Utility problems: ECG recommends rate increases in Hogansville
Published 6:50 pm Friday, April 20, 2018
The City of Hogansville was presented with stark and compelling numbers during a Thursday work session, revealing that rate increases may be necessary for utilities such as natural gas, water, wastewater and electric, if the city hopes to operate its utility funds at a profit in future years.
Electric Cities of Georgia, a nonprofit organization serving more than 50 public power members in Georgia, made a presentation to the city council showing revenue and expenses for fiscal year 2017 related to utility, or enterprise funds.
“Enterprise funds are usually utility funds,” explained director Chau Nguyen. “(They are) funds that provide goods or services for the public.”
Nguyen explained that often, cities will reallocate money from these enterprise funds into a general fund, the primary funding vehicle of any government, whether or not the enterprise funds have revenue to spare, which can result in these enterprise funds operating at a loss.
“Oftentimes enterprise funds are forced to transfer revenue to a general fund regardless of whether or not an enterprise fund has sufficient money,” Nguyen said. “Enterprise funds then have to make tough choices, decide what to cut to balance their budget at the end of the day. This means, typically, repair and maintenance are kicked down the road.”
Hogansville Mayor Bill Stankiewicz pointed out during the presentation that some cities, neighboring LaGrange being a prime example, do not charge property tax and augment the loss of that revenue with transfers from these same enterprise funds.
Hogansville’s natural gas, water, wastewater and electric funds all made significant transfers to Hogansville’s general fund in 2017, but even if those transfers had not been made, the water and wastewater funds would have still operated at a significant loss.
The natural gas fund brought in $1,016,000 for the city in 2017, while expenses were $1,024,000, with a transfer to the general fund of $110,000. The ECG projected expense and revenue through the year 2028 for all enterprise funds, leaving revenues flat while increasing expenses, and advised that a natural gas rate increase was needed for the fund to stay sustainable.
“Your (natural gas) expenses are going to, as of next year, outweigh your revenue,” principal analyst Sarah Leonard said. “It is unsustainable without a rate increase.”
The same held true for both the water and wastewater funds, which were operating at significant losses in 2017. Water revenues for the year were $669,000, while expenses were $1,155,000. The fund operated at a $486,000 loss.
The ECG broke down each enterprise fund to show usage by classification. In water, the graphs showed the residential senior category alone operated at a $289,000 loss, which caused the mayor to ask for clarification.
“You’re saying that on residential seniors, we’re losing $289,000 per year (in water alone)?” Stankiewicz questioned. “That’s astronomical.”
“These are the biggest numbers I’ve seen in the seven years I’ve been doing water studies,” Leonard said. “I have a feeling these losses are not going to be fixed by rates alone.”
The wastewater outlook was also poor, though Leonard was not surprised by this, as many sewer systems across the country are old and in need of repair, which leads to higher costs. The fund brought in $669,000 and spent $1,119,000. The revenue that needs to be created through the wastewater fund to match expenses is unattainable through a rate increase, per Leonard.
“It’s really not doable through rates,” Leonard said.
“But that is the picture that needs to be dealt with.”
The electric outlook was more positive, as that fund brought in $3,304,000 for the city, while expenses were $3,140,000. The fund had a positive margin of $164,000. However, the ECG’s projections showed that as early as fiscal year 2018, expenses will swallow that margin if rates are not moved.
Towards the end of the presentation, Stankiewicz did note that the numbers shown by the ECG were not a true representation of the profit and loss to those funds, as the analysis included depreciation as an expense item.
“In your cost analysis, you include both depreciation and debt service as expense items,” Stankiewicz, a former CPA, said. “Depreciation is a non-cash item, you don’t give out any dollars for this. From a strictly accounting point of view, you’re double-counting the depreciation and the debt service here.”
While this elimination would reduce the projected negative margin to some degree, the ECG still maintained that a rate increase is necessary across the board.
Also at the work session, the board approved a revision to a loan and grant application from 2013 for additional funding from the United States Department of Agriculture, Rural Development Office. The loan is for improvements to the city’s wastewater treatment facility.
The city, which took an initial loan from the USDA in September of 2013 for $2,581,000, will add a subsequent loan of $2,025,000, as the improvements have proven to need additional funding. The city has also received a USDA RUS grant in the amount of $2,500,000 and Meriwether County is footing $1,600,000 of the cost, for a total cost of $8,706,000.