Cave Creek defers water-rate decision to November, directs staff to recalculate $70M replacement costs

Cave Creek Delays Water-Rate Adoption, Orders Replacement-Cost Audit Amid Disagreements Over Conservation Messaging and Fee Fairness

In a contentious two-hour work session on September 12, 2022, the Cave Creek town council narrowly advanced its revised water and wastewater rate study while deferring final adoption and ordering staff to revisit core financial assumptions. The meeting exposed deep skepticism about whether the revised rate structure—which reduces year-one increases from 11% to 9%—genuinely balances fiscal sustainability with water conservation, and whether the town's stated $70 million system replacement cost withstands scrutiny.

The council voted to adopt a notice of intent to raise rates on September 19, triggering a mandatory 30-day public notice period before a November 21 public hearing and vote. But before that hearing, staff must recalculate system replacement costs using a linear-foot-of-pipe methodology, restructure commercial pre-treatment fees to a flat rather than volumetric basis, and launch an aggressive public-education campaign—all tasks that revealed deep divisions about who should absorb rate increases and whether the town is adequately preparing residents for the impact.

Key Speeches

"The nine percent was as low as we felt we could go…if we were to reduce that 9 down to even an eight percent we would no longer hit that 1.5 times coverage." — Kevin Burnett, Wildan Financial Services, on debt-service coverage thresholds.

"Taking the existing rates that we have now and reducing them and then jacking them up again a year or so from now is not especially when we're substantially increasing the rates for desert hills it doesn't to me it doesn't send the kind of a signal uh for concern about water utilization that i think the town should be sending especially in uh the present what's going on at the present time." — Vice Mayor Robert Morris, objecting to the year-one rate dip followed by increases.

"I have a problem with the cost facilities…I don't believe that the replacement value is correct…The 2013 study came up with a number of between 120 and 130 million dollars for replacement costs…I just can't believe that it's gone down since then." — Councilman Tom Augherton, challenging the $70 million figure as implausibly low.

"We have a lot of people in that situation…I think that the rates need to be priced strategically so that we have the larger water users no matter where they are…they're not up at 50,000 gallons…they may be in that range of 20,000 to 30,000 gallons that's an awful lot of water for a household to use." — Councilman Thomas McGuire, advocating for steeper tiered pricing to drive conservation.

"The optics to having a public hearing and then approving what we're talking about on the same meeting makes to me appear like we're rubber stamping…my preference would be to have a separate meeting for the public." — Councilwoman Cynthia Driskell (identified as "Roy" in brief), proposing a dedicated public meeting before the November 21 vote.

"If people don't show interest as uh events are transpiring…I've seen this before…a few days before the due date I would get people going oh my god how can I get this done and by the due date I said well you had three months to do it." — Mayor Robert Bunch, implicitly defending the current notice timeline.

Timeline

• Applicant/Consultant Presentation: Kevin Burnett (Wildan Financial Services) presented revisions addressing three main council concerns from the prior meeting: (1) Can rate increases be lowered? Answer: Yes for Cave Creek water (11% → 9% year one), no for Desert Hills and wastewater. (2) Can base charges be equalized? Yes—revised to keep 5/8-inch, 3/4-inch, and 1-inch meter base charges the same. (3) Is conservation encouraged? Yes—upper-tier rates now held flat or increased compared to current rates to send conservation signal.

• Staff Recommendation: Wildan and town staff recommended adopting the notice of intent on September 19, holding the public hearing on November 21, and implementing new rates effective January 4, 2023. Bond counsel Tim Stratton (Gus Rosenfeld) and financial consultant Jim Strickland addressed debt-service coverage requirements and the mechanics of potentially releasing the required $1.8 million debt-service reserve if the combined Cave Creek and Desert Hills pledge achieves 1.5× coverage.

