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About Vernonia's voice. (Vernonia, OR) 2007-current | View Entire Issue (Jan. 10, 2012)
opinion january10 2012 Vernonia Needs to Change its Water Rates 3 By Jim Tierney and Dale Webb and distribution system. By raising the conversations should be establishing monies needed for these projects over a cost reduction goals for the city The Vernonia Public Works long period of time, we can best stabilize administration. Committee has been considering how to our future rates. It is important to be aware that keep our water and sewer rates as low as we have two types of reserves. The fact possible over the long haul. Like most things in life, saving money in the long Below Is a Simplified Version of Our Current (2011-2012) Budget run involves giving something up in the Personnel, Treatment Expense, Material & $ 382,370 short run. So it is likely to be with our Operating Costs water and sewer rates in the near future. Contingency (Annual Reserve for Unpredicted This is the first in a series of articles that 31,720 Repair Costs) your Public Works Committee proposes Loan Reserves* (One time pmt. to replace to publish to help the citizens understand 95,960 required Loan Reserves) the complexities that we and the City Capital Reserve Payment 60,000 Council see as affecting your future Annual Debt Service 119,949 water and sewer rates. This article is intended to give Total Budget $ 689,999 you some understanding of the city’s complicated public works budget, and *Since this loan reserve payment is a that they use the same name can make explain the need to set aside reserves one-time transfer of last year’s cash to our communication very confusing. To to replace our aging water and sewer the required loan reserve budget, the understand them, it is best to focus on systems. In our next article, we’ll real annual, steady state Water System their purposes. The first type, a Loan explain the several ways different cities Budget is $594,999, or there about. Reserve is typically required by lenders approach setting rates, together with an That is assuming that we continue, as we when the city borrows money. These objective discussion of the underlying should, to sequester $60,000 each year reserves are our way to assure our lender philosophies behind those rate setting into our Capital Reserve budget, from that they will not lose money on our loan. strategies. the system’s operating budget. As a result, our lenders give us lower Responsible leaders in charge Personnel and material costs interest rates and loan over a longer of any expensive facility typically set include: electricity, chemicals, hardware, period of time, lowering our payment. aside a reserve from the rates to replace public works personnel, office billing Our water and sewer rates are seen by the the facility and its parts as they age and and accounting staff and some charges lender as a dependable source of income, wear out. For most homeowners this for city administration. This budget also and this too encourages the lender to might include setting aside $500 a year includes a line item for Contingency. In give the city more attractive loan terms. to replace the roof, or a similar amount this case, the Contingency amount is Nevertheless, lenders always require us to help pay for painting the house every our best guess of the actual unexpected to maintain significant cash reserves to 7 to 10 years. When your facilities are water system costs we will have to do in protect them. These loan reserves are worth millions of dollars, this kind of any given year. Contingency funds left typically funded only once when the loan prudence becomes even more important. unspent, get rolled into the next year’s is originated and they cannot be touched Historically, Vernonia’s leaders Public Works Budget. without violating our loan agreements. have tried to keep water and sewer rates Capital Reserves is what most The water rate surcharge the city added as low as possible. By focusing on only budget analysts would call a Reserve several years ago is an example of what the “hard” operating costs to craft rates for Replacement. It is this category happens when cities do inappropriately for users, our leaders erred, neglecting the that we believe must be strengthened spend those funds. In our case, according City’s responsibility to set aside reserves and protected, just as you might protect to some rumors (no one here seems to for replacement. Because we have in the your retirement account. Annual Debt really know), the city spent some of past been able to raise significant capital Service is non-negotiable to the city just the reserve funds related to one of our through state and federal grants, we have as your mortgage or rent payments are loans, and we got caught. Our lenders been able to keep our system functioning nonnegotiable to you. then required us to replenish that loan despite having effectively set aside no At this point during a typical fund very quickly, so we had a large, meaningful reserves for replacement Vernonia conversation about water unexpected increase in our water rates. from within our rate structure. rates the conversation changes into a Other than this “catch up” period, which Unfortunately we cannot grumble that we should save money in is final with this year’s budget, we do continue to depend on this approach. the operational budget before setting not make annual or monthly payments to For the last 20 years state and federal aside reserves. Saving money and loan reserves. They just sit in the bank grants for water and sewer projects holding our public servants accountable protecting our lenders. have been diminishing and are now are both excellent ideas. However The other kind of reserves, virtually nonexistent. The best we can implementing these good ideas is an Capital Reserves, represents financial hope for is reduced interest rates rather ongoing management task, completely discipline we apply to ourselves. It’s not than large outright grants. Recognizing independent of the need for reserves. very different than setting aside money this changing funding environment We should be looking for operational every month to pay for your child’s the Public Works Committee and City savings whether or not we have adequate college or your annual tax bill. The Council have concluded that it is in the reserves in the budget. One way to “reasonable” way to accomplish this is best interest of our rate payers to begin accomplish both goals is to have a to “disassemble” our entire water system setting aside sufficient reserves for public rate conversation periodically, into its discrete component parts and then future replacements of our water plant probably every two years. Part of those make guesstimates as to the remaining Publisher and Managing Editor Scott Laird 503-367-0098 scott@vernoniasvoice.com Contributors Lynn Berry Dr. Carol McIntyre Gayle Rich-Boxman Wolfgang Rotbart Michal Smith Jim Tierney Dale Webb William Wells Photography Yaraslava Denysenko Scott Laird Want to advertise? Have an article? Contact: scott@vernoniasvoice.com One year subscriptions (24 issues) $35 Vernonia’s Voice is published on the 2nd and 4th Tuesday of each month. Vernonia’s Voice, LLC PO Box 55 Vernonia, OR 97064 503-367-0098 www.VernoniasVoice.com life of each of the components. To this we add an estimate of the cost to replace each component. Using this data, we have the basis for the large, long-term, savings accounts we must create if we hope to be able to replace our very expensive water system components when they wear out. Our intent in writing this article is to help you, the rate payer, understand what all the reserves, and contingencies do. And, we are hoping that many of you will absolutely insist that we maintain these prudent budgeting systems into the future. This thoughtful prudence is always the first thing to get lost as the public reacts to rate increases. Because we believe that some future rate increases are inevitable, we will continue our effort to build knowledge and understanding through these periodic communications with you, the public. The next article, which we will publish in the near future will discuss the various proposals to reform how we structure the charges for water service so that we can be sure we have the money to operate the budget above. 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