Progress Made in Sewer Department Crisis

Under pointed questioning by members of the Common Council, Water and Sewer Department director Guy Russo explained the history of a financial "perfect storm" which drained nearly all revenue from the Sewer department, and the steps already taken to bring the department back into financial health.

The special workshop meeting of the Common Council was called at the end of the regular September Common Council meeting to allow time for Russo to analyze the problem, and answer questions submitted by Council members. At that time, the Sewer Department was broke, and did not have the funds to meet expenses.

Russo blamed deliquent accounts and conservation as the main culprits in the Sewer Department shortfall.

"If bills had been paid as they regularly are," Russo explained. "We wouldn't be where we are today.

In the past month, with an agressive second billing, and lien notice program, the department has collected 38% of it's goal of $500,000 in revenue from these billings, and that's with two days left in the month, with a plentitude of late-payers who wait for month's end to settle up.

The meeting got off to a rocky start as Mayor Sebastian Giuliano designated the workshop as a sole function of the Common Council, and handed chairmanship for the meeting to deputy mayor and Council member Joe Bibisi.

Bibisi attempted to hold Council members to a preliminary recitation of submitted questions, which Russo would be asked to answer.

Instead, Russo made a lengthy opening statement, and then the Council members asked submitted questions and follow-ups.

Along with the nearly $200,000 collected against delinquent accounts, Russo explained that his department had applied for a $200,000 refund from the State Department of Environmental Protection and was preparing thousands of dollars in cuts in the deparment in areas from open jobs, to scheduled maintenance.

Council members peppered Russo, and city Finance Director Carl Erlacher with questions about bugeting process, audits and collections. They also quizzed Russo, and city attorney Tim Lynch about how the WPCA (Water Pollution Control Authority) operated, and where authority and responsibility for financial decisions rested. Both Russo and Erlacher admitted that procedures were not perfect at the WPCA or the Sewer department, but when revenue was good, the department remained out of financial trouble. When the economy forced individuals into financial binds, paying the sewer bill was often the last thing residents would consider.

"They pay their mortgage so they don't get thrown out of their house," Russo said. "They pay their car payment so they can drive to work. They pay their credit card bill so their rate won't increase. Our 18% interest fee was once considered punitive, and that's no longer true. And if you don't pay your sewer bill, it doesn't get reported on your credit report."

However Russo indicated that a collections agency is being interviewed to go after delinquents, and that property liens will be issued. He also suggested that turning off water to delinquent accounts is being considered, as is the publication of the names of delinquents.

Russo explained that the economy and conservation have also taken tolls on other water and sewer departments, and other utilities. Middletown has seen a 12% reduction in use of water and sewer.

The WPCA meets Thursday afternoon, and Russo intends to present his cost-savings and revenue-increasing measures to the authority for a vote.

Busted Sewer Budget Means Probable Rate Hikes

In a memo to Mayor Sebastian Giuliano and City Finance Director Carl Erlacher, Water and Sewer Director Guy Russo revealed that only two months into a new fiscal year the Sewer Department is out of cash.

In his memo, Russo indicates that because of "(the economy, conservation, lack of usage, wet weather) that total sales are down" to about 6.5% below anticipated revenues. In addition he cites a 7.1% delinquency rate, further anticipated "low sales," anticipated slow collectibles as ongoing issues which will prevent solvency in the near term.

The Sewer Operating Budget is currently out of cash and is owed $1.4 million.

The city is meeting Sewer and Water payroll, but all vendor and supply payments are on hold.

Russo is suggesting a rate increase of $1.45 per thousand cubic feet treated to help make up for the shortfall. This increase would generate $128,000. Another rate increase may be needed in May.

While the lack of revenue is part of the problem, the department has, for at least the past two years, set budget at a higher number than would be available from actual billings. In 2007, the department budgeted $3,730,757 but only billed $3,568,690 resulting in a difference of -$162,000 and an actual shortfall of -$388,446 because of non-collections.

In 2008, the department budgeted $3,960,899 when actual billings were only $3,876,072, a difference of -$84,827 leading to an actual shortfall of -$386,325.

And in 2009, the department budgeted $4,386,272 against anticipated billings of $3,941,888, a difference of -$444,384, and an actual shortfall of -$724,000.

By state statute, the Water Pollution Control Agency (WPCA), the controlling agency for the Water and Sewer Department, is financially autonomous from the city, meaning that once the city has approved a budget, the WPCA is solely responsible for managing expenditures and revenue which applies to that budget.

Among the strategies suggested for making up the shortfall are the rate increase, an immediate loan of half a million dollars from the General Sewer Improvement Fund (which would have to be repaid by fiscal year 2010), an aggressive stance toward collection of unpaid bills (using a collection agency already working for the city), a freeze on filling vacant positions, and cancellation of several sewer projects and the purchase of a new sewer vehicle.

Erlacher will be making a presentation on the Sewer budget crisis at tomorrow's meeting of the WPCA (5:15 PM, Water and Sewer Department headquarters).