The Pagosa Area Water and Sanitation District (PAWSD) Board of Directors approved the district’s 2026 budget and set mill levies for the district at a Dec. 11, 2025, meeting.
Discussion of the budget opened with PAWSD District Engineer/Manager Justin Ramsey pointing out the cost of using lanthanum chloride to remove phosphorus from the district’s wastewater.
He stated that this process, which is required by the Colorado regulations, would cost the district $200,000 to remove 1.7 milliliters of phosphorus daily from the wastewater.
Ramsey noted that this requirement was recently imposed and caused a modification to the district’s budget.
PAWSD Utility Accounts Supervisor and Interim Comptroller Cyndi Foster explained that this requirement caused a reduction in the expected balance of the water and wastewater funds for 2026 by $200,000.
She then explained the changes that had been made to the budget from the board’s November meeting, including that income from the affordable housing surcharge that the board decided to end was canceled and that $303,000 was allocated for engineering on a pipeline to connect Stevens Reservoir to Lake Hatcher.
She also reviewed the valuations of PAWSD’s two districts.
Foster stated that the assessed values for District 1, provided by the Archuleta County assessor, were $225,861,505 and the values for District 2 were $206,137,210.
Values in District 1 were down 0.87 percent and values in District 2 rose by 16.33 percent, she stated.
Colorado Taxpayer’s Bill of Rights (TABOR) limitations resulted in a mill levy of 4.299 mills for District 1 and a mill levy of 1.302 mills for District 2, according to Foster.
She added that she spoke to the assessor’s office about the changes in valuations, which had been a point of concern for members of the board in the past.
Foster stated that the assessor’s office informed her that it does a reevaluation every two years and that, in the most recent reevaluation, some properties in District 1 became tax exempt when they were not previously, leading to the reduction in overall value, while, in District 2, a large property significantly rose in value, driving the increase.
PAWSD board member Glenn Walsh noted that TABOR does not freeze mill levies from increasing and that small increases can occur with a small increase in valuation and an increase in inflation.
He noted that the district’s water and sanitation customers in District 2 were seeing an increase in their tax while the water only customers in District 1 were receiving a “nice break.”
“That’s where my sympathy for the wastewater district comes from is that, every time we turn, the water-only folks are treated very, very fairly and the water and wastewater folks, in my opinion, are carrying an awful lot of the load in this district,” Walsh said.
PAWSD board member Bill Hudson recommended to the board that it should add funding to the budget line item for affordable housing waivers, which was currently at zero, for providing waivers for Habitat for Humanity’s 2026 housing projects.
He stated that Habitat is planning to build four houses in 2026 and that this would cost $36,908 in the water fund and $64,672 for the wastewater fund.
Hudson stated that these numbers would be placeholders since the district has not approved these waivers, but that he believes that the board would want to support Habitat’s projects with waivers.
Walsh stated that he would only support waivers for projects that he believes would not happen without waivers, meaning that the district would not experience a “real loss” for supporting these projects since the district would not lose money for granting a waiver.
He added that, if the waivers did not represent real losses, adding them to the budget would create a need to pay for them from revenues and would potentially create significant debts in the future.
PAWSD board member Alex Boehmer added that the district is planning on doing a new rate study in 2026, which would potentially change many aspects of the fee waivers.
He stated that he did not see adding funding for the waivers to the budget as necessary, especially for an item that the board had not voted on, even if it had reached a general “private” consensus.
Walsh recommended that Habitat for Humanity should make a request for waivers next month.
Boehmer expressed agreement with this statement, adding that, due to research he had done, he would likely be supporting fee waivers for Habitat.
“I would like to see Chris Mountain get developed and us to do as much as we can to ensure future grant opportunities and make sure that we look really good to state and that we’re doing the best that we can to move that project forward,” he said.
Hudson stated that the Town of Pagosa Springs accounts for waivers by reimbursing the Pagosa Springs Sanitation General Improvement District (PSSGID) for waivers with money from the town council.
He noted that PAWSD cannot do a similar procedure due to its different structure, but that he felt the district should insert placeholder amounts and then determine a “better way to do this bookkeeping” once PAWSD hires a new comptroller.
Hudson added that he wanted to make a statement to Habitat that PAWSD is planning to “listen carefully” to its presentation.
Walsh added that, if Habitat presents a project in line with its previous work, it would likely receive three votes.
PAWSD board member Bruce Jones noted that putting in a specific number for the waivers would cause them to accrue differently in the budget compared to treating them as a “gift.”
He added that he would also support fee waivers for Habitat and that he supported them in the past.
Jones commented that including specific numbers might convolute the process in a “negative way,” although he is confident Habitat would receive the waivers.
Hudson stated that he was comfortable with not including numbers in the budget.
Jones added that he would like to revisit the district’s affordable housing waiver policy in the future to clarify it and make it in line with the board’s current “unspoken” understanding.
Walsh stated that his issue with the budget was that he wanted to limit the increase in wastewater rates to 7 percent instead of the 10 percent included in the budget, with the goal of establishing “good faith” with the district’s wastewater customers.
Hudson asked if this would cause problems with the current budget.
Foster and former PAWSD Business Manager Aaron Burns, who helped develop the budget, indicated that this would impact the budget and would require adjustments and additional debt service coverage calculations.
Walsh expressed confidence that the district’s debt service coverage and fund balances could accommodate the decrease in revenue.
