Archive for October, 2008

Oct 20 2008

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Water & Sewer Rates and How we got here.

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Water & Sewer Rates Update & Background.

 

During the last few months the Town Council of North Salem has been working to meet financial deficits in our water and sewer operating funds.

 

Indiana State law requires that every utility must be operated as a ‘stand alone’ fund, meaning that each utility must bring in enough revenue to cover it’s own expenses.

If a utility does not bring in enough funding then the only two choices are to;

1.      Provide loans to offset expenses as a short term remedy and raise rates to repay the loan in a short time,

2.      Expect the State of Indiana to take over control of that utility.

 

Each utility has unexpected expenses and each has to be dealt with on a case by case basis. The Town has been operating, maintaining and repairing on an as needed basis. At the time the state Auditor came in, we were in the midst of a somewhat major repair and had just applied for a grant to cover most of the expense for it. This along with state mandates changing at the same time caught us a little off guard as the state Auditor examined our accounting and found both water and sewer funds operating in deficit conditions so remedies had to be made quickly.

 

The need to remedy these deficits and do so as affordably as possible with long term protection against happening again was the intent of the Town Council in July, 2008 and since that time we have received a major part of the grant money we had applied for.

 

The Council decided to order a “Rate Study” to calculate all operating and funding history and find out what other towns are doing, what possibilities we have to correct our situation and how we can best serve our community. We instituted the “Surcharge” for each utility as a short term measure basically until the end of 2008 and are expected to have sufficient funds to pay our Bond payment. The ‘rate study’ should provide us with several options to avoid deficit accounts, stop possible state take over and avoid the need to borrow money.

 

That being said the Town Council wants to provide you information on what and why we are at these decisions now. The following is intended to provide you with an overview of basics of our options and history of how we arrived at this time to these circumstances.

 

Our sewer system was completed in 1980 and the first payment on the bond loan was October 1, 1981. The beginning loan was for $ 398,000.00 and was financed for 40 years. For our 249 users the bond and interest payments amount to almost $ 8 per month for the sewer alone and the cost of operations continue to rise as other expenses also climb.

 

In contacts with engineers and town residents it seems that the original calculations were based on Hendricks County growth rate and applied to the town sewer and in fact the updated water filtration system also.

 

When these factors were applied it was calculated that “IF North Salem” grew at the same rate as the rest of Hendricks County, then the population figures in 1981 extended to the year 2,000 would increase town population to about 2,000 residents. The increase of utility users would spread the payments over more users and any increases in operations, inflation and unforeseen expenses would be covered by growth of population.

 

As a result of these assumptions, we have water and sewer rates that have remained static for several years because the population has not increased much. From the population of 500 in 1981, we now show a 2006 census population of 633.

Not even close to the over 2,000 calculated in 1981. Of course this causes greater expense to fewer users.

 

Just a side note, the $ 398,000 dollars in 1981 is equal to $ 875,600 dollars in 2008. This gives a simple comparison of values over the period of time we are in now.

 

As a result of misguided assumptions, we now face much larger operating expenses at a time when national and state economics are in decline and our population is aging with fewer dollars earned as income and almost no population growth.

 

Additional reductions of our Annual Budget the last two years have put us in a difficult position. The budget for 2007 was reduced by over  $ 44,000 and 2008 has been reduced by almost $ 59,000 so every area is feeling the pinch.

 

Along with these difficult circumstances the state of Indiana often has changed requirements of both water and sewage making more expensive demands that are unfunded, meaning they make these demands and never increase our funds to implement their requirements.

 

Now combine these circumstances with the life span of our water tower built in 1935 and engineered as a 75 year tower. This brings us to the situation we face of replacing our water tower around 2010, about the time we will Celebrate our 175 year Birthday.

 

Quite a set of circumstances to face without a doubt.

 

 

Town Council Plans;

 

At the August 2008 Town Council meeting a “Rate Study” was ordered for our town water and wastewater (sewer) operations. The study will look at operating expenses versus income of each utility, and compare both former rates and future rates with similar size towns in Indiana.

 

While this research is being conducted we voted to adopt a “Surcharge” of $ 10 on wastewater and $ 20 on water until December and reconcile new rates that would provide enough funds to keep our utilities solvent and commit to more intensive monitoring of accounting.

 

At the October 2, 2008 Town Council meeting we received a part of the ‘Rate Study’ materials and decided to have a ‘Workshop’ to develop new rates and exercise examples of monthly utility trials to keep rates as low as possible, yet avoid a repeat of future deficits.

 

The Council intends to formally adopt new rates at our November 6, 2008 meeting and comply with state rules of new Ordinance procedures to begin applying new rates as soon as possible after January 1, 2009.

 

For the future need to replace our water tower we will await political election results as they dictate how and when we will apply for state funding grants and required planning and engineering studies to support grant application figures.  At this point the Council can only research possibilities of future needs and continue maintaining our facilities as best we can.

 

 

If you have questions or suggestions please attend the Town Council meeting, contact Town Hall or leave a reply on this Blog.

 

Thanks.

 

Mike Selch – Town Council Member

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