News and Tribune

November 24, 2013

New Albany utility to return $810k in subsidies

Sewer officials say rates covering budget


NEW ALBANY — As it struggled to satisfy bond obligations and pay vendors, some considered the New Albany Sewer Department to be a train wreck just a few years ago.

Next week, the department will likely provide the New Albany City Council and New Albany Redevelopment with an unexpected boost while showing rate payers that the utility is on the right track.

The New Albany Sewer Board is expected to approve resolutions that will free the council and redevelopment commission from $810,000 in annual subsidies to the utility. The department receives pledges of $570,000 in Economic Development Income Tax funds and $240,000 in tax-increment financing dollars currently, but due to gains made by the utility officials said Friday the subsidies can be removed without hampering the operation.

“We feel it’s a good time to return that money back to the city council and redevelopment commission and their oversight so they can begin planning additional capital improvement projects for the city,” said Mayor Jeff Gahan, who is also the president of the three-member sewer board.

He placed himself at the head of the board in 2012 to help usher the city away from privatization of the utility. Gahan said Friday that bringing the operation back in-house helped cut expenses, and added that additional sewer customers have also aided the cash flow of the utility.

“The sewer board has done a great job of managing costs,” Gahan said.

Not only will the utility likely decline the council’s EDIT and TIF contributions moving forward, but the board is also expected to agree to return the pledges for this year.

“We’re running for the year about 8 or 9 percent under budget and that’s not taking the TIF or the EDIT so we’re in very solid financial condition,” said sewer board member Ed Wilkinson.

The department can release the TIF and EDIT payments without a rate increase, officials said. The subsidies were part of prior debt arrangements, but  the State Revolving Loan Fund department agreed to the release of the pledges as long as the utility performs a rate study by May 1, 2016.

The study must show that the revenues of the utility are greater than 125 percent of the maximum annual interest and principal payments for all bonds.

If not, then the city must decide to either put the pledges back into the utility or raise rates.

Gahan said the utility has completed several projects to improve the wastewater system as mandated through the federal Consent Decree, and that improvements will continue without the TIF and EDIT pledges.

Gahan was serving on the city council and Wilkinson had only been on the sewer board a few months in 2010 when signs that the utility was struggling began surfacing.

Due to unpaid bills and threats to bonds defaulting, the sewer board was first asked to raise rates by 80 percent. The board and city council eventually agreed to a 23 percent rate hike in 2010 followed by a 20 percent bump last year.

The city has garnered new sewer customers that have also helped the utility’s bottom line. The department, for example, is expected to receive more than $200,000 in sewer tap-in fees from the developers of a new apartment complex off Academy Drive slated for next year.

As the managing tax-increment entity, the TIF contribution will be returned to the city’s redevelopment department. The $570,000 EDIT pledge will be turned back over to the city council.

The utility was slated to receive $570,000 in EDIT through 2023, and past contributions from the fund have been as high as $875,000 annually.

“It’s good news and we’ve been very fortunate with our budget and the department heads are doing a great job too,” Council President Pat McLaughlin said.

“It gives us the opportunity to do some more things and shows the sewer department is doing a good job with operations, and I’m pretty excited about that.”

The sewer board will meet at 9 a.m. on Wednesday in the third-floor Assembly Room of the City-County Building.