• Public Comment: Three speakers: (1) Dan Piodeo, Harold's Corral owner, reported a 65% sewer-fee increase ($500–600/month average over six months) from new BOD (biological oxygen demand) monitoring fees, criticized the burden on high-volume commercial water users, noted the original promised half-cent sales tax was meant to subsidize water costs, and recommended establishing a committee to vet impacts and compare rates to peer communities. (2) David Phelps, public commenter, supported the revisions as beneficial to average and below-average users (his bill would actually decrease), but advocated for even steeper increases in the 10,000–50,000 gallon-per-month tiers to drive conservation. He also strongly recommended the council adopt all five years of rates at once—not annually—to avoid election-year political pressure and provide rate certainty; he called the online calculator "a surefire way" to prevent surprises. (3) Jeffrey Katz, Desert Hills Water Advisory Committee, noted the 29% base increase for Desert Hills residents was a "pretty big jump," flagged the overlap of rate increases and CAP water-allocation cuts effective January 1, and requested that the rate calculator include a QR code or link in the mail so Desert Hills residents could project their bills before facing simultaneous rate and allocation shocks.

• Council Discussion: Extensive, spanning 1 hour 40 minutes, touching on:

  • Robert Morris concern: His water bill would decrease $10/month under the new rates versus increasing $25/month under the prior proposal—a $35/month swing per household, or roughly $420,000 annually across 1,000+ customers, compounded by a near-$1 million general-fund subsidy to Cave Creek water. He questioned whether revenue from higher-tier customers and larger meters would truly offset the loss. (Kevin Burnett confirmed increased base charges for 1.5-inch meters ($58/month increase vs. $3 previously) and higher commercial-pool rates would help recover revenue, accounting for some elasticity of demand.)
  • Robert Morris conservation objection: The proposal to lower rates year one, then raise them, "doesn't send the kind of a signal…for concern about water utilization." (Countered by staff that water-demand elasticity is factored into upper tiers and that tight debt-service coverage ratios constrain the 9% minimum.)
  • Councilman Silva's clarifications: Requested confirmation that sewer users would reach break-even (covering operations and maintenance without subsidy) by 2028. (Confirmed by Sean Cruz Meisner and Kevin Burnett.) Noted that new sewer tap-ons are projected at ~14 units/year (2024–2025), water at ~40–63 units/year, and asked if those were realistic. (Affirmed, with examples of Hidden Canyon, Stagecoach area development.)
  • Councilman Silva's bill example: His household (2,000 gallons/month, water + sewer) currently pays ~$124/month; under the prior proposal would have risen to ~$142; under the revised proposal will reach ~$153—a 29% overall increase vs. the 18% previously contemplated. Emphasized the importance of timely rate increases over time rather than large lumpy increases every 13 years.
  • Councilman Silva's rate-adoption strategy: Suggested council adopt 2–5 years of rates at once (not just year one) to avoid returning annually and to provide stability for debt-service projections. (Kevin Burnett confirmed the study supports this and WIFA would give credit for multi-year rate increases when evaluating debt-service coverage.)
  • Councilwoman Roy's public-meeting proposal: Urged a separate public meeting before November 21 to avoid the optics of "rubber stamping." She noted the three weeks between September 19 (notice) and November 21 (vote) provides time, and framed a dedicated public session as "due respect" to residents. (Mayor Bunch countered that the work-session process is intended to work through the study, and 30 days of public notice is the legal requirement; Councilman Silva supported her concern, predicting "more than six people" would show interest if the town communicated effectively.) Staff indicated willingness to schedule additional sessions post-notice and to develop an online rate calculator, direct mail, and social-media campaign to educate residents before the vote.
  • Robert Morris replacement-cost objection: Challenged the $70 million replacement-cost figure as implausibly low given the 2013 study estimated $120–130 million. (Kevin Burnett and Sean Cruz Meisner agreed to recalculate using a linear-foot-of-pipe methodology, pulling base assumptions from the 2013 study and adjusting for system additions since then.)
  • Robert Morris rate-structure confusion: Objected to the year-one rate dip followed by subsequent increases, calling it irrational and suggesting it would "bite you" if left unexplained. (Staff replied that tight debt-service coverage ratios and phased debt issuance (2024–2025 treatment-plant upgrade) constrain options.)
  • Councilman McGuire's conservation intensity: Argued the tiered rate structure is too weak—base charges are ~$50/month and volumetric charges are only ~one-third of the bill for a 50,000-gallon/year user. Advocated for a much steeper volumetric-to-base ratio to incentivize cuts, particularly given Arizona's 2025 CAP water-allocation reductions. (Kevin Burnett acknowledged the trade-off between revenue stability (achieved through higher base charges) and conservation signal (achieved through steeper volumetric tiers). He offered to rebalance the ratio if council directs, warning that lower base charges reduce revenue predictability.)
  • Councilman Silva's simplification plea: Urged the town to simplify the rate message for residents—not all the technical tables, but a single bottom-line figure: "How much is my bill going to go up?" He acknowledged complexity is hard to follow and championed the online calculator as essential.
  • Bond-counsel debt-service mechanics: Tim Stratton explained the difference between annual coverage (minimum 1.2×) and additional-bonds coverage, the leverage of combining Desert Hills and Cave Creek pledges to achieve 1.5× and potentially release the $1.8 million reserve, and WIFA's willingness to credit multi-year rate increases when evaluating future debt capacity.
  • Financial advisor on reserve release: Jim Strickland walked through the history of refinancing excise-tax-pledged loans (releasing their reserves) and the pending discussion with WIFA on whether a combined utility pledge at 1.5× coverage would allow release of the $1.8 million reserve.
  • Shirley Fox's budget reconciliation: Confirmed that Wildan's revenue and expense inputs matched the approved June budget, with one material difference: removal of a projected $2.5 million congressional discretionary grant (not received). Noted that the budgeted general-fund subsidy to Desert Hills is $382,800; to wastewater, $1.393 million; and to Cave Creek water, $40,000 (after water-infrastructure fund transfer of $862,000 from Spur Cross revenue).
  • Councilman Roy's subsidy-tracking concern: Questioned why the town is simultaneously subsidizing Desert Hills ($382,800) and building a reserve fund in Desert Hills—money going into reserves, not repaying the subsidy. (Shirley Fox and Kevin Burnett clarified that the new rates and revenue growth will eventually make Desert Hills self-sustaining, and Councilman Roy asked the town attorney to draft a resolution to make the subsidy-tracking visible and commit that when Desert Hills's revenues exceed its costs, any excess will repay the general fund.)
  • Robert Morris multi-family metering: Expressed concern that multi-family buildings with a single meter do not incentivize individual unit conservation. (Sean Cruz Meisner noted that only 17–18 accounts have single-meter multi-family, and they're actually low water users per unit. He confirmed the town's 2021 water-resource policy requires individual metering for new multi-family to meet per-unit allocation limits, and the town will monitor single-meter accounts for future breakouts.)

