BERLIN – Berlin officials agreed to write off half of the $3.4 million debt the town’s sewer fund owes to its general fund.
The Berlin Town Council voted Monday to approve a staff recommendation to forgive about $1.7 million of the $3.4 million sewer fund debt. In writing it off, officials agreed that quarterly financial reports would be critical in ensuring the sewer fund did not generate losses in the future.
“We have to stay on course and be aware of where we are,” Councilman Dean Burrell said.
For months, town officials have talked about reducing some of the debt owed to the general fund by the sewer fund, which was forced to borrow from the general fund during years when it operated at a loss. Town Administrator Jeff Fleetwood said staff was suggesting forgiving about half of the amount owed and making a repayment schedule for the rest.
“Reducing that debt by half makes it a manageable amount,” he said.
Mayor Gee Williams said the reason the debt had accrued over several years was the fact that the town’s wastewater treatment plant upgrade and spray irrigation had cost more than expected.
“That’s where the money went,” he said. “We borrowed from ourselves to take care of this problem.”
Councilman Troy Purnell said he supported the staff recommendation. Burrell agreed but said the sewer fund had to be self-sustaining going forward. He also said that officials would have to monitor its performance in the quarterly reports that will be provided to officials now.
In response to a query emailed to the town by Councilman Zack Tyndall regarding the amount each enterprise fund currently owed the general fund, Fleetwood directed officials to the town’s last financial audit. It reports that as of June 30, 2019, the sewer fund owed $3.4 million and the stormwater fund owed $122,323. Fleetwood added that since the town had increased sewer rates, the sewer fund no longer operated at a loss.
“What’s missing from that equation, we did not have substantial capital,” Fleetwood said, adding that there would be capital costs in the future.
Tyndall said he was worried the sewer fund wouldn’t be able to handle capital costs as well as paying back the debt it owed.
Williams suggested officials decide on a feasible balance.
“Let’s try to do something that meets both obligations,” he said.
Burrell said the repayment schedule hadn’t been approved yet and could be adjusted as needed. Purnell added that the town was still waiting on an outside report regarding its sewer rates that could provide valuable information.
Tyndall said officials had to be sure they monitored quarterly reports regarding sewer fund operations.
“In addition to quarterly reports we should be getting action steps or an action plan to address any deficiencies,” Burrell said.
Williams pointed out that if needed officials could increase rates.
“If operating expenses are greater than what was budgeted then we can adjust the fees,” he said. “This is something that property taxes has nothing to do with. The fees for each department are supposed to be self-supporting. It was the sewer fund that wasn’t self-supporting. We didn’t know about it for years and when we did we paid a big price, but I think if we have that, if we can see a trend, and that is part of that quarterly report, we can address this before. We can change fees.”
The council voted unanimously to reduce the sewer fund’s debt by half, or about $1.7 million.
As for the establishment of a reserve policy, another issue that has been discussed multiple times in recent months, the council has not yet made a final decision. Tyndall told Fleetwood and Finance Director Natalie Saleh he wanted to see something simpler than what they had proposed. He suggested the town adopt a policy to have three months of operating expenses or 16%.
Saleh pointed out the policy staff proposed stated that the town would have three months’ worth of operating expenses in the reserve fund. Fleetwood suggested elected officials provide their thoughts on the draft policy in the coming weeks.
“We’ll put this back on a future agenda,” Fleetwood said. “If there’s any insight or thoughts reach out to Natalie or myself.”