New Albany: Sewer “Crisis” 2010: Part 3 – Why I Think Council is Digging its Heels.

With Randy Smith's permission, NAC is happy to reprint this series of five articles as counterpoint to the prevailing blather.

New Albany: Sewer “Crisis” 2010

Part 3 – Why I Think Council is Digging its Heels

I think it’s fair to say that the relationship between the current administration and a significant segment of the current council is poisonous. The mayor warns that without proper funding from the council, essential city services will be threatened. Many on the council are wary and distrustful of Mayor England and his staff and can be relied on to oppose practically any solution put forward by the administration.

But residents and ratepayers in New Albany need not take sides on this sewer rate schedule. They need not side with nor trust the words coming from the mouths of the mayor and his administration nor the words emanating from his critics on the council.

New Albany’s city council is the only body that can establish sewer rates. The sewer board, appointed by the mayor and the council, can only recommend a rates schedule.

By law, those rates must be set at a level that covers the expenses of the sewer utility. Those expenses include normal operations and maintenance, an operating reserve, capital improvements, and debt service. Every dollar borrowed by the utility must be repaid to its creditors on a firm and unbending schedule. Every bill must be paid. Specific capital projects must be undertaken.

There simply is no other choice. The revenue from those rates must cover all those expenses. If the utility can lower its expenses, it can save a few pennies on the rates. If the utility can lower its borrowing costs, it can save even more pennies. And if the city can delay or avoid environmental upgrades under the Clean Water Act, even more pennies can be saved.

So, having been told that they have no choice, the council has risen up with a roar and begun to cast vague accusations in every direction.

Rather than try to explain the realities to their constituents, several council members have sought to stir up passions by casting this impending rate increase as some invisible conspiracy by a band of burglars intent on picking our pockets.

Make no mistake. The reason this increase is so large is that the council has refused to address the insolvency. It is most disingenuous of this council to pretend that this is sudden or unexpected.

Wishful thinking won’t take this responsibility away from the council. Accusations of “conspiracy” won’t cover the costs of operations and maintenance, fill the required reserve funds, bring the utility into compliance with the strictures of the Clean Water Act, or pay back the money the utility borrowed to do all of the above.

The (Indiana) State Revolving Loan Fund sits at the table representing our largest creditors. Weeks of negotiation with the bondholders yielded four major concessions for New Albany that the city council has so far rejected.

Our lenders are willing to refinance a significant portion of our debt at a lower interest rate. They are willing to relax debt service reserve fund requirements to let us use our own money for capital projects and they’ll let us take 10 years to replenish that almost $5 million reserve.

In exchange, the utility (through council action) must raise the sewer rates to a level sufficient to make the utility solvent. During this and next year, that requires $3,260,531 in new revenues from ratepayers. Beginning in 2012, that requires $5,563,415 in additional revenues compared to current receipts.

If the council rejects this new recommended rate schedule like they did the original recommendation, they are quite explicitly relinquishing control over rates for years to come and putting this city completely at the mercy of bondholders. In essence, they would be declaring bankruptcy and possible liquidation of every sewer asset this city has paid dearly for over our lifetimes.

I can’t imagine that any council members could survive to be re-elected in 2011 if they continue on their current course.