Columbus Light & Water general manager Todd Gale is hopeful the water department is leaving hard times behind.
Recently, a number of measures, including a water rate increase and six worker layoffs, may help the department stabilize its shrinking reserve fund.
It’s been a rough few months for the water department.
During a September budget meeting, Gale described it as “drowning in debt.” At the time, the department had more than $27 million in debt, a significant chunk of which is a holdover from annexation in the 1980s that saw CL&W shoulder in more than $40 million worth of debt.
CL&W Chief Financial Officer Mike Bernsen told The Dispatch that at the end of Fiscal Year 2016, the department had $25.4 million in debt.
The department’s reserves have also steadily decreased for the past few years. The reserves peaked in December 2010, at $5.6 million. Now, the department has about $3 million left in reserves.
The reserves were projected to continue shrinking. In January, CL&W Chief Financial Officer Mike Bernsen said a consultant predicted the department’s reserves could fall to $921,000 by the end of fiscal year 2019, accounting for all needed expenditures, grants and borrowed money.
Without grants and loan money the department could instead face a $1.02 million deficit. Bernsen described the scenario as “much more realistic.”
The CL&W board voted to layoff six employees and raise water and sewage rates 8 percent in January. Gale said the rate increase took effect March 1.
The increased water and sewage rate would work out to about $4 per month for a family that pays $25 per month for water. CL&W provides residential service to about 8,500 households.
Gale said it will take time to see exactly how much of an effect the acts have made, but he thinks they may mark a turning point for the department.
“At the risk of jinxing us, it does look like we may have turned a corner,” Gale said. “But it takes a long time. It takes a lot to turn it around once it gets going in one direction or the other.”
Still, he said if he had his wish the department’s first priority would be to finish paying off its debt.
“It’s going to help reduce the rates or keep the rates down for the future,” Gale said. “Forty-five to 50 cents on every dollar goes to debt. So if you weren’t paying debt just think of all the things — you could return it to the customer, you could make major upgrades to the system, you could have a lot more flexibility.”
While some perception persists that CL&W’s $650,000 loan to the city has hindered the department, Gale said it’s not one of the concerns facing CL&W.
The CL&W board approved the loan in December so the city could purchase the form Gilmer Inn and Brumley sporting goods store properties on Main Street. The loan agreement calls for the city to repay money to CL&W over five years at $100,000 annually for the first two years and $150,000 annually for the final three years. CL&W will gain the same interest rate on the loan as it would if the money were in the bank.
The agreement allows CL&W to withhold its in lieu tax payments to recoup costs if the city does not repay the money.
“We pay the city more in one month than their annual payments on the loan are,” Gale said. “That’s not a concern for us.”
CL&W pays the city $2 million of in lieu taxes per year, or $166,000 per month.
Past struggles
For all its struggles, the water department’s reserves are in better condition than in the early 2000s. The department had less than $1 million in reserves for much of a stretch from 2003-07. In October 2004, the department’s reserves hit a low of $294,823.
The reserve grew from 2005 to its peak in 2010. Gale said the growth came thanks in part to a bond issue that allowed the department to forgo some debt payments for a time and build its reserves.
“We refinanced old debts is the short answer,” Gale said. “But while we weren’t paying anything, we were acting like we were paying and we built this reserve.”
Gale said another measure CL&W took before he arrived was that the water utility began diversifying. CL&W sells wastewater to TVA and sells water and wastewater services to Columbus Air Force Base.
“By us doing those non-typical projects, it’s helped to offset any rate increase,” he said.
Modern challenges
CL&W has raised water rates 10 times since December 2001, including the rate hike the board approved in January. Rates rose from $1.85 per 100 CCF in 2001 (the Environmental Protection Agency says one CCF is equal to 748 gallons) to $3.85 per 100 CCF as of last September. The water department’s reserves rarely move in concordance with the rates, and Gale said rates aren’t the struggling department’s main issue.
“The main cause is the volumes are down — the sales are down,” Gale said. “I’d say both (industry loss and efficiency improvements), but more so because of the loss of industry.”
The water department hasn’t lost many residential customers, Gale said. The department maintains service to about 8,500 residential customers. But the loss of industries such as United Technologies, Omnova and Sanderson Plumbing hurt revenue.
“We did see an uptick when KiOR came, but they’re not here anymore,” Gale said, referencing a failed biofuel plant a Texas-based company built on The Island.
Gale said improved efficiency in everything from light bulbs to washing machines is also decreasing usage.
For example, he said an old incandescent light bulb might use 100 watts, while a modern 100 watt-equivalent LED light bulb might use 15 watts.
“You look at just how many light bulbs are in the city of Columbus,” he said. “It’s not just affecting us. It’s affecting everyone, including other utilities and the TVA. Just by efficiencies through motors and refrigerators and appliances, it’s driving usage down.”
Alex Holloway was formerly a reporter with The Dispatch.
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