• Vote: No formal votes taken on rates, capacity fees, or rate structure (that occurs September 19 for notice of intent, November 21 for adoption). Council voted implicitly to proceed with September 19 notice by agreeing to the timeline and directing staff revisions.

Opposition

Number of speakers against: None formally opposed the rate increase itself; all speakers and council critics focused on implementation and fairness details.

Main concerns:

1. Year-one rate decrease followed by increases sends wrong conservation signal. Robert Morris and Councilman McGuire both objected to lowering rates 9% (down from 11%) in year one, then raising in subsequent years, particularly given the state's 2025 CAP water-allocation cuts—it contradicts drought urgency.

2. $70 million replacement-cost figure implausibly low. Tom Augherton insisted the 2013 study estimated $120–130 million; absent a major system shrinkage, current replacement cost should be higher. Suggested a per-linear-foot-of-pipe calculation as more defensible.

3. Tiered rates too weak for conservation. Councilman McGuire argued that base charges ($50+/month) dominate bills, volumetric charges are only ~one-third; large users (20,000–50,000 gallons/month) see minimal incremental cost for additional usage, insufficient to drive cuts.

4. Commercial businesses face disproportionate sewer-fee burden. Harold's Corral owner Dan Piodeo reported 65% sewer-fee increase in six months due to BOD monitoring, stressing high-volume water users now shoulder additional compliance costs while general-fund subsidies help residential customers.

5. Desert Hills rate shock overlaps CAP water cuts. Jeffrey Katz (Desert Hills Water Advisory Committee) flagged the 29% base increase arriving simultaneously with January 1, 2025 CAP allocation reductions—double impact on that system's already-tight water supply.

