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Many Houstonians recently received a letter from the City of Houston informing them that there would be an automatic increase of 9.2% to water and sewer rates, effective April 1. However, if you read the fine print carefully, the actual increase will be substantially more than that.
In 2010, Houston City Council adopted an ordinance that would automatically increase water and sewer rates on April 1 each year, based on the inflation in the previous year and the increase in the City’s population. According to the letter from the City, the inflation rate was 8.2% and the population increase was 1%, resulting in an increase based on the 2010 ordinance of 9.2%.1
However, in addition to the automatic increase arising from the 2010 ordinance, City Council adopted an additional increase in water & sewer rates in 2021. That increase raised water & sewer rates by 50-78% based on usage over five year. Most of the increase was frontloaded in the first two years.
This is a chart from an information sheet sent to customers by the City of Houston showing the estimated effect of the 2021 increases.
The increase this year from the 2021 ordinance will be in the 6-8% range. When added to the automatic adjustment for population and inflation, most Houstonians will see a 16-18% increase this year.
A 16% increase in rates will increase the City’s water & sewer revenues by over $200 million in one year. To put that in perspective, that is about twice the amount that the drainage fee raises each year.
That $200 million increase in revenues comes on top of a $215 million increase in revenues last year. As a result of the increases in the last two years, plus the increase just assessed, Houstonians will be paying about 50% more for water and sewer than they were just three years ago.2
Let me be clear, the City had been undercharging for water and sewer and underinvesting in maintaining the system for decades. An increase in rates was absolutely necessary to address the system’s many problems. But we have no idea whether these automatic increases bear any relationship to what is necessary to properly maintain the system.
One indication that the recent increases are perhaps excessive comes from the City’s most recent audit. According to the audit, the water and sewer fund has enjoyed huge operating surpluses over the last two years: $480 million in 2021 and $894 million in 2022. Those surpluses have helped boost the net position of the City’s water and sewer system from a deficit as recently as 2016 to an astonishing surplus of $2.5 billion as of the end of last year.
I am truly glad to see the water and sewer system get on a better financial footing. It is something that the City has been needing to do for some time. But these breathtaking increases are going to be a hardship on many Houstonians, especially seniors and others on fixed incomes. Also, we have seen too many times what happens at the City when a particular department is awash with cash.
Council put these increases on autopilot to avoid the unpleasant task of having to vote to raise rates each year. Sorry folks, that is part of the job. Council should revisit its rate increase plan and make a detailed finding of the needs of the system and ensure that Houstonians are paying enough to properly maintain the system, but no more.
Note 1 – It does not appear to me that the City is using indices for population and inflation specified in the ordinance. I am still researching this and will write another post on that issue. But my preliminary conclusion is that the rate should have been about 6% instead of 9.2%.
Note 2 – This very rapid increase in water and sewer revenues is just another illustration of the fact that there is no “revenue cap” for the City of Houston.
Note 3 – The finances of the City’s water and revenue system are accounted for separately from the City’s other operations in an “enterprise fund” known as the Combined Utility System.