"Bethel Audit Offers Good News" - Claims the News Times
So why did we try to rush to sell our water? (some have asked). Referring to the language used by the Board of Selectman last year which claimed the sale of the water would allow us to repay the debt (caused by running deficits in the water, sewer and transfer station accounts) and that selling the water would build the general fund balance that had showed a large chunk of funds in the form of IOU's from the water, sewer and transfer station enterprise funds.In his first two-years as First Selectman of Bethel, Matthew Knickerbocker and the former Comptroller alerted the Board of Finance of the growing deficits in water and sewer operations and also became aware that the PUC had not increased rates as recommended by a previous rate study, thus exacerbating the deficits in these accounts.
With the BOF now aware that a deficit was growing and that deficit was being covered by transfers from the General Fund, the BOF then questioned why the general fund was being used to pay for the water, sewer and transfer station deficits. Noting that those are supposed to be cost neutral services provided by the Town and covered by the users of the services through fees.
Side Note: - There is no shortage of finger pointing with regard to why the deficit went un-checked for years. The PUC nor the BOF had been given annual audits or financial reports from the previous comptroller. The PUC did not raise rates as advised. Some have argued, because it was an election year and the incumbent candidate did not want to lose the election after raising water rates. Therefore, the problem went un-checked for years.
What we learned during this question and answer period was not clear, but the outcome was.
Bethel had to raise its rates on these services in order to bring them back to "break-even", while also repaying the debt to the General Fund. At that time the deficit (owed to the GF) was said to be between $2-4 million, depending on who you asked.
Also at that time the Public Utilities Commission (PUC) and BOS implemented a plan to raise rates in order to do exactly that. Mr. Knickerbocker said this new rate structure would repay the debt to the general fund in five years. That was 2010-2011.
When Mr. Knickerbocker was asked to explain how we went from having to sell our water to repay the debt caused by the Water Department operating deficits, to all-of-a-sudden having $millions more in our General Fund he provided the answer below:
The First Selectman's Answer:
"The water and sewer operations are completely separate from the general fund; one has nothing to do with the other (except for the aforementioned debt, which I'll address below).
The amounts owed to the general fund from water and sewer are not apparent, but the debt is still there. It's listed as as "asset to the general fund", so to someone unfamiliar with accounting practices, it looks like money, rather than a debt.
The surplus in the general fund is coming from higher revenue. The Comptroller reported the other night that the tax collection rate has gone up and there is significant new revenue from real estate conveyance.
To understand the debt from water and sewer, turn to page 44 and look at the chart that says "Due From" and "Due To". The numbers in the rows for water and sewer reflect the amount of money owed back to the town's general fund from those two departments. The amount the transfer station owes to the general fund is shown in there, too.
The water and sewer departments are enterprise funds that are supposed to be completely self supporting on the basis of user fees. If they are not, the shortfall automatically comes from the general fund, since those departments are town government-owned entities.
Ideally, the enterprise funds should have a modest positive fund balance in place to handle unexpected emergencies. This has not been the case for quite a few years. Sewer was in good shape until the 2000's, but water has been sliding into a deficit position probably for at least the past decade, if not more.
A former Board of Finance member made a statement last summer that he recalled when the two departments were so "cash rich" at the end of some fiscal years that they "loaned" money to the town to cover end of year payroll and other bills before the new tax bills kicked in.
It would certainly be a benefit to have a cash-generating operation to help the town out, but I cannot find any evidence of that happening since the early '90's, however. I don't think they've been "cash rich" for a very long time.
The sewer department is essentially back to break-even or a little better right now. The report shows a deficit of 663,513, but this is misleading because that fund had a balance of a little over 800,000 at the end of the fiscal year. So, at some point over the next year, this fund deficit will be repaid with some operating cushion still in place.
The PUC had accurately projected this to happen, which is why it separated water and sewer usage calculations from each other and did not raise sewer fees back in 2011.
Water is getting better, but still has a long way to go with a deficit owed to the GF of almost $1.6 million. When the PUC adopted the current rate schedule in 2011, it chose to spread the increases over five years to ease the impact to our residential rate payers (the consultant advised covering it faster, but that would have been very difficult for some people).
The water department finished the fiscal year with a very modest positive cash flow, and the third increase of 25% just took effect on Jan 1st (on top of the increases of 35% in 2012 and 35% in 2013), and those increases will begin to accelerate the debt pay-back.
The five-year rate plan was originally designed to pay off all the accumulated debt to the general fund as well as account for known capital improvements." -Matthew S. Knickerbocker, First Selectman, Bethel CT
Comprehensive Annual Financial Report, for year ending June 30th, 2013:
http://www.scribd.com/doc/200396509/Bethel-AFR-063013
Below is a link to the News Times Article referenced in this blog.
http://www.newstimes.com/default/article/Bethel-audit-offers-good-news-5149663.php
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