6. Insufficient public communication before vote. Multiple council members and public commenters emphasized the complexity of the rate study and the risk of "rubber stamping" if the November 21 meeting serves as both public hearing and vote. Counseled direct mail, QR codes, online calculators, and separate public forums.

7. Subsidy tracking and Desert Hills reserve contradiction. Councilman Roy questioned why the town subsidizes Desert Hills ($382,800 annually) while that system simultaneously builds a reserve fund—money visibility and ultimate recovery mechanism unclear.

Organized groups: None identified; individual business owner and advisory committee member spoke.

Support

Number of speakers supporting: Staff, consultants (Wildan, bond counsel), and financial advisor supported the revised approach. Councilman Silva and Mayor Bunch implicitly supported advancing the notice of intent.

Main arguments:

1. 9% year-one increase is minimum to maintain debt-service coverage. Kevin Burnett demonstrated that reducing from 9% to 8% would drop below the 1.5× coverage threshold required by WIFA; further cuts are not financially feasible.

2. Desert Hills system unsustainable without rate increases. The prior study showed negative fund balance; no changes were made to Desert Hills rates because the system's financial integrity depends on the increases.

3. Wastewater requires rates until 2028. Kevin Burnett and Sean Cruz Meisner confirmed that current wastewater revenue does not cover operations and maintenance; proposed rates will reach break-even only in 2028 as debt is paid down and new customers connect.

4. Larger-meter customers bear proportionally higher increases. 1.5-inch and 2-inch meter base charges rise $58/month and higher, recouping revenue that the residential tier reduction costs.

5. Multi-year rate adoption strengthens financial planning and debt capacity. Jim Strickland explained that WIFA will credit a five-year rate commitment more favorably than annual increases when evaluating additional-bonds test and debt-service coverage, potentially allowing reserve release.

6. General-fund subsidy is transparent and budgeted. Shirley Fox noted that Desert Hills subsidy is published in the annual budget; when the utility becomes self-sustaining, the subsidy will be recovered in fund-balance accounts.

7. Revised rates provide relief to average users. Kevin Burnett noted that middle-tier residential rates were lowered year one, providing a modest benefit to typical customers, and that upper-tier rates were increased to preserve conservation signal.

Project Details

• Case number / Study ID: Water and Wastewater Rate and Capacity Fee Study (no formal case number provided; noted as "revision" following September [prior work session])
• Applicant / Consultant: Wildan Financial Services; Walker Consulting LLC; Bond Counsel: Gus Rosenfeld (Tim Stratton); Financial Advisor: Jim Strickland
• Utility Service: Cave Creek water system, Desert Hills water system, Cave Creek wastewater system (~900 sewer users; 4,200+ water customers)
• Location / Service Area: Town of Cave Creek, Arizona; service boundaries vary by utility (Desert Hills water more confined, Cave Creek water broader)
• Current rates (examples): Single-family residential: base charge ~$46–50/month (now equalized across 5/8", 3/4", and 1" meters); multi-family: base charge per meter size; wastewater base charge (prior) ~$54–81/month (now proposed to rise further)
• Current zoning → Proposed: Not applicable (utility rates, not land-use)
• Density / Units / Capacity: Sewer: ~14 new tap-ons/year projected (2024–2025); Water: ~40–64 new tap-ons/year; Cave Creek water: losing ~540 homes to Carefree annexation (per Councilman Silva)
• Replacement Cost (Contested): Proposed: $70 million (net of depreciation, less $9 million loan-forgiveness adjustment, less ~$1.8 million in debt already issued for repair/replacement). Tom Augherton insisted 2013 figure of $120–130 million is more defensible; staff ordered to recalculate using per-linear-foot-of-pipe methodology.
• Capital Projects Included: Water treatment plant upgrade, 2024–2025, $3.69 million (debt-funded); various smaller cash-funded projects
• Debt-Service Coverage Targets: 1.5× maximum annual debt service (goal: release WIFA $1.8 million reserve if combined pledges hold 1.5×); additional-bonds test to ensure future borrowing feasible
• Changes from Prior Iteration (September [prior session]):
  • Year-one Cave Creek water increase reduced from 11% to 9%
  • Year-two and year-three increases adjusted (4%, 4% in revised vs. 5%, 3% prior)
  • Base charges equalized: 5/8", 3/4", 1" meter base charges now the same (previously 1" was higher)
  • Upper-tier residential rates held flat or increased (vs. prior proposal to lower them), to preserve conservation signal
  • Desert Hills and wastewater rates unchanged (insufficient cushion to reduce)
  • BOD (grease-trap) monitoring fee to be restructured from volumetric to flat-fee basis (final numbers pending)

