SHELBY – The city of Shelby finds itself in a precarious financial situation after a legislative oversight and subsequent stalling of a correction on Monday evening.
Council unanimously approved legislation at their May 15 meeting to remove a surcharge on the water bills for Shelby Utilities customers. Unfortunately, that surcharge was removed prematurely. An emergency ordinance to repeal the surcharge removal failed to pass at Monday’s meeting.
The surcharge removal came with the completion of a new water treatment plant in Shelby, and the repayment of a loan for the water treatment plant upgrade.
However, it was revealed on Monday that Finance Director Steve Lifer inadvertently used the wrong information from the original loan repayment schedule to determine the final payment of the loan funding the water treatment plant upgrade.
In other words, the loan that Shelby believed it paid off earlier this year won’t be repaid until January 2021.
“The form that I used had the loan running from 2005 to 2017 as a 12-year loan payment,” Lifer explained in a May 25 email to members of council, Utilities Director John Ensman, and Mayor Steve Schag.
“Deeper in the file, the loan was refinanced as a 15-year note starting in 2010 and ending in January of 2021,” Lifer stated. “Since the original debt schedule in our office was not changed, I used that date to determine the end of the loan payment resulting in the burning of that mortgage document.”
Acting on the advice of Law Director Gordon Eyster, Lifer advised the ordinance removing the water surcharge should be repealed, and the surcharge effectively restored for Shelby Utility customers.
“Further legislation will also be needed to increase appropriations for the second loan payment of $143,880.73 due July 1, 2017,” Lifer wrote.
Council was prepared to pass an emergency ordinance on Monday repealing the surcharge removal ordinance, but the emergency ordinance was blocked by Councilman Charlie Roub. The rule requiring an ordinance be read on three separate occasions be suspended requires four votes; with Roub voting no and Councilman Nathan Martin absent from Monday’s meeting, the legislation was effectively killed.
“Since this ordinance was written as an emergency ordinance and the rule to suspend did not pass, we are unable to pass this ordinance this evening,” explained Councilman Garland Gates.
With the July 1 payment deadline looming, Mayor Schag conceded he would be required to call a special meeting of city council in order to eventually pass the repeal of the water surcharge removal. Councilman Martin will also be absent at council’s next meeting on June 19; Roub will be out of the country from June 10 to 16 and also will not be present at council’s July 3 meeting.
“We have a situation which the city may find itself in a financial predicament, and I say this not to be critical of any member voting his conscience up here at this table, but it’s a matter that does need to be dealt with,” Gates said.
After the adjournment of Monday’s meeting, Roub explained his “no” vote to Richland Source, saying he rejects the idea of surcharges in general.
“Basically we’re going to build some buildings and improve some buildings at another city facility without the approval of the taxpayers,” Roub said. “This is the same thing; by repealing this, that puts the surcharge back on for the improvements at the water plant.”
The new buildings Roub mentioned refer to a separate ordinance that was presented for its second reading on Monday evening. This ordinance would institute a sanitary sewer capital improvements surcharge on sewer customers within the city of Shelby.
Both Roub and Gates voted against the sewer surcharge on both the first and second reading of the legislation. Roub said surcharges should be decided by Shelby citizens.
“My utilities bill is starting to look like my phone bill with all these surcharges,” Roub said during the first reading of the ordinance on May 15. “Why don’t we call this what it is and call it a tax, and put it to the voters to have them decide?”
Utilities Director John Ensman explained the $1.62 increase in the sewer surcharge is a result of a mistaken engineer’s estimate. There is currently an administrative surcharge of $7.67 for residential customers in effect from January 2015 through December 2034 for the purpose of remodeling the city’s wastewater treatment plant; if passed, the legislation would increase the surcharge to $9.29.
“Two years ago we established the current rate to start with our money that needed to be collected to pay the annual bill for the debt of the upgrade,” Ensman explained on May 15. “Going through the bidding process, we realized the engineer’s estimate was considerably under where it should have been; we had an engineer’s update of $6 million; in reality when we received the first bid it came in around $7.8 million.
“We had to go back to figure out how much more money was needed to help pay for where it needed to be for the actual upgrade the plant needed,” he continued. “I had to go back and recalculate each schedule to collect $499,000 per year.”
When asked on Monday why a flat rate was not an option, Ensman explained the city needed a guaranteed amount to pay back the loan for the wastewater treatment plant improvements.
“We had to show a revenue stream to prove to them what type of revenue we have coming in to pay the note,” Ensman said. “We have to show we have enough money coming in to pay the loan; that’s the reason for the surcharge.”
The legislation implementing the sewer surcharge passed its second reading by a tiebreaker; with Roub and Gates voting no and Martin not present, Mayor Steve Schag voted yes to pass the second reading.
