The cash hemorrhaging from Smithfield’s water and sewer fund has caught the eye of North Carolina’s Local Government Commission.
The state body wants the town to raise rates to stop the bleeding and is willing to withhold approval of a $1.4 million infrastructure loan until it sees progress.
This past fiscal year, Smithfield’s water and sewer operations spent $1.6 million more than they took in, mostly because rainwater is seeping into cracked sewer lines, driving up treatment costs. Also, revenue from customers was down more than $100,000 from the year before.
“We were able to sustain because of a healthy water-and-sewer fund balance,” finance director Greg Siler told the Town Council on Tuesday.
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Cash reserves in the water and sewer fund remain healthy but have been falling sharply in the past two years. From a high of 113 percent of spending in 2013, savings have fallen to 48 percent of spending. In short, the town has been taking money out of savings to pay its water and sewer bills.
On Tuesday, Siler recommended, and the Town Council approved, keeping a fund balance of at least 30 percent of spending as a show of good faith to the Local Government Commission. With 30 percent in reserves, the town could pay three months worth of bills if it had to, Siler said.
A policy change, though, was as far as the council was willing to go Tuesday night.
Siler and interim public utilities director Pete Connet unveiled a table of possible rate changes, recommending an immediate hike of 5 percent in water and sewer rates while increasing base charges from $6.02 to $9 for water and from $7.98 to $15 for sewer. The increase would yield $500,000 in additional revenue.
“Our fund balance is healthy, but this water/sewer enterprise fund is unhealthy,” Councilman Travis Scott said. “I’d like to do everything possible before we have to go to our customers and ask for an increase in rates.”
For starters, Scott suggested the town stop transferring water and sewer revenue to the general fund to pay bills there. Last year, the town transferred $25,000, but in prior years, it has shifted hundreds of thousands of dollars in water and sewer profits to the general fund.
“Our fund is unhealthy and taking money from that fund and moving it to the general fund just further hurts that,” Scott said.
But he admitted that ending transfers will not plug the large hole in water and sewer operations. “Obviously we have a problem,” Scott said.
That problem is in the town’s water and sewer infrastructure. In addition to rainwater seeping into cracked sewer lines, the town’s water-treatment plant is beset by sand from the Neuse River. In the past two years, sewer treatment costs have mushroomed from $1.8 million in 2013 to $3.1 million this year, which has been an especially rainy one.
Siler said the loan Smithfield is seeking would fix the infiltration problem in the sewer system and help the town keep sand out of the water it draws from the Neuse.
“The letter from the LGC doesn’t indicate expenses are out of control and doesn’t say anything to the effect that the town needs to get a handle on its expenses,” Siler said. “It simply addresses the fact that for the last two years expenses have been greater than revenue we’ve received.”
This past summer, the council did raise base charges for water and sewer, but greater increases appear likely if Smithfield wants to close the deficit between spending and revenue. The council balked at that for now, ordering a rate study instead.
“The last thing we should do is come and ask for more money from our customers to increase our revenue when there’s things we can do to control the spending,” Scott said.
Drew Jackson: 919-553-7234, Ext. 104; @jdrewjackson