Inside the rate debate: Washington wastewater worries rile town

A costly sewer plant has become a chronic money pit. Proposed rate increases hit the “company town’s” anchor, The Inn at Little Washington, hard, raising tensions

Washington, Virginia — home to the celebrated Inn at Little Washington — is known for meals and memories so beautiful they can’t be forgotten. 

The difficulty involves the leftovers — wastewater, sludge and a 10-year-old town structure of pipes, tanks and grinders that has proved too expensive and too divisive to manage easily. As rancorous as the local hospitality is gracious, the wastewater debate inches toward a solution that may prove provisional — with crucial decisions expected at a Town Council meeting on May 10. 

After revealing worsening financial losses in the wastewater system, the Town Council in March proposed the first rate increase in five years. But last weekend the plan was pushed into limbo, after fierce protests from the system’s largest user — and payer — by far: The Inn at Little Washington. 

The clash has exposed fault-lines in the sewage system’s finances, but also in the town itself, where policymakers must balance the interests of 133 residents with those of a world-renowned, voluminously awarded culinary mecca that boasts a waiting list for every meal.  

Throughout the spring, Washington’s Town Council has been scrutinizing a worrisome set of numbers. Here are highlights:

— The town owes $1.8 million on the sewer plant loans, or $198,000 a year for the next decade. Three bonds tied to the less indebted water system require payments of $24,000 a year. 

— Deferred maintenance and repair projects have piled up. The 110 water meters, some of which can no longer be deciphered, need to be replaced — for about $300,000, which could be spread over five years. Rusty tanks need sandblasting and repainting with industrial epoxies. Pumps in sewage grinder pots require attention. A backup well might be advisable in case the current one dries up. 

— Wastewater fees that users pay tend to fall short of expenses by about $75,000 a year. For the fiscal year ending in June, the gap will be about $100,000.  

— The water system presents a success, ending a typical year about $20,000 in the black. 

The proposed 25 percent rate increase would deliver a resounding, though far from crippling, whack to the Inn, which estimates that the new plan would hike the transfers from inn to town by $36,000. But this would come on top of a hefty base: last year, the Inn calculated that it paid the town $430,000 in taxes and fees last year under the existing rates.

The typical Washington household would see water and sewer bills rise by about $300 annually, and reductions would be available for lower-income households. It’s inevitable that the largest private business in the town — and also the county — would bear special burdens. But the wastewater standoff points to a core identity problem: is Washington a town that has an inn, or an inn that has a town?   

“We are a company town,” said longtime resident Nancy Buntin, whose father served as a state trooper and later county sheriff.  “It’s just like a steel town. But there are benefits. I made my peace with the Inn a long time ago.” 

However, peace was in short supply when the Town Council met April 12 in the 1857 Town Hall, where frictions over the rate hike boiled over. The Inn’s Chief Proprietor Patrick O’Connell, who serves on the Town Council, remarked that “it’s a very difficult town to do business in.” Washington Mayor Fred Catlin later came back: “We have a deficit staring us in the face.” 

As happens at a town council meeting, the sobering financial discussions gave way to a debate of a possible town ordinance on fireworks, which are most often ignited by the Inn to punctuate wedding vows or celebrate a special occasion. The periodic blasts upset animals in the town, even though the Inn limits fireworks displays to four minutes. A Washington cat was recently unhinged by the explosions and went missing for a day and a half.

 Trouble in paradise

In 2009, when the water and sewer system went in, it was considered “state of the art,” Town lawyer John Bennett said. The effluent flowing from the wastewater treatment plant was considered the cleanest in Virginia. But the ill-timed recession following the financial crash of 2008 translated into sluggish economic activity, reduced user fees, and many fewer connections than planners had assumed. The costly plant wasn’t covering its costs, but sensitive to the financial strains already facing long-time Washington residents, the town hesitated to push through rate increases until 2015 and 2016, when  economic conditions were more propitious. 

