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Letter: Havre de Grace responds to critics of bond referendum

The recent letter to the editor by Charlie and Tina Mike deserves a response by the City. The issue is far too important to let incomplete views stand unrebutted.

The Administration’s “compelling reason” for the bond referendum is that $30 million in water/sewer capital projects should be accomplished within the next five years. The projects are designed to replace areas that are considered the highest risk for failure due to age and conclusions drawn from water and sewer line breaks in the last four to five years. The City believes the most responsible plan is to commit half ($15 million) from fund revenues and borrow half ($15 million). The alternative is to raise annual revenues from users by $3 million in lieu of borrowing.

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The 57% rate increase since 2010 was in response to a $1.1 million fund deficit, and represents a 5.1% average annual increase. The rate increases were implemented slowly and deliberately to maximize affordability to our citizens and to allow residential growth to partially alleviate the amount of increase. The increases were necessary as a long term plan to bring the water/sewer fund to financial solvency.

The debt service fee was designed to contribute to existing debt. The fee was only intended to be implemented for two years, an additional year was added due to a $2.4 million fund deficit at the end of fiscal year 2016. The extension was determined to be more acceptable then a rate increase because residents were already accustomed to the fee.

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The City believed the appropriate course of action in 2018 was to honor the commitment to end the debt service fee as originally promised in 2015. As noted, the fee had already been extended for a year. The water/sewer fund ended fiscal 2017 with a deficit of $1 million. The decision to raise rates in 2018 was a direct result of the financial condition of the fund.

The City intends to construct a water line down Route 40 to the area of Robin Hood Road at a cost of $2.5 million. The Aberdeen water agreement is designed to be self-supportive and not add any financial burden to City users. Based on the two-year construction timeline, the City’s plan defers any financial contribution to year 3. The line’s intrinsic value is greater than just to supply Aberdeen. This line will also complete the City’s water main loop delivery system, ensuring minimal disruption to the east and north areas of the City should a service interruption occur.

The Infrastructure Replacement Fee is expected to contribute $800,000 per year, and will be used to cover the $15 million debt instrument.

The County water agreement resulted in the City selling water to the County at a significant loss. The County was effectively paying about $1.35 per 1,000 gallons while the City was paying almost triple that amount to produce the water. The County was not willing to renegotiate the agreement therefore the City terminated the agreement. In developing the 2018 budget, the City reduced County revenues by almost $500,000 and increased tariff water revenues by $700,000 in anticipation of water sales to Aberdeen and the increase in residential users coming on line. The additional net $200,000 generated by the anticipated revenues were earmarked to help pay for the $400,000 buyout of the County agreement.

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The City approached Aberdeen about purchasing excess capacity created by the termination of the County agreement. The City believed the County would, for a fee, allow the City to transmit water to Aberdeen. The City had no inclination that the County would become a barrier to an agreement with Aberdeen and refuse any use of the transmission line.

The City’s water distribution costs associated with the County agreement were minimal, since the City created the water and transferred the water to the County plant located in the adjacent connected building. As a result, the expectation that ending the County water agreement would result in significant water distribution cost savings is erroneous.

The Water/Sewer Fund is, by Charter and accounting standards, an “Enterprise Fund” and must be self-supportive, meaning the fund must recover its operating and capital expenses through direct service revenues, and not from tax revenues collected by the City.

In summary, the City faces the need to spend $30 million over the next five years to ensure adequate drinking water is available to its citizens. The City can borrow the funds and make planned, well-managed investments in our water system, which we believe we can repay under the existing rate structure; we can ask the residents to provide an additional $3 million in revenues each year for the next five years; or we can hope that we can replace the infrastructure in about 10 years and further hope that we do not encounter service line breaks and service interruptions that would necessitate unplanned rate increases to pay for expensive emergency repairs. The choice is the citizens.

PATRICK SYPOLT

The writer is the director of administration for the City of Havre de Grace.

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