After cutting employees' compensation and dodging the most recent round of rate hikes, the Elk Grove Water District has hired a new finance manager and will consider restructuring its debt.

District Manager Mark Madison said the water supplier is still struggling financially but is turning to more creative ways of cutting costs before going back to customers and employees for more money, including withholding employee pay raises for three years.

Dennis Coleman was hired as finance manager beginning Sept. 29. He was previously the finance director and treasurer for the city of Solana Beach.

The district, which supplies groundwater to about 36,000 customers in Elk Grove, has periodically raised rates in the past decade, most dramatically beginning in 2007, when it implemented a five-year plan to manage its debt, expand and upgrade crumbling infrastructure, and convert to metered connections.

For roughly 12,000 homeowners in a 13-square-mile area of Elk Grove east of Highway 99, the plan pushed the bill for a basic 1-inch connection from $41.89 a month in 2007 to $78.30 a month currently. The district was scheduled to impose another 3 percent increase in June, but the board of directors voted to keep water rates stable and hunt for other sources of money.

The water company, part of the Florin Resource Conservation District, adopted a 2011-12 budget including planned revenues of $14 million and expenditures of $13.5 million.

"Our budget is cash-positive, and that's good news," Madison said. "But for accounting purposes, we have to reflect depreciation and amortization, which is $1.7 million. So in reality, we're about $1.2 million light."

The district embarked on an "employee cost control program," said Madison. The 30 employees agreed to pay a greater percentage toward their retirement.

That means that by 2014, employees will pay about 6 percent more to the California Public Employees' Retirement System, which will save the district $1.2 million over the next three years.

They also agreed to forgo cost-of-living raises of 2 percent to 3 percent a year for the next three years.

"The employees stepped up to help us achieve financial stability," Madison said. "They understand we can't keep going back for rate increases."

Next, the district will consider refinancing its $56.3 million debt, but Madison said it would be controversial, because the five-member board feels that would only put off financial woes.

The district, more than 100 years old, pumps groundwater and buys treated water from Sacramento County to deliver to its customers. In 2002, it launched a major construction project to improve water quality. In 2005, it opened a new water-treatment plant and started replacing pipes, some of which are more than 80 years old.

Now it is working to find other sources of water, including modifying four wells and expanding a treatment plant.

Madison said the board understands that water rate hikes could hurt customers during tough economic times.

"We've tried tightening our belt before asking customers to pay more money," Madison said. "It's possible, if not likely, that cost adjustments will be necessary over the next few years, but we would like to hold back as long as possible. Our board is sensitive to the economic plight of our customers."

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