Auditor Galloway issues audit of city of St. Louis Public Utilities

Missouri State Auditor Nicole Galloway today issued an audit report of city of St. Louis Department of Public Utilities. The audit found that the city has not ensured that water revenues are sufficient to adequately maintain the city's water distribution system and that as a result, needed repairs and improvements are being deferred while projected costs increase significantly. The rating issued for the Department of Public Utilities was "fair."

Continued delays to needed capital improvements are causing the projected cost of those improvements to rise significantly. The most recent rate sufficiency studies completed for the Water Division estimated the cost of needed transmission main replacements and improvements was $77 million and the cost of needed repairs to the Chain of Rocks pump station was estimated at $30 million. Those costs were estimated at $17 million in 2013 and $6 million in 2015, respectively.

The Water Division historically has implemented large and infrequent water rate increases, rather than smaller, more frequent increases. Significant rate increases in a short timeframe can potentially cause financial stress on utility customers, particularly those with low and fixed incomes. More frequent and smaller periodic rate increases would allow the Water Division to maintain compliance with the division's bond covenants, cover increases in operating costs, avoid rate shock for customers, and provide funding for capital improvements necessary to maintain the division's aging infrastructure.

Water rate increases have not been implemented since 2011 despite four rate sufficiency studies recommending such increases since then. Despite the rate studies consistently recommending rate increases to fund capital improvements, such recommendations have not always advanced to the Board of Aldermen for consideration. According to Water Division personnel and available documentation, a rate increase was only recommended formally to the Mayor's office twice over the past 10 years, and only one of those times, in 2017, did the rate increase proposal make it to the Board of Aldermen Public Utilities Committee. The committee voted against the proposed rate increase, and therefore, it was not forwarded to or voted on by the full Board of Aldermen.

Auditors also found that the Water Division does not bill the city for water consumption at city-owned buildings and property. As a result, the Water Division is forgoing revenue from city sources and spreading the cost of city water usage across city water customers. According to Water Division personnel, currently only 147 of an estimated 841 city buildings and properties are metered for water use. The meters located on these city properties are read on a quarterly basis to measure water usage, but not billed. The estimated water usage for these 147 city buildings and properties for fiscal year 2021 would have generated $738,376 in potential revenue.

The State Auditor initiated audits of the City of St. Louis in response to a formal request from the Board of Aldermen. This report is the 22nd report issued as part of the office's comprehensive audit of St. Louis city government. The complete audit report is available here.