Sludge and Slush: Making sense of the City’s water and sewer utilities
By Stratton Lawrence
On May 10, City Council approved a first reading of the water and sewer budgets for the 2010-2011 fiscal year, less than two months before the July 1, 2010, to June 30, 2011, time period ends.
The City’s approval of a budget just weeks before falling out of compliance with the State Budget and Control Board brings to light what will likely be a frequent topic of discussion among Council this summer: water and sewer rates. The City currently awaits findings from the Black and Veatch consultants’ review of a rate-study they conducted for James Island. The information gleaned from that, along with last year’s Folly Beach rate study by BP Barber, will produce a recommended rate increase for the 2011-2012 budget.
With charges poised to increase for most Folly residents, calls for more oversight of the City-owned utilities have increased in turn. Chief among these concerns is the Payment in Lieu of Taxes (PILOT) surcharge the City accrues through the utilities. The PILOT fees collect 10 percent of the sewer utility’s gross sales, and 15 percent of the water utility’s gross sales. This fund is capped at $120,000 annually from the water utility, and $60,000 annually from sewer.
City Administrator Toni Connor-Rooks explains that the water PILOT fees are used entirely to pay off the debt accrued for building the current City Hall building, which was built in 1997 at a cost of $1.3 million. The PILOT program was born in December 1996, in direct response to the need to provide a consistent payment source for the City’s $987,000 loan taken out to fund the project, and as an alternative to raising property taxes to do so. Only one payment remains on that debt, and future fees will go toward the new public safety and fire department building, which it will take an estimated 15 years to pay back. Sewer PILOT fees are used to pay off the purchase of the Folly River Park.
The ordinances (numbers 17-11 and 18-11) regarding the 2010-2011 budgets provided further insight into the breakdown of water and sewer bills. Of roughly $665,500 in sewer expenditures, $148,000 was used to pay salaries and benefits (22 percent). $386,500 covered operational expenses, while $43,000 covered depreciation. Professional services, insurance, and PILOT made up the remainder.
The water budget was just over one million dollars, at $1,056,000. Salaries and benefits totaled $199,000 of that total (19 percent).
The 2009-2010 budget shows that 20 percent of the mayor’s and clerk of court’s salary is paid from water and sewer bills. Administrator Connor-Rooks’ and the City’s human resources employee each draw 40 percent of their salary from the utilities, while the City Clerk and Comptroller draw half of their earnings from these charges. City Council draws 10 percent of their salary from the utilities. Those figures are subject to change, but remained the same for the 2010-2011 budget.
Connor-Rooks explains that those percentages can be roughly attributed to the amount of those particular employees’ work time spent managing the utilities. She also points out that many other cities in South Carolina have similar rate structures and PILOT programs, including Anderson, Pickens, and Orangeburg.
Nonetheless, the PILOT charge bothers Folly resident and former Council candidate Susan Breslin, who has regularly spoken about the utilities at public meetings. Folly Beach’s minimum rates include a base charge of $23.84 for water and $24.24 for sewer to keep the system operational. For water, this includes a credit of 3,000 gallons of usage, with $3.55 charged per 1,000 gallons above that (The different figures posted at the City of Folly Beach’s website are out-of-date).
Breslin points out that she never uses up her credit, therefore having no financial incentive to fix a leaky pipe or faucet.
“For singles or couples who don’t water their lawn all the time, there’s no incentive to conserve water,” says Breslin. “The minimum is too high.”
Breslin suspects that because people are accustomed to paying their water and sewer bill without questioning it, its revenues serve as the most convenient source of unregulated money.
“I call it a ‘slush fund’,” she says. “Whenever the City has trouble making ends meet in the budget, we just shift stuff over to water and sewer. The public expects that it’s being billed for the cost of water and sewer, but it’s also being billed for portions of a bunch of salaries. Nobody’s looking at it. If you add a penny to the real estate tax, everybody realizes it.”
Furthermore, Breslin worries that sufficient funds have not been put aside to replace infrastructure, an assertion that Mayor Tim Goodwin verified when he pointed out at the May 10 Council meeting that the City spent $13,000 repairing fire hydrants whose maintenance had not been included in the budget.
To facilitate a smoothly operating water and sewer system, City Council discussed reinstating the Utility Advisory Board at an April 12 work session. Established in 2006, the board was never active or effective. At the April meeting, Council expressed interest in restructuring utility expenditures so that water and sewer revenue would pay for its own replacement infrastructure, but little progress has been made since to revive the Advisory Board.
That bothers Councilmember Charlie McCarty in particular, who has led the effort to foster a healthy Advisory Board in hopes of creating more transparency in the utilities.
“Part of our salaries are paid when you turn that tap and flush that toilet,” said McCarthy in the May 10 Council meeting. “It is an issue of due diligence.”
McCarty expresses concern that two previous rate studies by consultant BP Barber on Folly last year recommended vastly different rate increases of 7 and 24 percent. In fact, BP Barber conducted one study, but discovered errors that, once corrected, produced a new report and the higher rate.
“We don’t produce any water and we don’t treat any wastewater, so by analogy, we’re more or less a commodities dealer,” says McCarty, pointing out that Folly is dependent on the Charleston Water System for its water and the James Island Public Services District for the movement and transportation of its wastewater. Because Folly Beach pays these groups for a service, it can be difficult to project future rates for Folly citizens. Folly’s ten-year contract with JIPSD expired this year, requiring the City to negotiate a new rate for next year’s budget.
Councilmember Pennell Clamp also expressed frustrations in the City’s failure to pass a budget until ten months of the fiscal year had already passed. He pressed Mayor Goodwin for an estimation of when the current rate study will be in hand, allowing the budget to be completed. Goodwin guessed August 31, two months into the next budget year.
At the end of that meeting, Councilmember D.J. Rich pointed out that James Island Public Services District recently raised its rates 32.7 percent, signaling a similar necessity to raise rates on Folly. With that rate hike imminent, when Folly’s rate study is completed, the water and sewer budget will likely receive greater scrutiny from Council members and bill payers than it has in the past.
Still, City Comptroller Charlie McManus explains that those using less than the minimum credit are a small minority, and that use fluctuates dramatically by season. He points out that at just over $3.50 per 1,000 gallons beyond the minimum, most customers aren’t looking at a change of more than $5 in their water bill per month.
“It’s a business,” says Connor-Rooks. “We’ve got to make sure that we have a healthy utility.”
Tweet
