Utility update

Last week I promised to write about the utility rate analysis I am going through. In the weeks before I started work while I was working on the 2008 budget, I spotted a problem that needed attention. Each of the four utility budgets were being balanced against the existing cash balance. The expenses of the four were not covered by the revenues of the four utilities.

Our problem comes from at least two points. The cost of the recourses we resell has risen due to improving the utilities. We have built a new water plant and we have not yet adjusted the rate to recover the additional cost of debt service. We are building a new waste water facility and that debt service will add over $4 million to the mix. The Rural Development Agency is funding our construction project. They have projected that we need to adjust the sewer rate to an average of $35.00 per month per customer. Westar is no longer the contract supplier of our electric energy. They were going to increase our wholesale cost of power and the City chose to join the Kansas Power Pool to help control prices. Even at that, the cost of electricity will be higher than what we have paid in the past.

The other point comes from taking funds from the utility funds to offset costs of the general fund and other property tax generating funds. The “subsidy” accounts for 20% of the four utilities total budgets. It is normal for cities like Hillsboro to have their utility funds cover some costs of general operations. The impact is that property tax levies are held artificially low.

The decisions the Council and I have in front of us will focus on how to keep the cost of utilities low while covering the costs associated with the operations of the utility and the general operations. With a $3.8 million annual budget, the dollars are there but fixing the imbalance will mean reprioritizing what we do in local government.

The total transfer to general operations is $781,500 from the four utilities. A portion of those funds would be transferred to general operations under normal conditions. We have come to rely on those transfers a little more than we should. That is, in itself, an understatement too.

So, what do we do? Our City Council is committed to rebalance the contributions from utilities but, as with all problems, the fix is not easy. It is not a problem that can or will be fixed within the course of this budget. It will be more likely the next one or two budgets. As we go through the strategic planning process, we will begin to see how the fix will occur.