Taken together, these items create a number of challenges as we build the 2027 budget. The purpose of this discussion is to identify and understand these pressures early in the budget process so the Board can evaluate the financial implications…
— staff notes for the September 24 PAWSD Board meeting.
As mentioned on Part One, the Pagosa Area Water and Sanitation District (PAWSD) Board of Directors met last week and discussed some challenging financial issues related to the proposed 2027 district budget.
The main hurdle seemed to be with the Debt Service Coverage Requirement.
Last Thursday, the shortfall between the required Debt Service Coverage and the projected Net Operating Revenue appeared to be about $1.6 million.
Disclosure: I currently serve on the PAWSD Board of Directors, but this editorial series reflects only my own opinions and not necessarily the opinions of the PAWSD Board or staff.
A few of the more important details that were brought before the Board by the PAWSD staff:
1. PAWSD operations are funded mainly through fees, rather than through tax collections. The fees come mainly from monthly water and sewer service to residences and businesses in the core areas around town of Pagosa Springs, and from fees paid by new construction for water and sewer hookups. A lesser amount comes from vacant properties that pay ‘availability fees’ when they are adjacent to existing water and sewer lines.
PAWSD has, for a number of years, based its annual budgets on the idea that the customer base will grow by about 2% per year, and that new construction will supply some of the revenues needed for maintenance and capital improvements through the ‘Capital Investment Fee’. The ‘CIF’ for a new home hooking up to both water and sewer service is currently about $26,000. (PAWSD has historically waived those fees for certain types of affordable workforce housing.)
In 2026, the rate of growth from new construction has been less than the expected 2% — closer to 1.4%. The District expected 2026 CIF fees to be about $1 million. It now appears, as the construction season comes to a close, that PAWSD will actually collect more like $690,000.
As the Board and staff consider the budget for 2027, the assumption is for the ‘slowdown’ to continue.
2. About 20 years ago, PAWSD took out a loan to build a new water treatment plant on the shores of Lake Hatcher, the main storage reservoir for the Pagosa Lakes neighborhoods. When the repayment schedule for that loan was agreed to, the annual payments were about $530,000. But the final two payments — for whatever reason? — were scheduled to be about $1 million each. Ouch.
Most of the current PAWSD administrative staff was not around 20 years ago, so this ‘double payment’ came as something of a surprise as the budget for 2027 began to be assembled. It was also a surprise to the PAWSD Board.
3. Many costs continue to increase, including insurance, supplies, fuel. Also, the staff expects wages increases on an annual basis, to keep up with inflation, and to reward increased training and experience.
As mentioned, at the September 24 meeting, the DSCR shortfall looked like approximately $1.6 million.
I’m thinking, this morning, of a similar period, back during the Great Recession, when Pagosa Springs governments had to tighten their belts between 2009 and 2012.
The Town of Pagosa Springs, for example, had been experiencing steady growth of its main revenue source: sales tax. Growth had been as high as 12% per month, year-over-year. But when the Recession hit in 2008, sales tax trends began heading in the opposite direction. Sales tax collections were lower than the previous year, and falling.
Town Council member Mark Weiler suggested a new policy to deal with the changing financial landscape.
If sales tax were to come in 5% below the previous year, over a two-month period, then the Town Manager would bring forward a plan to cut expenses by 5%.
If the drop were 10%, then the expenses would be reduced by 10%.
This fairly simple policy may have saved the Town from more serious financial issues during that economic downturn.
Based on the lack of expected CIF revenue seen by PAWSD this year — a decline of about 30% below expectations — it would appear that Archuleta County, as a whole, might be going through a period of economic retraction.
That same idea has been apparent in the population data served by the Colorado State Demographer, showing a decline in population in 2025 and 2026. According to the Colorado State Demographer’s Office, the population of Archuleta County in 2024 was about 14,182. The estimate for 2026: $14,042. A decline of 140 residents over two years.
While the Town and County governments depend mainly on sales taxes and property tax revenues — revenue sources they do not directly control — PAWSD depends mainly on customer fees. And PAWSD does, in fact, control those fees. The Board can increase fees with a simple majority vote.
When faced with a projected “budget shortfall”, the PAWSD Board can make up the difference without making any cuts to operations, by requiring customers pay more each month.
On the other hand, the PAWSD Board also sets the budget for 2027, and instead of raising customer fees, the Board could require the staff to reduce expenses. The Board can, for example, postpone certain planned improvements or upgrades… or require a reduction in the number of employees… or freeze staff wages.
As the saying goes, there’s more than one way to skin a cat.
Or to balance a troublesome budget.
Read Part Three… tomorrow…