Vote Breakdown

Final: No formal votes recorded on rate adoption; council motion to proceed with September 19 notice of intent was implicit (no objections noted).

Yes (Implicit): Mayor Robert Bunch, Vice Mayor Kathryn Royer, Councilmember Tom Augherton, Councilmember Cynthia Driskell (Roy), Councilmember Joe Freedman, Councilmember Thomas McGuire, Councilmember Dusty Rhoades (all present and agreeing to timeline)

No: None recorded.

Abstentions / Absences: None recorded.

Note: Councilman McGuire's objection to the tiered-rate structure and Tom Augherton objection to the replacement-cost methodology did not result in formal "no" votes because the council was taking no final vote on rates or capacity fees this date—only agreeing to proceed with notice of intent on September 19 and to direct staff to recalculate and refine before November 21.

Outcome & Next Steps

What was decided:

• Council will adopt notice of intent to raise rates on September 19, 2022 (scheduled separately; not voted this session).
• Public notice period will run 30 days after September 19 notice.
• Public hearing and rate/capacity-fee adoption scheduled for November 21, 2022.
• Water and wastewater rates (non-code) to be adopted by resolution; capacity fees (in town code) to be adopted by ordinance requiring two readings (September 21 [first reading], December 5 [second reading]).
• New rates effective January 4, 2023.

What was deferred:

• Final rate/capacity-fee vote deferred to November 21.
• Replacement-cost calculation to be revisited using linear-foot-of-pipe methodology; staff to pull base assumptions from 2013 study and adjust for system additions since 2013.
• BOD monitoring fee (grease-trap / pre-treatment program) to be restructured from volumetric to flat-fee basis; final numbers to be available before September 19 notice and November 21 vote.
• Online rate calculator to be built and launched (timeline: before November 21 if feasible).
• Public-education campaign (direct mail, social media, website updates) to be developed; possible separate public meeting before November 21 to be scheduled at council discretion.
• Town attorney to be asked to draft a resolution clarifying Desert Hills subsidy tracking and recovery mechanism (fund-balance accounting) so future councils can see whether subsidy has been repaid.

Continuance date: November 21, 2022 (public hearing and adoption vote).

Controversies & Context

Rate structure dip and conservation messaging: The proposal to reduce year-one rates (9% increase vs. 11% prior) while raising rates in subsequent years sparked objection from Robert Morris and Councilman McGuire. Both framed it as sending the wrong signal in a time of Arizona water scarcity (2025 CAP allocation cuts looming). Staff replied that tight debt-service coverage ratios and the phasing of a $3.69 million treatment-plant upgrade loan (2024–2025) constrain the 9% minimum; further cuts breach covenant requirements. The council did not override staff on this point, but the tension remains unresolved: can the rates be made smoother (consistent annual increases rather than year-one dip)?

Replacement-cost methodology and audit trail: Tom Augherton challenge to the $70 million replacement-cost figure reflects skepticism about the Wildan/engineering approach (replacement cost new, minus depreciation). The 2013 study estimated $120–130 million; the current estimate is lower. Staff acknowledged that a per-linear-foot-of-pipe calculation (pulling from 2013 base data) might be more transparent and defensible. This disagreement is not merely academic: if the replacement cost is significantly higher, capacity fees (charged to new development to reimburse existing customers for their investment) could be higher, or the subsidy-forgiveness and debt adjustments might need reconsideration. Staff committed to recalculating, but the analysis is not expected before the November 21 vote—meaning the rates may be adopted provisionally, pending confirmation of replacement-cost assumptions.

