Water rate increase
Utility will borrow to pay city
Monday, September 09, 2013 7:00 PM
MARINETTE - A water rate increase may be in the future for Marinette residents. Several other solutions to the Water Utility's $1.5 million debt to the City of Marinette, including borrowing money, were discussed at a joint meeting between the city council and the Water & Wastewater Utility Commissions Monday evening.
Applying to the Public Service Commission for a rate increase was approved unanimously by the city council and the joint commissions.
Kathy Cleven, Marinette's financial director, said that while the increase may come as a shock to residents, the rate should have, realistically, been increased much sooner than this to compensate for the decrease in demand within the city as well as the increased spending in capital projects.
"They should be reviewed and submitted on a yearly. Things just change, that is just the way it is," she said.
Cleven added that if the rate is reviewed regularly, the increases would be less of a shock to the consumers and keep the Water Utility's financial situation more even.
Thomas Karman, auditor from Schenck SC, said that as the rate system stand presently, there is not enough money coming into the Water Utility to make ends meet. According to him, that is the main reason he recommended applying for a rate increase.
When the rate increase application is submitted, the PSC reviews the utility's situation and the circumstances surrounding the request.
Marinette residents will only see an increase in their rates if and when the commission approves the application.
Council members were not happy about the prospect of an increase.
"I'm very frustrated that I have been put in the position that I have to explain this to the residents," Alderman Dorothy Kowalski said.
Alderman John Marx chimed in about comments he has heard from the public on the matter.
"We just hit them with a large increase to justify the new (Water Utility) building and it's not sitting well that the public is going to be expected to pick up the cost of this mistake," he said.
Even without the public input, some council members did not like the fact that the mistake would cost residents money.
"Any rate increase should not be because of what is owed to the city by the Water Utility," Alderman Carol Kempka said.
"Let's move forward, but I will be hard-pressed to vote for any increase if this issue is a part of that," Kowalski agreed.
Cleven argued that the rate increase would have happened anyway, even if the Water Utility had followed procedures to borrow money instead of paying cash for projects.
"If (the Water Utility) had been borrowing for capital projects all along, the interest from that would have been included in this anyway," she said.
Increased rates were only one part to the overall solution to the utility's debt crisis.
"The next step in this multi-pronged approach is to borrow money to pay back the amount that is owed to the city, probably through to the end of this year, so that we cover all of that and allow (the Water Utility) to start fresh and keep current. We cannot allow it to accumulate again. They would have to pay every month." Cleven said.
However, with the Water Utility's current cash flow, Cleven was not confident that they could start payments to the city before the end of the year.
Other steps toward the solution, according to Cleven, were better employee oversight, monthly and annual budgets and a change of philosophy concerning payment of capital projects.
"I'd like to ask you to focus on the bull's eye," Cleven said. "Solve the problems in front of us and not look back. We need to solve this and keep it from happening again in the future."
Karman gave an overview of the financial situation of the Water Utility and the official findings of his audit.
In his report, he points out that there was one major concern regarding the utility's handling of their finances. Karman said he saw very little evidence of any reconciliation of both Water and Wastewater account balances.
"Before, when I was a part of the commission, we had monthly reports and we knew exactly where we stood financially," Marx said. "I'm not looking to place blame, but somewhere it all fell apart."
"You're correct, it is a problem and the commission is going to change that," said Jeff Zeratsky, Water & Wastewater Utility Commission chairperson.
The Water Utility had already started making changes by the time it met in August. Cleven prepared a budget report for their meeting and announced that overtime for office employees had halted.
Cleven has assumed utility administrator Tim Peterson's control of the Water Utility office staff and now has supervisory responsibilities over the utility's monthly and annual budget.
According to Alderman Dennis Colburn, the information given at the joint meeting wasn't enough.
"They (residents) don't have your phone number, they have mine and, so far, I don't have enough information to take home and give them a satisfactory explanation of this situation," he said. "They're going to want to know who or what is responsible for this."
By the end of the lengthy meeting, not only was a rate increase application approved, but so was a resolution declaring official intent to borrow to pay back the city. The possibility of another future joint meeting was not discussed.
The Water Utility's troubles began when the City of Marinette wanted to fund a project using money from their stormwater account with the Water Utility. When the funds were not available, an audit was initiated and it was found that the Water Utility owes the city almost $1.5 million.
According to Karman, the debt was aggravated by several money management issues at the utility including paying for projects with their cash on hand instead of financing it and having an abnormally high employee overtime expense.
A previous joint meeting of the city council and Water & Wastewater Utility Commissions was called Aug. 5, when the debt was announced to both the council and the commissions. Between Cleven and Mayor Denise Ruleau, a list of recommended actions was given. These included:
Start paying the stormwater and refuse fees to the city on a monthly basis.
File a rate increase application with the Wisconsin Public Service Commission.
Establish a repayment schedule and interest rate that is agreeable to both parties.
Increase site management presence.
Borrow money to finance capital projects in the future.
Freeze office overtime and hiring office utility staff.
Gain approval from the finance director of operational staff prior to hiring.
Present budgets to utility commissioners at regular monthly meetings.