Faced with an enormous sewer system debt that’s gone into default, Apalachicola plans to pour a lot of money down the drain next year.
Into the sewer system that is, funded through a proposed hefty rate increase on both residential and commercial users.
“We are one emergency away from financial disaster,” said City Manager Ronald Nalley in remarks that accompanied a detailed preliminary 2018-19 budget to city commissioners at their first budget workshop August 22.
“We are in default on a maturing loan that, if we don’t resolve quickly, could result in the state enforcing their rights through collection remedies including stepping in and taking over the finances of the city,” he said. “Right now, we can’t borrow money, we can’t get grants and we can’t even secure a line of credit.”
Nalley’s proposal, which commissioners will have to decide on before their final budget vote Sept. 25, calls for an increase in the base rate, and the per 1,000-gallon charges, for both residential and commercial water and sewer users, that amounts to 13.5 percent.
In addition, a separate monthly sewer user fee (SUF) instituted five years ago for the sole purpose of addressing a pile of unpaid debt on a state loan will likely more than double for residential users, and more than quadruple for commercial users, beginning in mid-October.
Working with an analysis prepared in conjunction with City Administrator Lee Mathes and Apalachicola businessman George Mahr, Nalley firmly recommended to commissioners they take the steps necessary to boost the SUF in order to address a $755,000 debt obligation, not including interest and fines, that the city has with the Florida Department of Environmental Protection.
That debt obligation began in July 1995, when the city first took out a $9.35 million loan with DEP for wastewater collection system and treatment plant improvements. (See sidebar).
Even with first instituting the SUF for the 2013-14 fiscal year, these payments have consistently lagged behind the amounts needed to prevent the loan balance from lapsing into default.
If approved, the monthly SUF for residential customers will go to $29, a hike of $18.25, or about 170 percent, from the current rate of $10.75.
For commercial users, the monthly SUF will go to $95, an increase of $74.25, or about 358 percent, from the current rate of $20.75.
In outlining his prescription for bringing the sewer loan out of default, Nalley said the increases are in line with the findings of the study done late last year by the Florida Rural Water Association.
“Residential water and wastewater revenue are not adequate to meet the projected expenditure and significant debt service requirements for the system,” read the rate study, which recommended three consecutive years of rate increases to achieve financial solvency.
“We are at a point where we have to do something with the water and sewer fund,” said Nalley. “It’s not going to be easy. This is going to be one of the toughest decisions the commission is going to have to make.
“(City Administrator) Lee (Mathes) has done a wonderful job of juggling balls for you. This year it’s going to finally catch up to you,” he said. “What we’re trying to do is to start raising that money to start paying those bills and pay our debt service.”
If the rates are approved, the budget for water and sewer, which is defined as a separate, self-sustaining Enterprise Fund composed entirely of customer billings and not out of property taxes, would have revenues of about $2.07 million, nearly all of it from about $1.97 million in billings. The remaining $100,000 would come from revenues generated by the Scipio Creek and Battery Park boat basins.
To apply about $583,200 towards debt service on the sewer, a half-million dollars in SUF revenues would be combined with some from the billings. The budget calls for about $184,500 from water bills to go towards a more modest debt service to that system.
Nalley said in his talks with officials at the DEP, they have shown a willingness to modify, but not eliminate, the existing sewer debt to help bring the city more quickly out of default, making it eligible to qualify sooner for state grants or loans.
“They are open to restructuring,” he said. “We can perhaps pay a smaller amount up front and as money comes in we can pay those debt service amounts.”
City commissioners know they face a tough decision.
“This is a decision we have to make and we’re going to be slammed really hard,” said Commissioner Brenda Ash, who oversees the city’s finance committee. “We’re going to put on our baseball caps and not go to the grocery store.”
Nalley said the sewer fee will remain constant, and could be completely eliminated or reduced in the next seven or eight years.
He also said that his budget proposal does not include any factoring in of the upcoming sale of real estate. The city is now in the process of advertising for a broker who would conduct the sale, or sales.
“This budget does not factor the sale of property, and it puts you on track to fix the debt problem with your fees,” said Nalley. “I don’t want to calculate that (property) into rates without some assurance (of what it would sell for).
“My experience is that public property does not sell for assessed value,” he said. “I don’t want to set unrealistic expectations of $1 million (or more).”
Nalley said while property sales will be helpful to the city’s finances, it is a short-term solution to a long-term problem.
“It gives you an influx of cash and you’re going to feel really good and then you’re going to feel really bad again,” he said.
The new city manager, on the job but a few weeks before preparing an extensive budget notebook, complete with pie charts and other well-documented explanations for every aspect of the budget, said he would like city officials to consider creation of a “needy neighbor fund,” that could help offset the steep rate hikes for those on fixed incomes.
“We need to find some good nonprofits that would be willing to do that for us,” he said.
“When you have that fixed income and your bills are right at that amount, that can be a matter of buying medicine,” said Commissioner Brenda Ash.
“Our backs are against the wall,” said Mayor Van Johnson. “I really don’t see we have any other choice.
“You went through the good. the bad and the ugly,” he told Nalley.
Commissioner Jimmy Elliott noted that existing water and sewer rates in Port St. Joe will be higher than that of Apalachicola, even after the proposed sewer rate hike is passed.
“They have a lot of poor people in St. Joe too, but somehow they survive it,” he said. “My biggest concern is the state coming in. They’re not going to care, they’re going to come in like a gunslinger.”
Commissioner Anita Grove said that “we have to make an earnest effort to pay this debt down. In this new budget we have to trim everything we can trim.”
Nalley said there are “some efficiencies that can be realized over time. Some of the things we are doing may be combined. We are operating lean.
“You can’t continue to cut operations or staff and not expect those cuts to affect services to the community,” he said.
The good budget news, said Nalley, is that the general fund budget does not propose any millage increase.
Apalachicola saw a 3 percent increase in its tax base, as it went from $142.9 million to $147.3 million, an expansion of $4.4 million. This rise was smaller than the 5.5 percent growth the city experienced a year ago.
As a result, the city’s 9.6043 mills will bring in about $1.34 million, about $40,000 more than came in this year.
NEXT WEEK – A LOOK AT THE GENERAL FUND