1000 gal, a 36% reduction). The old structure (pre-2020) imposed steeply increasing rates to discourage high consumption. Robert Morris and public commenter Charlie Spitzer objected that the new rate structure incentivizes consumption contrary to stated policy. Kevin Barnett acknowledged the trade-off resulted from the 50/50 fixed/volumetric goal and billing data showing most water use concentrates in lower tiers; he offered to tweak tier differentials to restore conservation incentive. The council requested this adjustment.

2. Historical Acquisition Overpayment & Capacity Fee Methodology

In 2005–2007, Cave Creek acquired the Desert Hills water system for $18.5 million. According to Arizona Corporation Commission records cited by David Phelps, the actual depreciated value was ~$3 million. The consultant's capacity fee study uses the original $18.5M cost inflated to current replacement value, less depreciation—a methodology that embeds ~$10M in value attributable to the historical overpayment. This was compounded when the town forgave ~$9M in debt owed by the system, which was excluded from the capacity fee base but creates ambiguity about whether new customers pay for the same infrastructure twice (once via the inflated capacity fee, once via debt service in rates). Dusty Rhoades objected that new customers should not subsidize the town's historical mistake. Kevin Barnett defended the methodology as industry standard but did not dispute the overpayment fact. The council did not formally resolve this issue but noted it as a policy problem requiring attention in future updates.

3. General Fund Subsidy of Utilities (Obscured Policy Shift)

The water infrastructure fund, created from a half-cent sales tax designated for Spur Cross infrastructure projects, has historically received $728K annually. The original intent was capital infrastructure spending. Council Member Roy objected that in recent years this fund has been used to subsidize ongoing water operations, not capital projects, effectively converting a capital fund to an operational subsidy. Town Manager Jerominski noted that prior councils voted ordinance amendments to permit this diversion, but Roy stated he had no recollection of voting for such a change and asserted the decision was made without proper council awareness. The finance team's budget reconciliation (requested) may clarify when and by which council the policy shift occurred.

Similarly, the wastewater system relies on a $1.6M annual half-cent sales tax for debt service (wastewater reclamation facility bonds, paid off 2027). Once bonds are retired, this sales tax revenue becomes available for other town purposes. The rate increase is designed to achieve O&M sufficiency independent of this subsidy, freeing it for roads or other services. The council recognized this as appropriate long-term planning but questioned whether prior councils deliberately chose to subsidize utilities or whether subsidies were embedded accidentally.

4. New Customer Classification Complexity Without Transparent Justification

The 2020 study used two classes (residential, non-residential). The new study proposes five: single-family residential, multi-family residential, commercial, irrigation, and commercial pools. This is based on deeper billing data analysis. For example, multi-family accounts (now identified as 300+, vs. 17 in 2020) typically have lower indoor use and minimal outdoor irrigation, justifying lower rates than single-family homes. Commercial irrigation accounts have different peaking factors. Pools (7 commercial pools in town) impose unique load patterns.

Robert Morris objected that the system is "overly complex" and asked for transparent explanation of why each class is fair and necessary. He invoked the KISS principle and noted the town's desert location may not justify wholesale adoption of AWWA standards developed for Philadelphia, New York, or Florida. Sean Cruz and Kevin Barnett explained the deeper analysis enabled better cost allocation, but Robert Morris demanded written justification tying each rate difference to specific cost drivers before he would support the proposal. The council requested staff provide this detailed justification.

5. Desert Hills Water Supply Crisis & Growth Constraints

The town's CAP allocation is being cut 50% next year and faces potential complete loss thereafter. Desert Hills wells produce <50% of system demand. The town secured a NIA CAP subcontract for 386 acre-feet/year, but actual usage exceeds 500 acre-feet. The town adopted a 2021 policy restricting new Desert Hills connections unless a contractual or statutory obligation (e.g., outstanding certificate of assured water supply) exists. One such certificate covers 54 lots; the developer must secure new water resources to proceed.

Robert Morris raised concern about unincorporated Maricopa County development in the Desert Hills service area beyond the town's control. She asked staff to provide growth scenarios, noting that private wells (non-system) are being drilled. Sean Cruz confirmed the town cannot prevent dry homes or exempt wells under state and county law but has stopped new municipal water connections. The council requested worst-case growth scenarios to test reserve adequacy.

6. Timing & New Council Burden

Council Member McGuire objected to pushing final ordinance adoption (second reading and vote) to December 5, the first council session after the new council is sworn in (first Monday of December). The new council will not have gone through the full budget process and may lack familiarity with multi-year rate study deliberations. Town Manager responded that council members-elect (Dusty Rhoades, Tom Augherton, Paul Elkema) have been invited to all sessions, received the study, and have time to meet with staff or consultants. The council agreed that the statutory timeline (60-day notice period beginning September 19) requires first reading in November and second reading by early December, but McGuire's concern highlighted the awkwardness of asking a new governing body to vote on a complex rate structure developed under prior council leadership.

7. Desert Hills Rate Shock & Historical Subsidy Dynamic

The 25% first-year increase for Desert Hills water is nearly 2.5× the Cave Creek water increase (11%). Council Member Roy and others acknowledged this reflects the system's financial desperation: currently at $165K reserve (target: $867K), no general fund subsidy budgeted, and limited growth potential. However, Desert Hills ratepayers may perceive the increase as inequitable, especially since the town acquired the system and has been subsidizing it with Cave Creek infrastructure investment (>50% of Desert Hills' water comes from Cave Creek). The rate increase is intended to shift Desert Hills toward financial self-sufficiency, but the burden is steep. Roy remarked that it's "unfortunate but necessary" and likely preferable to private operation, which would have raised rates multiple times over. However, he noted that a public campaign before the October hearing would likely trigger significant pushback from Desert Hills residents, many of whom do not vote in Cave Creek.

8. Debt Service Coverage & Bond Covenant Ambiguity

Dusty Rhoades questioned whether the 1.2× debt service coverage requirement still applies after the town converted revenue bonds to full-faith-and-credit structure. Kevin Barnett indicated the town has both types outstanding: revenue bonds (1.2× required) and excise-tax-backed bonds (1.0× required). The conversion of some bonds to full-faith-and-credit may have eliminated the mandatory 1.2× for those instruments, but outstanding revenue bonds likely retain the covenant. Town staff committed to reconfirm with bond counsel Tim Stratton (through Financial Advisor Jim Strickland, out of state). This ambiguity matters because if some debt no longer requires 1.2×, the rate increases could be modestly lower. Robert Morris also noted that maintaining 1.5× debt service coverage (rather than 1.2× minimum) improves bonding terms and eliminates the need for debt service reserve funds, per consultant Barnett's explanation. The council expressed interest in exploring whether combined pledging between Cave Creek and Desert Hills systems could lower initial rates while still meeting coverage ratios.

Duration

• This item: ~3.5–4 hours (8:00 a.m.–11:30+ a.m., with open-ended workshop format allowing extensive Q&A and public comment).
• Total meeting: ~3.5–4 hours (single-item agenda).

Other Notable Items

None. This was a single-item workshop agenda devoted entirely to the rate and capacity fee study.