Council rejects rate increase

Water and sewer utility faces budget shortfall

By: Sharlee Joy DiMenichi
   Township Council members are calling for better oversight of the water and sewer budget, saying they were told too late of a projected $1.3 million shortfall that could result in a rate hike.
   The council, which rejected a proposed rate hike last week, discussed a report Tuesday issued by auditor Ernst and Young in December that said increases in water and sewer fees would be necessary to offset shrinking revenues.
   Council members said they were concerned that they had been asked to act on a rate hike within a month after receiving the initial report. The council had commissioned the report last March at the suggestion of the township chief financial officer, according to Mayor Frank Gambatese.
   A majority of council members said they believed a rate hike would be necessary in the future and planned to reconsider it at a future date. They also said they wanted to explore ways to ease the burden any rate hike might place on residential customers.
   The rate hike defeated by the council last week would have raised township water rates by 26.3 percent by 2005, including 9.1 percent in 2003, and sewer rates by 26.4 percent by 2005, including 9.2 percent this year. Under the ordinance, which was introduced last month, the water rates would have risen from $1.75 per 1,000 gallons to $1.91 per 1,000 gallons. Water rates would have increased to $2.05 per 1,000 gallons in 2004 and $2.21 per 1,000 gallons in 2005.
   Residential sewer customers are charged a flat fee quarterly, which would have increased in 2003 from $76.74 to $83.80, then to $89.98 in 2004 and $97.01 in 2005, under the ordinance.
   The rate hikes were called for in a report from township auditors Ernst and Young that predicted a $1.3 million gap between revenues and expenses due to low returns on investments and a decline in connection fees paid by new housing.
   The report was issued in December and was reviewed by a three-person panel beginning in January. However, panel and council members said they did not have enough time to review the recommendations before being forced to consider the rate hike.
   This has prompted council members to call for more aggressive oversight.
   Council member Carol Barrett said council members had only heard of the $1.3 million shortfall in the water and sewer budget in December. Had council members known earlier, they could have stretched out the proposed increases over an even longer period of time than had been proposed, Ms. Barrett said.
   Increasing rates over the shorter period of time that had been proposed might especially burden those who have lost their jobs and seniors living on a fixed income, Ms. Barrett said Tuesday.
   "I’ve met many of them who thought they were in good shape with their retirement and the investments they has and instead of having extra money to do nice things, they’re barely able to buy food," Councilwoman Barrett said.
   Councilwoman Barrett said in the future, she would like those reviewing the water and sewer budget to raise a red flag to council as soon as they suspect trouble.
   "I think that our finance officer or the business manager or someone who is in charge and looking at these figures, hopefully on a quarterly basis, would give us a warning signal," she said Wednesday.
   Ms Barrett said Tuesday that the council has repeatedly been told that the water and sewer budget and surplus were healthy.
   "All of a sudden in December, early January: ‘We’re broke! We’re in the hole!’" Ms. Barrett said Tuesday.
   Council member Chris Killmurray said there needs to be earlier warnings of budget difficulties at the utility.
   "A $1.3 million gap doesn’t just develop overnight," Councilman Killmurray said.
   According to the Ernst and Young report, costs have been increasing and changes in development indicated that revenue from connection fees would be declining. The township also would have less in surplus available to offset any decline, according to the report, because it would no longer be receiving money from a settlement of litigation with neighboring Cranbury.
   Revenue generated by connection fees has been declining because growth has slowed, said David Milkosky of Ernst and Young. In addition, he told the council Tuesday that many connection fees had been collected years in advance for projects just now being developed.
   The township collected $817,929 in connection fees in 2001, according to the township budget, down from $1.45 million in 2000.
   The report says the amount the township must raise from its ratepayers to break even in the future will increase. It needed to raise $13.4 million from ratepayers in 2002 but will need to raise $15.59 million in 2003 and $17.25 million in 2004 from ratepayers to break even, according to the report.
   In addition, the township had collected $4.5 million over three years from a settlement with Cranbury over the amount the neighboring township had paid for using South Brunswick sewers. The settlement money was added to the utility’s surplus account and was used as revenue in each of the last three years. The final payment on the settlement was made last April, the report said.
   A three-person panel had been appointed in January to review the report.
   Council members say a rate hike will be necessary, but they want to discuss alternative approaches like a more graduated increase and a tiered billing system.
   Councilman Ted Van Hessen said he wanted to explore ending what the township calls "chargebacks." Currently, the township pays a portion of the salaries of employees who do some work for the water and sewer utility, but are not directly affiliated with the utility, from the water and sewer budget. These include employees in the administration, finance, health, code enforcement and data processing departments. The proposed 2003 municipal budget calls for $706,606 to be charged back to the utility in this manner.
   Mr. Van Hessen said that money could be used to offset the revenue shortfall. While doing so would mean an increase in the municipal tax rate, he said it makes sense because homeowners can deduct property taxes from their federal income taxes.
   Because of this, he said each dollar paid in property taxes is less of a burden than a dollar paid in water and sewer fees.
   "If it comes out of Ted’s pocket as a tax, that money is really 70 cents," Councilman Van Hessen said.