If wastewater routine revenues fell below expenses, as they regularly did, the town tapped a reserve known as the Local Government Investment Pool, or LGIP. The pool plunged from $343,000 in 2014 to $41,000 in 2016. The sale of Avon Hall propped it up to $324,000 in 2019, but it started to decline again, sliding to $260,000 in 2020.

In 2019, after election to the Town Council, Joe Whited recalls thumbing through Washington’s budget and concluding, “Life is pretty good.” Turning to the water accounts, he saw higher costs than he expected but he remained sanguine. Then, when he got to the wastewater spreadsheets, he had a chilling realization: The system wasn’t paying for itself. He figured that if the pattern continued, the LGIP would continue to shrink, and finally disappear, leaving the town without a viable financial cushion.

Working with Treasurer Gail Swift, Whited began poring through the numbers. They perceived a perfect storm of three intersecting financial challenges: continuing payments on loans that funded the system’s construction a decade ago; a buildup of postponed replacements and repairs; and an operational deficit where fees for the wastewater plant chronically fall short of expenses. 

Soon after Swift and Whited concluded that a rate increase was necessary, the COVID-19 crisis hit, and Rappahannock County spun into a state of emergency. It wasn’t the time to raise anyone’s taxes on anything. Instead, Washington negotiated a pause in debt repayments with the wastewater system’s lenders. 

As the pandemic year unfolded, the Inn, the town and the county all managed to avoid the most wrenching setbacks many had feared. Remote workers settled into weekend homes or AirBnB rentals, and digital sales ballooned, generating online sales taxes. After a short break, guests returned to the Inn at Little Washington, greeted by the characteristically theatrical touch of mannequins in the dining room to assure safe distancing.

Rate increases vs. unstoppable growth

Meanwhile, Whited and Swift crunched the numbers, finding they hadn’t improved. The two argued that rate increases — never popular — were needed to prevent the town from exhausting its financial reserves and risking default on debt payments to the lenders. Should the town be unable to repay the loans, the lending contracts would require immediate taxes on property-owners at whatever level was necessary to restore the scheduled repayments.

Notwithstanding the warnings, the Inn recoiled at the proposed rate increases. Being told to pay an additional $36,000 to the town on top of past and ongoing infusions felt like being taken for granted. But at root, the Inn’s argument against the new rates was based on its own assumptions of unstoppable growth. General Manager Robert Fasce pointed out that guest rooms and dining tables are now booked months ahead, and that expansion plans include more rooms, a cafe, a grocery store, a spa and an event space.

The resulting gush of revenue for the Inn will translate into increased tax money for the town under the meals and lodging levy, set at 2.5 percent of gross revenues. “They’re going to get significantly higher meals and lodging taxes,” he said. “They don’t have to touch anything.” He also pointed out that other businesses, such as one potentially coming to the soon-to-be-sold Tula’s building, will add to the town’s revenue. 

At a Zoom-based Saturday morning budget working session, Fasce asked Council members to name the gap they immediately needed to fill, and offered to guarantee that increased meals and lodging taxes would take care of the problem. Mayor Catlin pointed out that the ongoing meeting was a working session on the budget, not an official council meeting, and that neither financial negotiations nor binding decisions were possible. Fasce pressed his case for allowing the Inn’s growth to solve the wastewater problem, stating that he could guarantee another $60,000 in meals and lodging taxes. “I’m not sure a meteor could hit and stop the momentum,” he added.  

Though the council members were restrained from making binding decisions, Fasce’s message about the Inn’s growth prospects sunk in. Town council members incorporated the perspective that the necessary revenue boost could come not only from water and sewage fees but other sources, particularly meals and lodging taxes. Council member Brad Schneider said that the town also can seek grant funding for some of the structural improvements. He argued that there may be funds still available from federal COVID-19 assistance, and later in the year, monies allocated under the Biden infrastructure financing package now being debated in Congress. In addition, Schneider said, existing grant programs administered by the U.S. Department of Agriculture can be explored.  

