Supervisors cancel $4.2 million utility debt

MILFORD – Caroline County’s public utilities department had an IOU with the county general fund for $4.2 million, but the Board of Supervisors has voted to do away with the IOU.

The supervisors voted 5-1 at their regular Dec. 4 meeting to write off the debt that the public utilities department owed the county’s general fund. Supervisor Jeff Sili voted against the action.

Writing off the debt is a way to “clean up” the county’s financial records, said Frances Hatcher, the county’s finance director.

However, Sili said the board’s decision underscores a financially ailing public utilities system that has been hurt by deals that heavily favored developers and made no provision for the economic downturn and the slump in new home construction.

The county currently is expanding and improving its wastewater treatment plant, which in recent years has been operating at 80 percent of its capacity. The price tag of the new plant is $18 million.

“When we borrowed the money to build this plant, there was a repayment schedule set up by the county bond counsel,” Sili noted in an interview later. The repayment schedule was predicated on adding sewer connections for new homes, but those connections have not kept pace with projections, he noted. In fact, even in a booming economy the plans were not realistic, added Sili.  “Going forward, the schedule has not come close, and so far this year it’s been only 32 new connections.”

Sili also was critical of the fact that the new plant has 8,200 square feet of office space for less than 10 workers, which he called an excessive amount of space.

When a new homeowner hooks onto the county public utilities system, he pays a one-time connection fee – $8,000 for water and $8,500 for sewer.

(Caroline’s fee is higher than adjacent counties. Hanover County’s water hookup is $5,161 and sewer is $7,838, according to the Hanover website. King William’s are $3,500 for water and $7,750 for sewer.)

To stay on the debt repayment schedule, Caroline needs to add another 115 connections in 2013 and 140 in 2014, according to Sili.

Having enough new water and sewer customers is “going to be an ongoing problem,” added Sili, who opposed the timing of the new wastewater plant.

In addition, Hatcher noted that difficulty the county has had in collecting monthly utility fees from some customers in the Dawn area. The area is served by a community wastewater treatment system.

A briefing memorandum to the supervisors, County Administrator Charles Culley noted the county’s general fund has loaned money to the utility fund for years. “The General Fund loaned the money to the Utility Fund with the hope that the funds would be repaid in time as the system grew and revenue in the Utility Fund improved.”

The utility fund has not been self-sufficient since around 2005, said Sili.

“Under Generally Accepted Accounting Principles (GAAP), a ‘loan’ made without a reasonable expectation of repayment is not really a loan, but a subsidy,” wrote Culley. “Eliminating the General Fund loan to the Utility Funds will also provide a more accurate picture of the County’s undesignated fund balance.”

“What we are trying to do is get $4.2 million off our books,” said Supervisor Wayne Acors during the board’s discussion of the issue.

“Many things were done in the name of the utility fund when they should have come out of the general fund, such as schools,” said Acors. “It’s not like we are subsidizing the utility fund.”

In the future, money that should come out of the general fund will be recorded as coming out of the general fund, instead of the utility fund, noted supervisor Floyd W. Thomas. The day-to-day operations of the utility department are self-sufficient and are paid for with monthly water and sewer fees, he noted.

“This issue has been talked about and talked about,” Acors noted. “The public utility fund is not going to be able to pay that ($4.2 million) back. Let’s just get it off the balance sheet.”

“We will never have to do this again,” said Supervisor Jeff Black.

“I don’t understand the discrepancy in amounts and why we have so many things we can’t put together and track on paper,” Sili said later.

“As a newly elected supervisor in 2008, I was told that the reason we operated on a $6 million dollar line of credit was due to a $6 million loan to utilities in 2005,” Sili added. “Is it $4.2 million or $6 million?”

In his briefing memo, Culley wrote, “Staff has thoroughly researched all available information and has been unable to locate any loan or transfer to the utility funds in the amount of $6,000,000. All identified loans have been accounted for in the $4,269,405. Perhaps the $6,000,000 in question is related to fund balance rather than a loan from the General Fund to the Utility Funds. The fund balance at the end of FY 2005 was $6,092,852, but only $3,368,353 in reality when the loan to the Utility Fund is removed.”

 

 

 

Posted on Thursday, December 13, 2012 at 1:09 pm