For the second time in City Council's budget planning meeting Mayor Brenda Gunther asked for the current fund balance in a major fund and staff gave a year old budget projection. The Water fund has over a $3.1 million fund balance as of 6-30-17. There are at least two high margin months left in the fiscal year, July, August and September.
July's water sales came in at nearly $2.2 million, a virtual repeat of a highly profitable June which experienced a $1.5 million profit (on $2.1 million in water sales).
Assistant Director Water Utilities Allison Strube shared how revenue is highly seasonal and revenue/profits occur mostly over our dry summer months. This means City Council has to be patient to see if the city will sell enough water at the end of the budget year to meet projections. Strube said water revenue is on target to meet projections.
My longtime point has been that it makes no sense look at the Water fund balance in winter or spring to consider giving citizens water rebates Any water rebate discussion should come after the money gusher and before staff can transfer overflowing water funds to other accounts.
July is over and the accounting books have been closed. The City's Water Fund balance could easily be over $4 million with two good months remaining.
The Mayor asked for actual numbers. City staff offered a budgeted fund balance number nearly a year old. It happened first with the Solid Waste fund, then with the Water fund. The city's not wanting to reveal current fund balances to Council or the public is beginning to look like a pattern.
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A bit of history is probably in order here. When city hall first got into the water utility business it was seen as little more than another revenue stream. This went on that way for decades until as part of some major rate increases that happened when Mr. Morrison was brand new and Ms. Farmer was running for and got elected to council water was recognized more as necessary service than just another way to make money. Because of this shift, some major changes were made in how the water and waste water funds were handled. First, a requirement for a semi annual review was added to the water rate ordinance for the purpose of seeing if the rate had been set to high and a rebate was in order. Prior to that, there was no rebate review or mechanism in place at all. The dates were chosen partly based on the new attitude towards water. During the debate on the water rates I, and some of my friends, discovered that the city was charging itself property tax on the water system with a program called PILOT. At that time, they were transferring roughly $750k per year from the water fund to the general fund. As part of the passing of the rate increase the council directed that the water department and its funds should be treated as an independent section with no funds transferred to the rest of the city funds that weren't paying for services or equipment and that Pilot would be phased out and totally eliminated. They have been pretty good about that so far. They do get creative in how they handle the water department funds.
The water department funds are separated along 2 broad functions. There are O&M (operations and maintenance) funds and capital projects funds. Both are important but O&M money has to be there to make payroll, buy water and other supplies, and keep the lights on. The fund balance is there so that a wet year with low revenues won't run the utility out of money. Capital projects have a lot more flexibility and can normally be deferred or delayed if the funds are low. Can't defer them forever or the system falls apart but most can be delayed a budget cycle or three without much real impact.
What has happened in the past is that any amount above the required O&M fund balance has been transferred to capital projects funds, and staff position has been that only the O&M fund should be considered in determining a rebate.
The rebate discussion happened pretty regularly for the first few years, and there were two rebates that did happen. Then it kind of faded into the background until another rate increase was brought before council. That's when Morrison asked what ever happened to the rebate discussions, and staff kind of did an oops, we seem to have forgot to schedule them. Council reminded staff that it was in the ordinance now and that meant that oops wasn't good enough. So for the last few years we again a semi annual review of water fund health and possible rebates which almost always includes a needed discussion of the water rates and are they where they should be.
In effect of all this makes the timing of the rebate discussion less important than the fact that at least twice a year the council has to look at the water fund, rates, etc. and the impact on water customers and citizens. Not the best solution but probably the best we can get at this point in time.
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