County Supervisor Keir Whitson representing the Hampton District urged the town to explore possible savings that could come through coordination with the waste system run out of Sperryville, and with the Commonwealth of Virginia. For example, joint purchasing agreements for costly chemicals used in water treatment could help the town cut expenses.  

A cautious treasurer, Swift warned against budgeting on promises, possibilities or expectations of future growth. Nonetheless, the budget plan will contain new flexibility on the contentious rate increases, which may be held in abeyance or come in far smaller than initially proposed, based on an expected jump in meals and lodging taxes. Whited also emphasized that any rate increases that go through can be rolled back later. Responding to critics who said that governments never roll back taxes, he pointed out that the federal government regularly votes through sweeping tax reductions. “There would be no stronger advocate than myself for rolling back taxes or fees if we’re solidly in the black,” he insisted. “What would be the motivation of keeping them high?”

 How little?

The wastewater fracas underscores not only the dominant role of the Inn, but a central challenge for the town: Little Washington is too little for its own best interests. In 1900, some 300 residents ambled through the compact grid of streets; today, despite repeated statements that a larger population would be good for the town, there are 133 residents. 

Following the contentious meeting on the sewer rates, Mayor Catlin said that the wastewater system — now operating at about 50 percent capacity — would be in better shape if the town population was about 170 rather than 133. The town’s Comprehensive Plan, issued in 2017, called the water and sewer system “a boon to the town,” but it also reasoned that “the cost of maintenance and service would be better apportioned if the Town population were closer to the sewer system’s optimum capacity of 250 users.”

A mixed-use development project led by Washington resident Chuck Akre would bring offices, rental housing, and nonprofit space to the town, which would boost the finances of the wastewater system by bringing new connection charges and usage fees. First presented as Black Kettle Commons, the project was renamed this week and is now Rush River Commons (see related story), with a crucial change: rather that fight through a controversial boundary adjustment placing Akre’s entire nine-acre land parcel into the town, the reconfigured idea would construct the planned buildings and paths on the land already within Washington, and expand to the county section as Phase Two if the needed boundary shift eventually is accepted. 

The boundary adjustment had ignited opposition in parts of the county even before any formal proposal was surfaced from the project backers, and the County Board of Supervisors debate promised to be bruising, and drawn-out. By keeping immediate construction plans inside Washington, where decision-makers tend to view the project positively, the process will likely be simpler and faster. Having invested in a considerable engineering and hydrological analysis, Akre says he hopes to start construction late this year or early in 2022. 

Landscape and architectural features will receive painstaking scrutiny, along with a slew of environmental and legal.  But if the project goes through, it might begin to define a path for carefully guided growth, rather than no growth. Speaking about the Akre mixed-use proposal, and others of similar scale, Washington’s Nancy Buntin said, “For me, it’s just allowing the town to grow a little. It’s not the suburbanization of the town or the county.”

 Company Town

Broadly, Washington’s diverse residents and managers accept the established symbiosis of a company town. The Inn unleashed, heightened and extended the latent beauty of the place, creating an enterprise that is both a work of art and an economic engine. The town supplied a name, a history and an authenticity that includes neighbors, sewer pipes and traumatized cats. Without the Inn, basking in yet another Michelin Three Star recognition, the town would have fewer flowers, less revenue, and more neglected buildings. But without the sometimes exasperating town, the Inn would be an exquisite fantasy park. 

With respect to the troubled water and sewer system, the interdependence is equally strong. “They’re the biggest commercial user and we love them,” former town clerk Laura Dodd said of the Inn. “But we also saved them because they could never have run that kind of establishment on a drain field.”

O’Connell’s critique of the town carried an impact, but also an irony: he is a member of the Town Council he was criticizing, and would have signed off on decisions that involve the wastewater system. “It’s not the Inn versus the town,” Fasce said. “We’re all in it together.” 

Council member Whited agreed: “We’re all going to win or we’re all going to lose.”

 By Tim Carrington  — For Foothills Forum

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