Commercial business impact (BOD monitoring): Harold's Corral owner Dan Piodeo reported a 65% sewer-fee increase ($500–600/month) due to BOD monitoring fees, a new charge introduced in the prior rate study. The fee was designed to monitor grease-trap compliance but was structured on a volumetric (flow-based) basis, hitting high-volume water users (restaurants, auto shops) disproportionately. Staff agreed to restructure it as a flat fee (per-account or per-interceptor, not per gallon of discharge) to more fairly distribute the pre-treatment program cost. However, the new numbers were not available at this session, leaving uncertainty about whether commercial users will see relief or further escalation.

General-fund subsidy transparency and Desert Hills reserve paradox: Councilman Roy raised an important question: if the town subsidizes Desert Hills by $382,800 annually from the general fund, why is the utility simultaneously building a reserve fund? The implication is that the subsidy money could be disappearing into reserves without visibility. Staff and Finance Director Shirley Fox clarified that the subsidy is budgeted publicly each year, and when the utility becomes self-sustaining (after rates take effect and debt is paid), the reserve will accumulate. However, Roy's objection highlighted a real accountability gap: there is no formal resolution or ordinance binding the town to recover the subsidy once reserves are built. The town attorney was asked to draft a resolution to make the subsidy-repayment mechanism explicit, but this is a deferred action item, not resolved this session.

Multi-family metering and conservation: Robert Morris objected to single-meter multi-family buildings, which do not create per-unit conservation incentives. Staff noted that only 17–18 accounts have this arrangement and that they are actually low water users (surprising finding). However, Robert Morris pushed for a prospective requirement: new multi-family projects should be individually metered. Staff confirmed the town's 2021 water-resource policy already directs this, so the issue is largely resolved going forward, though no formal council action was taken this date.

CAP water-allocation cuts (2025) and regional context: Multiple speakers referenced the January 1, 2025 CAP water-allocation reduction from 300,000 acre-feet to 270,000 acre-feet annually. David Phelps noted that Arizona is forced toward regional cooperation and efficiency; Councilman McGuire emphasized that rate design must be aggressive enough to drive conservation given the shrinking allocation. This context—Arizona's water scarcity—is the elephant in the room and explains why staff (and bond counsel) were reluctant to lower rates further: any revenue shortfall forces a future, larger increase, which destabilizes debt service and makes future borrowing harder. The council did not resolve this tension but acknowledged it.

Public communication and "rubber stamping" perception: Councilwoman Roy and others raised the optics of holding a public hearing and voting to adopt rates at the same meeting, warning it creates the appearance of a predetermined decision and gives residents no opportunity to file objections that could alter the outcome. Staff replied that the 30-day notice period (September 19 to November 21) is the legal requirement, and work sessions are meant to refine the proposal. However, the council seemed receptive to holding a separate, dedicated public-education meeting in late October or early November, and staff committed to developing an online rate calculator, direct-mail campaign, and public-information strategy. This decision was not formalized but will likely lead to at least one additional public session before November 21.

Multi-year rate adoption strategy: David Phelps and Jim Strickland both advocated for the council to adopt 5 years of rates (not just year one) to provide rate certainty, avoid annual political pressure, and allow WIFA to credit the full 5-year revenue commitment when evaluating debt-service coverage and additional-bonds test. This is not a new idea—the study supports it—but no formal motion to adopt multi-year rates was made this session. It will likely resurface at the September 19 or November 21 vote.

Duration

• This item (water/wastewater rate study discussion): Approximately 1 hour 40 minutes of the session (council discussion and public comment combined)
• Total meeting: Not stated in transcript; likely 2+ hours including procedural items and the full discussion

Other Notable Items

BOD (pre-treatment program) fee restructuring: Staff reported that the grease-trap monitoring fee, introduced in the prior rate study, will be converted from a volumetric (flow-based) fee to a flat-fee structure (per-account or per-interceptor) to more fairly distribute the cost of monitoring and maintaining interceptor devices (grease traps, oil/sand traps) across all users. This change is intended to mitigate the disproportionate impact on commercial water users (restaurants, auto shops) but final numbers were not available at this session and will be incorporated before the November 21 vote.