Council opens tap once again on water rate talks

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Local News

September 11, 2018 - 11:33 AM

Iola’s leaky water fund will run dry by the end of 2019 without a rate increase, Iola City Council members were told Monday.
The troubled fund has been the focus of several Council discussions this year.
In May, Council members rescinded a plan that would have raised rates immediately, with another hike that would have followed at the start of 2019.
Since then, the Council has set its sights on budget savings, primarily through a smaller workforce.
And while the details of any staff reduction have yet to be worked out, the imminent water fund crisis demands action soon, City Administrator Sid Fleming said.
Fleming opened the discussion by revisiting the three main goals of a healthy water fund.
— It generates enough revenue to cover all annual expenses, including personnel costs, equipment and materials and the city’s annual $680,000 bond payment for the water plant built in 2005.
— It has a healthy reserve, pegged at about $900,000 or enough to cover 90 days operating expenses. The city expects to have about $436,00 in reserve by the end of this year, made possible after Council members made this year’s water plant payment out of the city’s capital projects fund and not the water reserves.
— It allows the city to follow through with infrastructure improvements soon to be spelled out through a master plan that could be available by the end of this year or early 2019.
“‘Quite honestly (the master plan) needs are going to be much higher than what we’re able to bite off,” Fleming said, adding the Council will prioritize

which infrastructure improvements should be made first.
Fleming showed the Council a pair of scenarios through rate increases, noting both were insufficient for the long-term stability of the fund.
A 10 percent hike would keep the fund solvent through 2019, but in the red again by the end of 2020 and the reserves depleted by the end of 2022. Coupling a 10 percent rate hike in January with another 5 percent hike in 2020 extends the life of the fund another year, before the reserves are evaporated.
The proposal “is a far cry from what we ought to be doing,” Fleming said, referring to the $100,000 budgeted for infrastructure improvements.

COUNCIL members who previously voted against the water rate hike, including Gene Myrick, Nancy Ford, Ron Ballard and Mark Peters, acknowledged an increase may be necessary, but urged the Council to wait on making any decisions until the master plan is ready for consideration.
“People know we’re eventually going to have to bite the bullet,” said Myrick, who suggested the city phase in the 10-percent hike, through monthly 2-percent increments. That suggestion found little traction among the other Council members.
Ballard noted Fleming’s rate scenario included a $230,000 spending increase from 2019 to 2020, and another $100,000 spending increase in 2021. Rate hikes totaling 15 percent, “doesn’t solve the problem,” he said. “There’s always something going on. Why are we always running out of money?”
“Because the city has 100-year-old pipes, and no one has replaced them,” Mayor Jon Wells responded. “If we started budgeting 100 years ago for this, we wouldn’t be in this situation to have to come up with $300,000, $400,000 or $500,000, but that’s the scenario we’re in.”
Fleming noted his proposed expenditures from 2020 onward were flat, even though he expects the city’s master plan to require significantly more than the $100,000 he has budgeted those years for infrastructure projects.
“It would be a shame to move forward with something that starts dwindling (the water fund reserve),” Fleming said, by eschewing rate hikes. “It’s the same type of mentality that got us into this now.”
Fleming noted Council members transferred funds from the city’s wastewater reserves into the water budget about five years ago with the hopes of keeping the water fund solvent, a move that ultimately was futile.
“It’s easy for me to say it, but nobody has been brave enough to fix it and fix it now,” Fleming said.
By increasing rates, the city can maintain a decent reserve for the foreseeable future, and allow the Council to look later on about infrastructure work.
Of note, the Council’s money-saving maneuvers included skipping the city’s annual $200,000 transfer from the water fund to the General Fund in 2019. But those transfers would return in 2020 and beyond.
Peters asked Fleming to consider eliminating water fund transfers to the General Fund, noting $200,000 is about 11 percent of the water fund’s budget, but only 3 percent of the General Fund. “We might find savings in the General Fund much easier than in the water fund,” he said.
The city for years has used utility reserves to supplement the General Fund to keep property tax levels low.
The $200,000 is equivalent to about 7 mills, Wells replied, asking if the Council would be more receptive to a $100,000 transfer as a compromise.
“We’ll still run out (of money), but a lot slower,” Wells said. “We could kick the can down the road.”
Ballard noted the employment staffing study, a new purchasing policy under development and the water infrastructure master plan should be in place before the Council acts.
“We have a lot of things in the works,” Ballard said. He urged the Council to wait until December to act on any water rate hikes, “to get a good look at what we need to be doing.”
Ford agreed.
“It’s important to show citizens we’re looking at where we can cut costs,” Ford said.
With Councilmen Aaron Franklin and Chase Martin absent, and the varying responses from the other six Council members, Wells noted there was little consensus on whether a rate hike would be approved at the Council’s Sept. 24 meeting.
“I suggest we bring (the proposal) in, and if it fails the next meeting, we’ll move forward,” Wells said.

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