MARCO ISLAND — Consultants told Marco Island’s City Council Wednesday it could consider postponing rate increases on water/sewer bills until Oct. 1. Councilors met in a special meeting to discuss a revenue sufficiency study received from Burton & Associates.
During that meeting, councilors also learned that an unexplained $4.2 million deficit could require further review before any rate decisions could be made.
The revenue study, a 10-year projection beginning with this year’s budget, showed the city had sufficient money in 2012 collections to cover the cost of utilities operations. City budgets are calculated from Oct. 1 to Sept. 30.
To operate past October, the city will need to raise overall utility rates by 6 percent in the following two years and 3 percent in subsequent years, said Michael Burton, president of Burton & Associates.
Based on lot size, a single family home using 15,000 gallons of water monthly could see a 10-percent rate increase using the Cost of Services M54 model, said Burton. The M54 study was presented to city staff in December. The model combines variables including customer type and water consumption for the basis of rate calculations.
Additionally, he reported a 12-percent surcharge levied on utility bills could be reduced by 6 percent. The surcharge supports a separate fund for Septic Tank Replacement Program road resurfacing. The surcharge fund has an excess of $2 million. Councilors previously agreed to move $800,000 from the surplus to the operating fund.
The decrease in surcharges could be applied as soon as April 1 without negatively impacting revenues, Burton said. He also suggested that the surcharge reduction could take the sting out of October rate increases by reducing the homeowner’s burden of 10 percent to an effective 4-percent increase.
Councilor Bill Trotter was first to suggest council deal with surcharges separately by April 1, but asked that council give the rate sufficiency study more scrutiny before making any assumptions about rate increases.
“We should look at capital programs, now and future projects, funded and unfunded to 2016,” he said. “We need to look at the rationality of this.”
Vice Chairman Larry Magel was concerned the revenue sufficiency study did not take into account the more than $4.2 million deficit in the utilities’ operating fund. Patricia Bliss, city finance director, said she believed the $4.2 million was a timing error in how funds were budgeted, not a shortfall.
The city’s bond rating for borrowing also worried Magel. Although 1.5 percent is the number rating agencies like to see, he asked what the effective borrowing rate would be at 1.3 percent or 1.5 percent.
“If it’s not significant than we can reduce coverage and cost to customers,” he said.
Councilor Chuck Kiester said he was very upset about the $4.2 million deficit and the reason for it.
“Yesterday, I found out what was going on,” he said. “We were buying with no money in the bank based on future bonds.”
City Manager Jim Riviere explained the practice as “ledger loans” confirming the loans had been approved in the past. In his tenure, he said, he had not approved any “ledger loans” and had never found cross-over between general and utilities accounts.
Council directed city staff to refrain from using “ledger loans” in the future. To better understand issues involving the $4.2 million deficit and how accounts were pooled and allocated, councilors discussed asking Collier County’s clerk to review Marco Island financial accounts.
Burt Saunders, city attorney, said he had spoken to Collier County Clerk of Courts Dwight Brock who said he would like to have an inter-local agreement with the city before any work is done by the county.
“The clerk would be more than happy to help,” Saunders said, “but the city would have to cover the clerk’s cost.” Councilors agreed to explore the option.
Without understanding how allocation of the $4.2 million deficit would be resolved, councilors felt it would be difficult to move forward on rate and surcharge decisions. Council agreed to select dates for additional discussion and workshops on the issues at its Monday meeting.
The next regularly scheduled meeting of Marco Island’s City Council is 5:30 p.m., Monday, in the city’s Community Room, 51 Bald Eagle Drive.