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February 24, 2013

New Albany sewer utility exploring end of $570K tax subsidy

Board members believe an annual cost-of-living increase would be needed

NEW ALBANY — The New Albany Sewer Utility may request the state allow the city to stop subsidizing the department with $570,000 in tax revenue annually.  

Based on the financial projections of the utility, sewer officials said Friday they believe the department can relinquish the funds, however they added an annual cost-of-living rate increase would be needed to sustain the operation.

New Albany Sewer Board member Ed Wilkinson said the utility could surrender the tax pledge from the city and still maintain the department for some time without a cost-of-living increase.

“It looks like we’ve probably got a pretty decent window, if you look down the road three or four years, before you’re going to be talking about any kind of increases,” Wilkinson said.

But he added in terms of long-term planning, the department would be better served knowing there would be additional revenue coming in to the utility to replace the tax funds. Officials said the annual increase could be in the range of 2 to 3 percent, and would help the utility avoid raising rates by a substantial amount, as was the case three years ago.

The New Albany City Council approved with the backing of the sewer board a 23 percent immediate hike in 2010, as well as a 20 percent rate increase that went into effect last year. The rate increases were to help the utility pay the debt from a bond that footed infrastructure projects to aid the city in meeting a U.S. Environmental Protection Agency’s Consent Decree with New Albany. The terms of that deal as mandated by the State Revolving Loan Fund program, or SRF, were that the city would continue to subsidize the utility with Economic Development Income Tax funds.

Previous EDIT pledges to the sewer department have been as high as $875,000 annually, and currently the city is slated to provide $570,000 in EDIT to the utility through 2023. The sewer department also received a $240,000 boost from tax-increment financing funds in 2010.

The firm Crowe Horwath has been tasked by the sewer board with researching the possibility of funding the department’s costs without the tax subsidies.

Sewer board member Gary Brinkworth said he’s always felt the utility should stand on its own and not rely on tax funding, but added that means rates will have to be set at a level to sustain the department.

“If they want to take away the funding from TIF and EDIT, they’ll have to replace it with something,” Brinkworth said.

The sewer utility was in bad financial shape in 2010, as there were unpaid bills and concerns over bond ratings. Wilkinson said the EDIT pledge was mandated to continue by the SRF for a reason, and that’s why the department would likely need to maintain its revenue levels.

“We don’t want to have a situation where our bond rating gets lowered because we get behind or anything,” he said.

Brinkworth said he would support removing the EDIT pledge from the utility if a cost-of-living increase or other funding mechanism is established.

“We’d have to submit it to [SRF], but if there’s a vehicle to replace the TIF and EDIT such as [cost-of-living increase] then I don’t think they’ll have a problem,” he said.

The city council would have to approve any rate adjustments for the sewer utility, and Councilman Bob Caesar said during a work session this week he “doesn’t want to see any rate increases” in concordance with removing the EDIT pledge.

Though the sewer board is an autonomous entity, Wilkinson said the utility is well aware of the quality-of-life projects such as the aquatic center and multiuse sports facility Mayor Jeff Gahan is seeking to implement.

“Our only way to help support the city and the residents of the city is to give them some relief on these funds,” he said.

Gahan is the third member of the sewer board. A message left for Gahan seeking comment Friday hadn’t been returned as of press time.

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