Utilities shortfalls could require large rate increases; Cave Creek Water may need 30% cumulative hike to cover debt

Town staff told council that the draft FY27 budget exposes structural gaps in the utilities and that financing choices will affect ratepayers. In a presentation to the council, staff member Sherry said Cave Creek Water faces a net negative after debt service and would require roughly $12 million of new debt financing for planned water projects. She estimated a cumulative rate increase of about 30% to cover that debt; a 48% cumulative increase would be needed to eliminate a $2.9 million annual general‑fund subsidy to the utilities.

Sherry described the utility projections as a combination of lower usage, some conservation impacts and rate‑related assumptions. She said AMI meters and milder weather have reduced consumption, and she included projections for Cave Creek Water (-10% usage), Desert Hills Water (-8%) and wastewater (-1%) compared with prior assumptions. Staff recommended another rate study and said assumptions include vacancy savings and phased debt service plans.

The wastewater fund was described as in worse structural condition than the other funds: staff estimated a negative net after debt service and projected that eliminating the general‑fund transfer would require large cumulative increases in wastewater rates. For Desert Hills, staff estimated a cumulative 7% rate increase to cover on‑going deficits and about 15% to eliminate a projected general‑fund cash loan.

Council members pressed for timing and options, and staff identified debt‑management opportunities such as early payoff of some WIFA loans where interest‑rate arithmetic could yield savings. Sherry told council staff would analyze whether early payoffs or re‑financing made sense based on market rates and available debt‑service reserves.

Council did not vote on any rate changes during the session. Staff said they will return with a rate study recommendation and scenarios that show the revenue, debt and reserve trade‑offs that would be required to reduce or eliminate general‑fund subsidies to the utilities.