Friday, April 23, 2010

Oconee County Utility Proposed Budget Includes Nearly $1 Million in Hard Labor Creek Debt Payments

Standard & Poor’s Knew

The Oconee County Utility Department is asking the Board of Commissioners to approve a balanced $6.4 million budget for the fiscal year beginning July 1 that includes nearly $3 million in debt service.

Of that $3 million in debt payments, $924,000 will pay interest on the $19.5 million bond the county sold in 2008 as part of its share in the expenses of Hard Labor Creek Reservoir, which Oconee and Walton counties are partnering to build in southern Walton County. That bond will mature in 2023.

The $924,000 is up from the $764,000 the county paid on interest on the bond in fiscal year 2010, the first year that Hard Labor Creek financing appeared in the Oconee County Utility Department budget.

The county did not make any payment against the principal of the Hard Labor Creek bond in the last fiscal year, and none is included in the budget under review.

The proposed fiscal year 2011 budget also includes $1,188,060 in payments on principal on a bond originally sold in 1998, on another bond sold in 2004 and on bonds sold for construction of the Bear Creek Reservoir in Jackson County.

The proposed Oconee County Utility Department budget also contains interest payments on those bonds of $880,099.

The 1998 bond was refinanced by the county in October of 2009 to reduce the interest rate. The result was that the county will pay less both in interest and against the principal in the upcoming fiscal year than was originally planned.

Oconee is one of four counties involved in the Bear Creek Reservoir. Barrow, Clarke and Jackson are the other three.

The debt payments are by far the biggest expenses for the Utility Department in the proposed budget.

The Department expects to pay $932,000 to purchase the water it will sell, most of which will come from Bear Creek, and $800,000 in salaries for its employees.

To make the budget balance, the Utility Department has proposed increases in both water and sewage rates starting on July 1.

The minimum monthly amount a water customer would pay would go from $16.50 to $19. Base sewer rates would increase from either $15.48 or $12.48, depending on area, to $18.

The county also increased water and sewerage rates last year.

The BOC asked Utility Department Director Chris Thomas at the budget hearing on April 14 to try to find a way to reduce the base rate increase, but he said it was difficult given the kinds of data he has on customer water use to know how to do that.

Through the proposed rate increases and because of hoped-for increases in water sales now that the drought has passed, Thomas is projecting that he will have $5.1 million in water revenue, up from a little more than $4 million proposed in the 2010 budget.

The 2011 budget projects $800,000 in sewage revenue, up from $625,000 in this year’s budget.

On April 6 the BOC reduced the sewer capacity fees paid by commercial users to gain access to the county’s sewage treatment system, and Thomas is projecting a decline in revenue of $150,000 in that category.

When the county decided to join with Walton County in the $170 million Hard Labor Creek project in 2007, proponents said it would be paid for by new water sales, not by sale of water to existing customers.

Of the existing Board, Chairman Melvin Davis and Commissioner Jim Luke were advocates of the project, along with then-Commissioner Don Norris. Commissioners Margaret Hale and Chuck Horton voted against it.

A Standard & Poor’s rating statement on the Utility Department of Sept. 30, 2009, said that, “According to county management, given the $30 million of capital needs associated with the Hard Labor Creek project, the board (of commissioners) has recognized the need to raise rates to provide adequate coverage of operating and debt service costs.”

Oconee County’s costs for the full project are projected to be $49 million, but the $19.5 million in bonds had already been sold when that report was written.

Water and sewer rates “are currently in-line with the regional average,” the Standard & Poor’s report noted, and the increases “might push the rates to slightly above the average.”

The report did not see this as a problem because “county income levels are, in our opinion, very strong.”

If the $924,000 in interest payments for Hard Labor Creek were removed from the proposed 2011 Utility Department budget, it would be $5,462,000, or $222,368 more than the budget in fiscal year 2009–the last year in which Hard Labor Creek was not part of the expenses.

Consistent with the Standard & Poor’s analysis, the rate increases needed for fiscal year 2011 would have been much smaller minus the county’s decision to join Walton County on the Hard Labor Creek project.