Each year in June, the Select Board votes to set Hopkinton’s water and sewer rates for the upcoming fiscal year. The decision is based on a review of both the water and sewer funds, with information provided by DPW director John Westerling, Water and Sewer superintendent Eric Carty and The Abrahams Group, the town’s consultant. This year, additional input was provided by the town’s financial team and a presentation by Tim O’Leary, the town’s chief financial officer, at the board’s June 11 meeting.

The news this year was not good. According to The Abrahams Group’s final report, there are challenges for both funds, but the sewer enterprise fund is the most concerning. The fund is facing cash flow problems and has been balanced by using retained earnings resulting in a structural deficit for fiscal year 2020.

The report reads, “When setting rates for FY 2019, the Select Board voted to increase water rates 5 percent and to increase sewer rates 10 percent. Rate setting for both funds was done with a focus on the state of the funds in the short term, despite projections showing large projected deficits in each fund in upcoming fiscal years, causing the projected depletion of retained earnings in the near future.”

Also contributing to the projected deficits of the sewer fund is a decrease in sewer flow. The Abrahams report states, “Sewer flow has decreased significantly in the recent past, in large part due to industrial accounts’ decreased flow, and may continue to decrease in the near future. The town cannot rely on new connections to increase flow and seemingly can no longer rely on industrial accounts’ flow.”

For the sewer fund, O’Leary explained that operating revenues do not cover operating expenses and capital revenues do not cover capital increases. He also said that betterments and debt are not in balance and that without rate increases the fund will see ever-increasing deficits through 2024.

“Immediate, substantial action is required,” O’Leary said.

To achieve stability going forward, his recommendations for sewer rate increases included a 35 percent increase in the first year and another 25 percent in the second year.

“Negative retained earnings are not acceptable to the state Department of Revenue,” he said.

O’Leary also provided the board members with a spreadsheet tool that would allow them to see the results of different rate increases through 2024. While acknowledging that the board’s decision on rates was a policy decision, he encouraged them to work with the tool, but admitted that while there were several paths to stability, none were attractive.

Reactions from the board followed the presentation, with John Coutinho asking, “How did we get here?”

Town Manager Norman Khumalo suggested the board go back and look at last year’s report, where issues with the sewer enterprise fund were made known. Khumalo also cited the challenges of balancing water conservation with its use as a source of income. O’Leary added that there is elasticity for water rates — if rates go up too much, people will lower their use.

Brian Herr added that he was not surprised, saying that the board had been stingy and admitted that he had been reluctant to raise rates, but that he was totally opposed to a loan from the town’s general fund to fix the problem.

“I don’t know what the answer is,” he said. “We need to make tougher decisions. We didn’t take it then, but we have to now. I am willing to look at crazy percentages to make it right for the future.”

Mary Jo LaFreniere agreed and added: “Let’s bite the bullet to get rid of the debt.”

Khumalo suggested a working session prior to the board’s scheduled public hearing on June 25. He suggested three main topics for discussion that included dealing with the situation they are faced with, considering all residents, and taking a longterm view.

Water and sewer rates for FY20 were to be set by vote of the Select Board at the June 25 public hearing.

Last year’s rates can be viewed online on the town’s website at hopkintonma.gov/departments/department_of_public_works/water_and_sewer_rates.php.