Havre de Grace's water and sewer fund remains in financial trouble as city officials and Water and Sewer Commission members look for ways to raise enough revenue to operate the municipal utilities and pay down a $27 million debt incurred to expand the wastewater treatment plant.
In fiscal year 2014, the water and sewer fund was short more than $805,000 of meeting its debt obligations to the city's general fund, according to the annual report presented by the city's Water and Sewer Commission to the mayor and members of the City Council Monday.
Although the water and sewer fund, which is officially called Fund 9, earned $6.48 million in revenue during the 2013-2014 fiscal year – $17,547 more than projected – and covered its operating expenses for the year, $1 million had to be loaned from the city's general fund to cover debt service, Garrett Lyttle, the commission's recording secretary, explained.
He said Fund 9 could only pay close to $200,000 back to the general fund, or Fund 1, leaving a negative balance of $805,689.
"There's not enough revenue coming into Fund 9 to operate the system and to pay down the debt of the $27 million that Fund 9 owes for expansion of the water and sewer plant," Lyttle said.
The city took on the debt during the 2000s to expand the capacity of its wastewater treatment plant to support a housing boom at the time, a boom that has tapered off significantly since the housing market crash of 2007 and 2008. The housing market in Havre de Grace and Harford County is in an anemic recovery.
The city charges a $21,200 capital cost recovery fee for each new house built in Havre de Grace, and revenue from those fees supports the water and sewer fund.
Lyttle noted in his report that $1.21 million in revenue from capital cost recovery fees was anticipated in FY2014, but only $1.12 million came in.
"You basically have to build 100 homes a year to pay that debt," he said.
Building 100 homes each year would bring in more than $2.1 million in capital cost recovery fees. Lyttle said an average of 50 to 60 houses are built each year in Havre de Grace, most of them in the Bulle Rock community.
Water and sewer officials also postponed about $6 million in capital improvement projects because of a lack of state grant funds which would support those projects, according to the report.
"The inability to obtain grants continues to put the physical system in jeopardy," Lyttle told city leaders.
Lyttle said in his report that water consumption in the city continues to decline, which in addition to the lack of new homes and existing homes that are not occupied, has contributed to the negative financial balance.
Commission members have proposed a series of fixes to the water and sewer financial issues.
Some of the fixes include lowering capital cost recovery fees by 20 percent to $17,000 to be competitive with surrounding jurisdictions, establishing a "wastewater treatment plant debt service fee" for users, which could generate at least $500,000 a year toward debt service, reducing operating costs, getting rid of a 75 percent surcharge on bulk water purchases and raising the fee for hauling sludge from 2 cents a gallon to 5 cents, according to the commission report.
"Fund 9 continues to be plagued by the same problems year after year, and the Water and Sewer Commission continues to search for solutions to these problems," Lyttle told city leaders.
Commission members proposed a 15 percent increase in water rates for fiscal 2015, but city officials nixed that proposal in favor of cuts elsewhere in the budget.
Council President Bill Martin expressed his concerns about rate increases Monday after Lyttle delivered his report.
"Once you raise rates, they seldom ever come back down," he said.
Martin said city leaders "really need to examine a lot of the ways we do business."
Councilman Steve Gamatoria suggested holding work sessions between council members and members of the Water and Sewer Commission "so that we could maybe bang and iron some things out."
Councilman Randy Craig noted that city leaders often consider Fund 9 a separate entity from the rest of the municipal budget, since it is an enterprise fund that is supposed to be supported by its own revenue.
He stressed that the water and sewer fund, however, "depends on the economic growth of the entire city."
"At the end of the day, if there's not economic growth in the city, all of these problems are made worse," he said.
Councilman Fred Cullum, chairman of the commission, said Fund 9 has been in debt to the general fund for several years, and the debt service payments have decreased, "but that's a long way from being even or ahead."
Mayor Wayne Dougherty said that "with the strong recommendations coming out, I think this [FY2016] budget process should be a little bit better for Fund 9."