Foster replied that this might not be true due to the loss of affordable housing surcharge revenues and the $200,000 in additional phosphorus treatment costs.
She stated the district’s debt service coverage ratio was brought down to 1.25, the lowest possible acceptable level, by these changes.
“I recognize that, but then I also recognize that our wastewater customers and our wastewater/water customers are carrying a real burden,” Walsh said.
He stated that these customers have seen large increases in fees, while the water-only customers have seen only small increases despite the construction of the expanded Snowball water treatment plant to largely serve them, partially due to what Walsh characterized as a “very incomplete” rate study.
He added that the district is currently planning to transfer $500,000 in general fund money, which is mostly supported by taxes paid by water and wastewater customers, to the water fund.
Walsh proposed that the district could transfer a portion of this money to the wastewater fund instead to make up for the loss created by rate increases and meet the district’s debt service requirements.
Burns commented that, with additional adjustments, the district was able to raise the debt service coverage ratio to 1.3 from 1.25, giving some room for Walsh’s idea.
However, he noted that 1.25 is the “bare minimum” and that falling below this would violate the covenants on the district’s loans and bonds, exposing it to “issues with our lenders.”
“We’re very close to that at 1.3 and it does not allow a lot of room for error if we, for whatever reason, something comes up next year, like we had a few things come up this past year, that we didn’t budget for, like hydrants or things of that nature,” Burns said.
Burns added that any change to the percentage increase would likely need a way to offset it, such as Walsh’s proposed general fund transfer.
Walsh commented that the district has a healthy general fund balance and he does not see why funding could not be transferred to the water fund, which he characterized as a “very indulged fund” and noted that the wastewater generated by those customers is “massively subsidized” by the water and wastewater customers due to PAWSD’s arrangements with the PSSGID.
He added that the water fund is a “favored child” in his opinion and is given large amounts of latitude, while the wastewater fund and its customers are expected to “pay through the nose.”
Foster explained that the district made a transfer of general fund money to the wastewater fund in 2024 and is considering doing so again in 2026.
She added that the $500,000 transfer to the water fund was to pay for work associated with the Colorado Department of Transportation U.S. 160 reconstruction project ahead of time.
Walsh added that this is also a justification for looking at increasing rates on water-only customers instead of water and wastewater customers.
Foster and Burns explained that the district could transfer around $200,000 to the wastewater fund in 2026 once the state grant money the district is already receiving for the fund is incorporated.
Burns reiterated his concerns about the debt service coverage ratio being brought below 1.3 and stated that he would want to do additional testing if the changes Walsh suggested were made to ensure that the district would retain sufficient room for unexpected costs.
Hudson asked Walsh if the board could approve the budget with the 10 percent rate increase now and could consider a 7 percent increase when it sets fees in January if Burns and the district’s new comptroller believe it to be feasible.
Walsh stated that there are a variety of ways to shift PAWSD’s budget to accommodate a 7 percent rate increase.
He added that he would vote to approve the budget with a 7 percent rate increase and would vote no above that, although he liked the changes that were made to the budget.
Jones asked what staff would recommend as a way to move forward with Walsh’s request in terms of meeting timelines to approve the budget.
Foster stated that the district needed to certify mill levies by Dec. 15 and should likely do so at the present meeting, but that it could approve the budget at a special meeting later once further analysis is conducted.
Walsh suggested that the district could approve the budget with a 7 percent rate increase and then call a special meeting later to change it if that is unworkable.
Foster asked if the district could approve the budget with a 10 percent increase and then approve a rate increase of only 7 percent at its January 2026 meeting.
Burns stated that the district could do this since the budget focuses on setting the expense levels the district will not exceed and the district could adjust later if its income decreases due to a lower-than-expected rate increase.
He reiterated his desire to have a 1.3 debt service coverage ratio.
“I find it impossible to believe that, if you look at audit 2024 to budget 2026 and the 40, 50, sometimes 60 percent increases in tentpole line items that we can’t find enough between transfers and some savings to limit the increase to 7 percent, and I think our rate payers would appreciate that and they’d have more confidence in the upcoming rate study,” Walsh said.
Burns commented that debt service coverage ratio is focused on operating expenses, not capital expenses, and that this money would have to be taken from operating expenses.
“It will be a project for us to figure out where those savings are going to come from,” Burns said.
Jones asked Burns for his recommendation on if the board should go with a 10 percent increase or a 7 percent increase.
Burns stated that he would be “OK” with voting to approve the budget at 10 percent and approving a rate increase of 7 percent in the future if the district could find a “solution to the difference” in the meantime.
Walsh commented that this was not an “unreasonable approach,” but that he would still vote against approving a budget that includes a 10 percent increase.
Boehmer asked if Burns would oppose voting to approve a budget with a rate increase of 7 percent at the meeting and potentially adjusting it higher later.
Burns replied that he was proposing approving the budget with a rate increase of 10 percent due to timing and the need to get the budget approved and submitted to Archuleta County, but that he did not oppose later approving a 7 percent rate increase.
The board then approved the budget as presented, with Boehmer, Hudson and Jones voting in support and Walsh voting in opposition.
Following the vote, Boehmer commented that he wanted to try to decrease the rates, but he could see “both sides’ points.”
The board then unanimously voted to certify the district’s mill levies and submit them to the Archuleta County treasurer.
josh@pagosasun.com
>