Sunday, October 25, 2009

Town Hall Meeting Gave Insights on Hard Labor Creek Financial Issues

How Strong is the Limb?

Oconee County is engaged in three strategies to manage the financial burden of its decision to enter into the agreement with Walton County to build the Hard Labor Creek Reservoir, citizens at the Town Hall meeting last Tuesday night were told.

The county is doing what it can to slow down the project, hoping to get revenue to pay the $49 million price tag the county agreed to as its share for the first phase of the reservoir, to be located in the southeastern part of Walton County.

It is looking for customers for the water from the reservoir–probably in metro-Atlanta--who will help pay the bills.

And it is turning to the state for assistance.

These answers were given by Commissioner Jim Luke, Chairman Melvin Davis and Commissioner Chuck Horton in response to the first question posed at the session on Tuesday night.

The story in the Athens Banner-Herald on Thursday mentioned part of the first answer, and the story in The Oconee Enterprise that same day mentioned part of the second.

I didn’t include anything about Hard Labor Creek in the story I posted on Wednesday night. I focused on discrepancies between what members of the board said in response to questions about a number of issues and the public record.

The answers of the three commissioners, however, are worth examining in detail.

When the Board of Commissioners voted in March of 2007 to join with Walton County on the Hard Labor Creek Reservoir and water treatment plant, it did so based on the projection of 8 percent growth in water usage each year through 2016 and told citizens the project would be financed by that growth, rather than by an increase in water costs for existing users.

While the completed reservoir is projected to cost $350 million, it will be built in two phases, with the first phase costing $170 million, and Oconee County responsible for 29 percent. The county has been selling bonds to cover its share of the costs.

Russ Page, active in farmland protection and other issues in the county, asked the board at the Town Hall meeting if it still believed the project could be financed with new growth.

Luke said "I don't know that I know the answer" as to whether the project can be financed through new growth. "We’re in an economic condition that probably none of us expected," he said.

"We are starting to drag our feet a little so we make do for the time being with funds that we have because the growth is not there that we anticipated."

Luke, who is chairman of the Hard Labor Creek Management Board and one of three Oconee County representatives on the seven-member board, said that "we are going to do our very best to not use anything other than water fees" to pay for the project.

Luke acknowledged that the taxpayers–even those who do not get water–ultimately could be forced to pay for the project if water revenues are not able to do so.

Chairman Davis, who is not a member of the management board for the reservoir but has been involved in discussions in Atlanta about funding for it, said it is clear now that Oconee County isn’t going to need the water from Hard Labor Creek when it is scheduled to come online in 2014.

Davis said discussions around the state about water needs suggested "There may be purchases of that water" until "Oconee County and Walton County need that water." He said nothing was firm yet on this possibility.

Horton, who became an alternate on the Hard Labor Creek Management Board in April, said the management board was looking for other "revenue sources," including from the state, but he noted that the state struck $40 million in reservoir funding from the last budget because of a lack of tax revenue.

Luke, Davis and then-commissioner Don Norris voted for the Hard Labor Creek Reservoir back in 2007, while Horton and Commissioner Margaret Hale voted against it.

The acknowledgment of the problems with Hard Labor Creek at the Town Hall meeting on Tuesday night were the most complete to date by the BOC.

In January of this year, when Melissa Peppers of Treadwell, Tamplin and Company reported on the completed FY 2008 audit for Oconee County, she made an oblique reference to the Utility Department and concern about the debt obligations for Hard Labor Creek.

On April 7 of this year, Utility Department Director Chris Thomas told the commissioners that the county was slowing its involvement in the project because of a lack of Utility Department Funds.

Only two weeks later Jimmy Parker of Precision Planning Inc., which is under contract with the management board, appeared before the Oconee BOC to counter Thomas by saying everything was "on schedule and under budget."

The difficulty with the financing of Hard Labor Creek results from a fundamental problem with financing of these projects in the state. They are paid for through water sales.

The just-ended drought meant that utility departments around the state had less water to sell.

The state also mandated that they tell customers they could not use the water for outdoor irrigation, which is a large source of revenue for utility departments during the summer months.

The collapse of the housing market around the state also greatly slowed growth of revenue from developers and from new customers.

Oconee County already has put into place two water rate increases since it decided to join the Hard Labor Creek project.

On April 1 of 2008, under the guise of instituting conservation pricing, the BOC approved a rate increase of 30 percent for the highest residential users. The base rate, however, stayed the same. Since water restrictions were in place, it didn’t produce much of a change in revenue.

On July 1 of this year, the county increased the base rate for residential users by 18 percent and increased the rate for each of the categories of use about the base by 32 percent.

The rate increase in 2008 did not affect commercial users. In July, the base rate for commercial users was left unchanged, and the rate for use beyond the base was increased by only 2 percent.

Thomas had sought a 32 percent increase in the base rate for residential users to take effect in July but was turned down by the BOC.

At the Oct. 6 meeting, the BOC agreed to spend unallocated Special Purpose Local Option Sales Tax (SPLOST) funds to upgrade a county well on Hillcrest road and sell 500,000 gallons of water per day to Walton County to help raise revenue for the Utility Department.

The audit conducted by Treadwell, Tamplin and Company shows the details of the problem. (I obtained a copy via an open records request.)

The county approved $19,535,000 in the sale of Series 2008 Bonds as part of its intergovernmental agreement with the Walton County Water and Sewage Authority for the Hard Labor Creek Reservoir project.

The county is scheduled to make only interest payments on these bonds until the fiscal year ending June 30, 2014, when it also will start paying against the principal. Each year until that point, it is supposed to make a payment of $936,263, but in fiscal year 2013-2014 it is supposed to pay $1.3 million, about $400,000 of which will be the first payments against principal. The bonds are to be paid off in 2038.

As Davis said, since Oconee County does not feel now it will have customers for that water in 2014, it had better find some other way to make those payments.

The Treadwell, Tamplin and Company audit is explicit about the options if water revenues do not cover the costs.

"In the event that the County System Revenues are insufficient to make the Contract Payments, the County has agreed to levy an ad valorem property tax, unlimited as to rate or amount, on all property in the County subject to taxation for such purposes in order to make the Contract Payments," page 22 of the audit states.

Luke put it more simply. The citizenry is "out on a limb."


The full video is on my Vimeo site.

1 comment:

Anonymous said...

This is an excellent article with very thorough coverage of the Walton County water fiasco that many of us tried hard to stop. The down turn in the economy exacerbates the result of overly optimistic projections by the utility and finance departments. By the way the same accounting firm that did the annual report also reviewed those projections and approved them.
I hope many folks in the county rad this.