Newberry City Commission Meeting April 9th 2012

Commission Meeting, 4-9

As this was the last meeting before the election, it was a relatively short agenda.  We presented all the candidates, and in case you haven’t heard, Joe Hoffman will remain as your Commissioner for Group I, Lois Forte will remain as your Commissioner for Group II, and Alena Lawson will remain as your Commissioner for Group III.  Congratulations to all the incumbents!  I look forward to serving with you for another year!

The primary agenda item was our discussion of the need to upgrade our sewer system facilities.  Ultimately, the issue breaks down like this:  We need $1.9 million in upgrades.  We have a grant for roughly (I’m going to use round here numbers for ease) $400,000, which means that we need to borrow up to $1.5 million to complete the work.  The City of Newberry has close to that amount in its reserves for sewer upgrades, but we would wipe out our utility savings if we choose to use it all for this upgrade.  We can get loans at really low interest rates right now, so conventional wisdom would suggest borrowing the money.  Or, we could compromise, meaning we could use some of our money to lower the loan amount.  If we borrowed the entire amount, it would be about a $100,000 yearly payment.  Last year, the water utility department had revenues at $400,000.  If we used those revenues to pay for the loan, we would still profit $300,000 a year from our water department.  Our facilities are running at 70% capacity right now.  This means that, according to State law, we must begin improving them for future use.  So, we don’t really have a choice in whether or not we do this.  It has to be done.  The question is how we go about it.

That’s as short and sweet of a summary as I can put this issue.  I’m generally in favor of utilizing low interest rates (we would be at close to a 2% rate) instead of wiping out reserves.  It takes a long time to build up reserves, and it’s good to have reserves for emergencies.  My real concern with this issue is our water rates here in Newberry.  We have around $1.5 million in reserves.  We profit annually $400,000.  Even given those facts, almost everyone agrees it’s still better to borrow the money.  If we are going to borrow money for capital improvements now or in the future, the question becomes for me, how much do we need in that reserve fund?

For arguments sake, let’s say that we slashed our water rates so that we only profited $200,000 a year.  Our reserve fund would continue to increase, which would continue to give us more leveraging power in the future.  We could still pay that $100,000 loan payment out of the water department profits, and we could still increase our reserve funds by $100,000 a year.  Don’t get me wrong, I’m certainly not arguing for arbitrary rate cuts, but I think that we make a lot of money in our utilities departments.  It seems to me that we have built up a reserve amount, at this point, that would allow us to start to ease of our residents a little at this point.

This is liable to be a pretty big upcoming issue, so if you agree with me on this, I’m going to need your support.  The Utilities Department needs to make a profit.  I’m not arguing against that.  What I’m asking is simply, how much does the Utilities Department need to make?

Budget Transfers into the General Fund:

I figured everyone is probably exhausted from the election, and the past couple of weeks have certainly been dominated by the election.  So, this time, I thought I would write about an issue that keeps popping up.  It was a big issue during our budget talks, and it came up again during our candidates’ forum.  Since the last meeting was dominated by a discussion of paying for utility upgrades, it seems like this was a good opportunity to talk about this openly.

The question is whether or not the City should transfer money out of the utilities revenues, which only some Newberry residents contribute to, and put that money into the general fund. 

Now, let me start off by pointing out that, before City Manager Keith Ashby came to us, we didn’t have different accounts.  There was just the City’s account.  All the revenues went into that account, and all the expenditures came out of that account.  It was under his leadership that we started really keeping track of how much each department was making and spending.  So, what this means is that the City of Newberry has been using the revenues from the utility department to cover its expenses forever! Obviously, that, in and by itself, doesn’t make the transfer ‘right,’ but it does tell us that there is a precedent for utilizing those funds for the general improvement of all Newberry residents.

As I mentioned, this question was asked at the forum, and at the forum, listening to the answers, I had an epiphany.  There were a couple of candidates who expressed a level of discomfort about the transfer, and Commissioner Forte stated she was totally against it.  As I listened to their answers, it became clear to me that they were approaching the money the City makes from utilities as a form of taxation.  In fact, I even believe that the way the question was phrased clearly implied that it was a form of taxation.  All of a sudden, it made perfect sense to me why, then, they would be against the transfer.  Certainly, money we pay out in taxes should be used to benefit us.  It shouldn’t be used to benefit others.  Of course, the problem with this line of thinking was pretty clear once I realized this.  Obviously, the money the City makes from utilities is nothing even approaching a tax.  When a person tries to make it seem like it is a tax, I think he or she is either being disingenuous or doesn’t really understand taxation.

To put it simply, the City of Newberry has a product, utilities.  We provide a service, and we make money for the residents of Newberry by selling that product.  The profits are for the residents of Newberry, not just for the people who purchase that product.  Think of it this way:  Let’s say the City owned a watermelon field and decided to plant, grow, and sell watermelons on behalf of the residents of Newberry.  The profits from those watermelons would clearly belong to all the residents of Newberry, not just people who bought the watermelons.  The same logic would hold true whether the City was selling watermelons, cable service, trash pickup, clean water, or electricity.  When any city undertakes a business on behalf of its residents, all of the residents are entitled to the benefits from any profits generated by that business.

One final point of clarification, if utilities fell under taxation, then, it would be illegal for the City to profit from it.  The City would have to pass those services along to the residents at cost.  You can’t make a profit from a tax.  You can only make a profit for providing a service.  Think about it, we don’t pay property taxes so that cities can make money.  We pay property taxes to cover our proportional share of services that we get from our cities.   Anyone who believes that we shouldn’t transfer money from utility revenues because it is unfair to those who are purchasing that service should also be arguing for drastic reductions in the cost of those services.  If they aren’t arguing for both of those things at the same time, then, something is wrong.

I hope that this helps to clear this issue up.  It really isn’t as complicated as what it has been made into.  The City of Newberry runs a business on behalf of its residents, and we use that money for all of our residents.   That is really all this issue boils down to.