$300,000+ sewer deficit discussed by Hammond board
The first item on the Village of Hammond's regular board meeting agenda was the village's 2010 audit review.
Village auditor Tom Kortas, of LarsonAllen, was present at the meeting to answer board members' questions concerning the $322,821 sewer deficit.
Board member Erin McComb questioned how the deficit had been unknown to the board until this year.
"My committee is certainly going to take ownership of finding a way to get better visibility into this because looking at the documentation we have today, there's nothing that would tell us on a monthly basis that we're loaning one fund from another," she said.
Kortas suggested the village have a monthly report broken down by individual funds, as opposed to the broad ledger statement currently used in the village's monthly treasurer's report.
In regards to the more than $300,000 sewer deficit, Kortas mentioned how the joint sewer utility project between Hammond and Roberts cost Hammond around $200,000.
"That had to be funded out of the sewer utility. The sewer utility didn't have any money," making it in a sense, funded by an advance from the general fund, Kortas said. "In 2006 you raised your rates to start construction. Instead of doing that with cash reserves, you had to use $200,000 of that money to pay back the general fund. So if that project would have never happened, instead of owing the general fund $300,000, you would have only owed $100,000."
Director of Public Works Rodney Turk spoke to the board about the sewer account status review.
Turk said when projections were done to initially build a waste water plant $578,606.40 was budgeted.
Turk said it was initially projected that the average consumer would use 15,000 gallons of water per quarter. At that time the village had 720 users, which would cost the average user $803.62 per year.
"We knew going into this waste water plant, building this plant, raising the rates, that we would definitely see a decline in usage," said Turk. "In 2006 we went from what we had projected at 15,000 per quarter, and dropped to 9,000. Even though we increased users by nine, we still saw a decrease in revenue," he said.
Turk said the budget number the sewer plant should be working with has been depleted because of the revenue loss. He said some of the revenue loss was due to users being more conservative with their water, adding that a higher than average production of sludge, past creation and removal of lagoons and increased fuel prices have also contributed to the current deficit.
Turk said he will now be providing a log to the board that shows monthly sewer expenses with a comparison to last year's expenses.
Turk said the plant will start doing "bare minimum" things to cut costs.
"Is that the best thing for the plant? No. But it's the best thing for the village," he said. "You should see added savings as we go. A lot of the savings you'll probably see in the next three months."
McComb urged Turk to come up with as many options as possible to cut costs; in addition to the cuts he had already discussed at the meeting.
Turk said while he understands the need to continue to cut costs, he mentioned that quality could decrease in the process.
The village's financial advisor, Brian Riley, gave a presentation of the sewer utility finances to the board.
Some of the highlights in his presentation:
The sewer system net revenues have not been sufficient to meet total cash flow needs of the enterprise fund.
The village's general fund has been advancing cash to meet shortfalls during the previous three years; 2008, $95,883; 2009, $117,640; 2010, $109,298; totaling $322,821 on December, 31, 2010.
The Department of Administration is aware that the village is not meeting its pledged level of Debt Service Coverage -- 110 percent is required, but in 2010 the village was at 72 percent.
Village's "taxpayers" (general fund) have been supporting sewer system "ratepayers" (enterprise fund).
The general fund balance is under pressure and cannot continue to support the sewer system cash flow at around $100,000 a year.
The board must decide what to do with the existing amount due to the general fund; forgive and forget or set up a defined repayment schedule.
The board must consider how to address deficiencies in net revenues, either through adjustments to operating expenses or adjustments to rates.
"It won't be long, if you continue this trend, until there are no more general fund resources to advance. I think that the biggest issue out of this whole discussion is to fully understand that this is not sustainable. You may already be at a point in the year where you need to be seriously thinking about how to address this," Riley said.
Riley suggested the board come up with both short- and long-term plans for addressing the deficit issue.
The board plans to put the deficit issue on the finance and personnel and public works committee agendas.