Email Story

Recommend Story

Printable Version

Discuss

 

Published on 5/22/2009

* City has millions in fund balances

By Tommy Howard

thoward@gtowntimes.com

Georgetown faces $600,000 worth of red ink for the coming year.

City Council members are considering a rate hike for water and wastewater utilities to cover some of that red ink.

That's the upshot of a budget workshop Tuesday afternoon for Georgetown City Council.

The shortfall is due to the announced closure of the ArcelorMittal steel mill in downtown Georgetown.

While the city received $887,210 from the steel mill in taxes, business license fees and utilities, the biggest hit to the city budget is from the loss of utility revenues. Property taxes of about $200,000 will have to be paid whether the steel mill is operating or not.

The steel mill spends about $600,000 for water and wastewater treatment services with the city each year.

With the mill's closure on July 12 for an indefinite period, city finance staff told members of council Tuesday, that loss of revenue will take a big chunk from the city's coffers.

In past years the city has transferred hundreds of thousands of dollars from its various "enterprise" funds to the general fund.

The enterprise funds include electric, water and wastewater utility funds.

They are treated as though they are business functions of the city.

For the fiscal year ending June 30, 2009, the electric utility transferred $1.4 million. No money was transferred from those other enterprise funds. However, in each of the past several years some $2 million or more has been transferred to various governmental funds from the enterprise funds.

City administrator Chris Eldridge said the general fund of the city is close to being balanced.

"Our real concern is water and wastewater," Eldridge said. "It's very hard to do."

"The options are to increase rates," Mayor Lynn Wood Wilson said.

Figuring costs

In reviewing the budget information, Councilman Rudolph Bradley asked about planned capital improvements for the coming year.

Eldridge said some water line work will be done by city staff, saving about $100,000. Other major capital expenditures aren't planned for the coming year.

"Every gallon of water we sell, we are losing money," Councilman Jack Scoville said.

"The problem with water," Councilman Brendon Barber said, "is our rates don't reflect the cost of doing business."

Eldridge said city staff is gathering information on rates from other municipalities and water systems on their rates. They are also reviewing Georgetown's costs, and are looking to simplify the rate structure.

'No tax increase'

In looking at the overall budget plan, Councilman C.C. Smalls said he has a lot of questions about specific items.

"You give us these books. I've got problems with a whole lot of them," Smalls said.

"I'm saying I'm not going to vote for no tax increase or other increase."

Other ideas

Councilman Paige Sawyer said he sent in suggestions prior to the budget workshop. "I stand by those -- furloughs, and if necessary cut employees."

Scoville pointed out that the employees in the utility department are needed to operate the equipment. The utility fund is a separate account from the general fund.

Eldridge said the $600,000 shortfall from the steel mill closure wouldn't be made up by cutting staff.

"That's too much to absorb. I don't see you doing it without looking at rates," Eldridge said.

He estimated a thorough rate study would cost about $40,000.

Scoville said he didn't believe there's time for a rate study before the June 30 deadline for a budget ordinance to be enacted.

Eldridge said city staff could figure an amount to raise waste and wastewater rates to cover the $600,000 shortfall.

Peggy Wayne said every year that she's been on council, the city has transferred about $150,000 from both of those funds to the general fund.

"Now, this year, we are coming up $400,000 short not counting the steel mill."

"A lot of that is tied to growth that is not going on," Eldridge answered.

Transfer funds

Wilson said over the years, "Instead of doing a tax increase, we just transferred money from the utility funds."

"Our conservative efforts have been very good, but it has caught up with us," Wilson said.

Eldridge said electricity and chemical costs have increased by about a million dollars.

Barber pointed out to his fellow council members and the public that the city's budget is made up of several funds, not just one.

"If we don't do a CPI (Consumer Price Index) [increase] this year, we will have to face it next year."

In addition, he said, council has taken money away from the enterprise funds in past years, "but we wouldn't put anything in there. Our suppliers kept on increasing costs."

"If we don't do what is necessary," Barber continued, "we are still going to be behind the eight ball."

"Truly," Eldridge said, "I believe you are going to have to look to some kind of rate increase."

Smalls asked why council couldn't transfer money from the general fund into the enterprise funds.

Finance Director Jessica Miller said "Nothing is stopping you legally from doing it. I would caution you to be careful because you won't be reflecting the true cost" of the utilities.

Relief effort?

"I would like to know the actual real dollar amount of the reserves," Bradley said.

"What kind of overall reserve would we have after all expenses are covered? And, if that will help relieve the $600,000?"

"We're focusing on immediate needs," Eldridge said. But, we've got to look at next year too. Otherwise, we're putting a Band Aid on a gnat."

Fund balances

What makes this shortfall interesting is the fact that millions of dollars are held in "fund balances" or reserves for the various enterprise funds.

According to the city's Comprehensive Annual Financial Report for the year that ended June 30, 2008, there was more than $40 million in four such funds.

* Electric, $10.4 million

* Water, $12 million

* Wastewater, $9.3 million

* Stormwater, $8.6 million

There are some obligations tied to those funds, and the figures are about a year old now. However, keeping to just the water and wastewater funds, their $21.3 million in fund balance overwhelms the $600,000 shortfall for the year.

That shortfall in anticipated revenue from the steel mill is 2.8 percent of the fund balance as of June 30, 2008.

Rainy day fund

Most accountants and financial advisors would say it's not a good practice under normal circumstances to dip into reserve funds for operating costs.

One local accountant who looked at these figures, however, said if the fund balance is designed to serve as a rainy day fund, "It's raining now."

*

Council will have another budget workshop at 4 p.m. on Thursday, May 28.