|
poses a variety of problems and increases operations and
<br />maintenance costs.
<br />As if the aforementioned problems were not enough for
<br />the system to deal with, the Town's largest water
<br />customer (Flynt Fabrics) closed its operations on
<br />September 26, 2000 -this cost the Town approximately
<br />$700,000 per year in revenue. The loss of Flynt forced
<br />the Town to take dramatic action to keep the Water/Sewer
<br />Fund financially solvent. To prevent bankruptcy by mid-
<br />2001, the Town cut over $450,000 in projects and
<br />operating expenditures and had to raise rates an additional
<br />18.75%, this was on top of a 15% increase that occurred
<br />just several months earlier.
<br />Currently, 27% of the Town's budget is earmarked for
<br />debt service payments. By the start of FY03 (beginning
<br />in July of 2002), the Town's annual debt service is
<br />projected to increase to over $1.4 million or 28% of the
<br />estimated Water/Sewer Fund budget for that year.
<br />Small towns need larger savings levels, since they deal
<br />with smaller amounts of gross funds, in order to be
<br />fiscally sound and satisfy criteria established by bond
<br />rating agencies. A reasonable "fund balance" or savings
<br />is critical to ensure the Town does not have cash flow
<br />problems, can handle unexpected revenue shortfalls,
<br />expenditure overruns, can react effectively to
<br />emergencies, and earn interest income. The Town feels
<br />that Hillsborough's minimum fund balance level for the
<br />Water/Sewer Fund should never drop below the
<br />equivalent of 2%2 months of the annual budget or 21%. It
<br />is extremely dangerous for the Town to risk allowing the
<br />fund balance to drop below this 2'/s month threshold. The
<br />current fund balance level is approximately 25% or barely
<br />above the bare minimum set by the Town. This means
<br />the Town does not have the luxury of using its savings to
<br />defer future rate increases.
<br />What Does This Mean?
<br />While there are always many different ways to interpret
<br />information, the following is one brief analysis. Unlike other
<br />systems that may face a few problems at once, Hillsborough is
<br />facing just about every serious challenge that a system can
<br />endure and it's happening all at one time. The many "fixed
<br />costs" associated with running utility operations limit the
<br />opportunities for large-scale expenditure cuts. (i.e., it costs
<br />almost as much money to operate Hillsborough's system
<br />whether it treats 1.0 million gallons of water per day or its
<br />maximum capacity of 3.0 million gpd). After one reviews the
<br />many expenditures that reasonably cannot be "cut" (like debt
<br />payments, many operating and personnel costs), the task of
<br />fording ways to stabilize or even reduce rates becomes more
<br />daunting. These statements were reinforced by the findings of
<br />the independent Citizens' Advisory Water & Sewer Task
<br />Force that reviewed the Town's utility operations. While they
<br />identified problems and reasons for the financial dilemma,
<br />they felt the operations were currently being managed in a
<br />fiscally responsible manner. Ultimately, the loss of Flynt
<br />Fabrics, the combination of extremely high debt, low savings,
<br />old plants & lines, and high rates means there aze no simple,
<br />short-term or painless solutions to cure all these problems.
<br />What is the Town Doing to Improve the Situation' ~ S
<br />The Town has taken several steps in an effort to stabilize and
<br />improve the situation. As was mentioned earlier, there are no
<br />"quick-fixes" to the aforementioned problems, as such, the
<br />Town is trying to address this situation in a businesslike
<br />manner by making decisions that make the most sense over
<br />the long haul. A few examples of actions the Town has and is
<br />taking are found in the following list:
<br />The Town upgraded its financial planning process in
<br />FY1999 to include a multi-year budget format that
<br />combines the elements of a financial forecast, capital
<br />improvements plan, and budget into one document. This
<br />improved "fiscal radar" is helping the Town to make
<br />better choices by understanding the impact of today's
<br />decisions on tomorrow and future fiscal years.
<br />The Town's Board of Commissioners appointed a
<br />Citizens' Water & Sewer Advisory Task Force to study
<br />the situation, after the closing of Flynt Fabrics, in October
<br />2000. The Task Force was composed of 12 Hillsborough
<br />water customers, equally split between in-town and out-
<br />of-town customers. The Task Force reviewed and made
<br />recommendations regarding the Water and Sewer Fund's
<br />operations, financial condition, billing practices, and other
<br />areas. A copy of the Task Force's report can be found at
<br />the Town's website: www.ci.hillsborouQh.nc.us.
<br />In September of 2001, the Town's Board of
<br />Commissioners made the Water & Sewer Task Force a
<br />permanent advisory committee. The Task Force is now
<br />called the Water & Sewer Advisory Committee. The
<br />Committee meets quarterly and their charge is to review
<br />the operations and finances, make recommendations to
<br />the Town Board and Town staff on policies as well as
<br />mechanisms to improve the overall efficiency of the
<br />Water and Sewer operations. If you are interested in
<br />attending one of the Water & Sewer Advisory
<br />Committee's quarterly meetings, please contact the
<br />Town's Utilities Analyst, Julie Fogleman, at 732-1270
<br />extension 72. Julie serves as the Secretary to the
<br />Committee and will be happy to share information on
<br />their meeting dates, times, and location.
<br />The Town Board has recently approved several new
<br />developments. The additional water and sewer customers
<br />will help the Town to take advantage of some "economies
<br />of scale." Having more customers sharing in many of the
<br />"fixed" system costs (i.e., the reservoir and improvements
<br />to the plants) should help ease the burden on all customers
<br />over the long term. While this is positive news, it will
<br />likely take years before the full effect of these new
<br />developments is felt.
<br />The Town is in the process of developing a Strategic
<br />Growth Plan to help Hillsborough and its utility system
<br />grow in a financially and operationally wise manner.
<br />Most importantly, the Town Board and employees do
<br />their best to make sure that all expenditures are
<br />reasonable, justified, and needed before the budget is
<br />adopted and actual dollazs are spent. The Town has been
<br />successful in regularly bringing its operational
<br />expenditures in under budget. The Mayor, Board, and
<br />staff are committed to continuing this recent trend.
<br />
|