TRUSTED NEWS LEADER FOR COTTONWOOD, CAMP VERDE & THE VERDE VALLEY
Fri, Aug. 23

Letter: Monitor the Water Utility budget

Editor:

Before a majority of Cottonwood’s City Council imposes higher water rates on the 9,000 or so water system rate payers in Cottonwood, the Verde Villages, and Verde Santa Fe, there are legitimate financial concerns about the Water Utility balance sheet that should be answered. For example, should the Water Utility capital improvement budget be more carefully monitored so that financial deficits are not created? Is it possible that Water Utility capital expenses are being handled in such a way that rate payers are being “double-billed” in theory and/or in practice for capital improvements? And, have recent purchasing decisions by the Water Utility depleted reserves to a point where a rate increase is necessary to replenish them?

A possible answer to the deficit-monitoring question is suggested by the 2008-09 Water Utility budget. It states that “total revenue sources” for the Water Utility were $6,742,560. The document also states that expenses associated with personnel, operating supplies, contractual services, other services, and debt service for bond payments totaled $4,967,945. This left the City with excess revenue of $1,774,615 to pay for Water Utility capital improvements. However, the Water Utility management fixed estimated “capital outlay” expenses at $2,246,020. This decision threw the account out of balance and resulted in about a $470,000 deficit. Wouldn’t a better financial decision for the Water Utility have been to limit the “capital outlay” in the budget to the $1,774,615 available revenue rather than generate a deficit?

Finding a satisfactory answer to whether there is a kind of “double billing” of capital expenses in the Water Utility budget (thus creating an artificial deficit) has been difficult and turns, at least in part, on how the money from the 2004 and 2006 Water Utility bond issues is being used. When the City issued revenue bonds of $13,580,000 and $23,965,00 in 2004 and 2006 respectively, they were intended for purchase of private water companies and for paying for future water system capital improvements. The debt on those bonds is now being paid back by water users in their monthly utility bills.

The Water Utility began July 2009 with in excess of $10 million in reserves. Common sense suggests that the reserves are, at least in part, a result of the original bond issues. If the reserves exist, shouldn’t they be applied to current capital improvements until they are exhausted? If this is not occurring, and water users are being expensed, at least in part, for capital expenses that could be paid from the reserves, isn’t this a form of “double-billing” capital expenses. Does this also result in artificially driving up annual expenses to the fund? Hopefully, the City will reassure rate payers prior to the March 2 public meeting that this is not occurring.

Finally, the answer to whether the City’s recent series of million-dollar capital purchases has created a financial crisis for the Water Utility reserves that requires a rate increase appears to be “no.” City financial documents disclose that the Water Utility in July 2009 had “substantial reserves of over $10 million.” Even after spending $4 million or more for wells and new facilities in the last six months, there should be in excess of $6 million in this account.

One hopes that the City will review with the public prior to the March 2 public meeting its handling of the original Water Utility bonds, inform the public of the amount of reserves still available from the sale of those bonds, and explain how Water Utility capital improvements are being booked into the City budget.

Bob Oliphant

Cottonwood

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