Too much of a good thing: High sewer fund cash balance raises questions
Nov 03, 2017 03:03PM
● By Becca Ketelsleger
Repealing the July 2017 tax increase to the previously approved rate implanted in October of 2016 was ultimately left to be decided on another evening. (Becca Ketelsleger/City Journals)
In October 2016, the West Jordan City Council approved a sewer tax rate increase of roughly 7.5 percent. A standard practice during council meetings, this was nothing out of the ordinary. However, within the language of the increase was something unusual.
“In October of last year, I believe there may have been unintended consequences,” said Mayor Kim Rolfe. “Added within the language was another increase as of July 1, 2017.”
While the initial increase may have been needed, the second tax raise caused some questions among the council.
“Since we have more than 100 percent of the operation of the entire sewer system for one year in cash reserves at this point and time, there would be absolutely no need for that increase that happened July 1,” continued Rolfe, going on to say he believed the rate should be rolled back to what was adopted in October 2016.
Based on numbers as of June 30 of 2017, the total cash balance of the sewer fund was estimated as $8,078,391.
With the total expenses for the sewer fund from 2013 to 2016 never rising above $7.6 million, the concern was mirrored by other council members.
“I’m with you, in the opinion that, if we don’t need it, we shouldn’t be charging it,” said Councilman David Newton.
While it may not have been known to all, there was a method to the second increase.
“It would be remiss if I didn’t at least explain some of the logic that was implemented in Mr. Palesh’s initial request,” said acting City Manager David Brickey. “In the very near future, the sewer district is going to have to implement changes required by the EPA to accommodate phosphorus dispersements by the year 2020.”
The updates include updating Phosphorus/Nitrogen removal equipment in the whole sewer system by 2020, and possibly updating all grit removal equipment in the near future.
With an unknown price-tag ranging from $9 million to $16 million for the upgrades (up from an estimated $4 million to $6 million in 2016), the cost is sizeable, and the work will need to be completed within roughly two years.
To pay for this large lump sum, officials are investigating three options.
The first option would be paying the entire lump sum of the upgrades in fiscal year 2019. This scenario would be what previous City Manager Mark Palesh was preparing for with the second tax increase set for last July.
“The mayor made it very clear to me that it would not be a cash payment, but any amounts likely would be seen by scenario B through a bond agreement,” said Brickey.
The second and third option would both involve bonding for the amount needed for various amounts of time. The second option (Scenario B), would only bond for the amount needed for the phosphorus/nitrogen removal equipment, not the grit removal equipment, for a 10-year period.
“We have unusual costs that are coming up this year and in the next several years,” said Steven Glain, management assistant to the city manager.
Even beyond the upgrades required by the EPA, Glain said the department also has a “large capital projects list” for the next fiscal year. The number of projects totals to 12, with an estimated cost of $14 million.
“It never ceases to amaze me that every time we talk about increase in fees, specifically, that the very next year always has a dramatic spike in it,” said Rolfe. “We haven’t done $6 million worth of sewer projects in the 12 years I have been here, but I don’t want to be argumentative; the council needs to decide what they want to do.”
However, coming to a decision was easier said than done.
A motion was made by Councilman Chris McConnehey for staff to come back to the next meeting with a rolled back fee schedule. However, the motion failed 3-4.
Some concerns from the council included there being no set standard for what amount of cash should be kept on hand in the sewer budget, using adjusted numbers in past records that aren’t comparable to the current cash balance, and whether or not a fee decrease requires a public hearing.
In the end, the council will revisit once it has more information and once a public hearing has been held.
“The conversation tonight, while it may help, in theory, add clarity to the financial situation, we really can’t take any action without having a fee schedule to pass,” said McConnehey.