GRASS VALLEY, Calif. Dec. 15, 2009 - Back in November, Nevada Irrigation District's Finance Manager Marie Owens offered a sobering forecast about the district's future finances. Specifically, she pointed to several large capital infrastructure projects either in progress or scheduled to begin within the next few years.
"I'm going on the record, if we spend this money, we are going off the cliff," Owens told NID directors at the district's Nov. 18 board meeting. "And we cannot borrow money to pay for operations."
Anyone who owns their own business knows that while it is sometimes fiscally prudent to leverage assets for capital improvement projects, borrowing money to keep the doors open is financially unwise.
Fast forward to NID's most recent board meeting (Dec. 9) where directors voted 4-1 to drop rate increases in 2010 to a level 50 percent below a schedule approved earlier this year. Instead of the previously-approved 5.4 percent rate increase, NID's board voted to adopt a 2.65 average rate adjustment for 2010. The revised rate increase was largely a result of concerns over the economy and its affects on ratepayers. The board also adopted a final budget of $60.7 million for 2010, down 22 percent from this year.
Director Nancy Weber raised concerns about funds budgeted for the district's Community Investment Program (CIP). These are dollars that go toward assisting neighborhoods with the cost of waterline extensions. While the target number for this program was originally $1 million, the 2010 budgeted dollars came in at only $375,000.
"This does weaken the program," Weber said. "In strategic planning, waterline extensions was the number one item," she said.
Director Nick Wilcox did offer some words of praise to Owens and district staff for bringing in a reduced 2010 budget. "I appreciate staff and APC (Administrative Practices Committee) trimming cost. It is a laudable and necessary exercise." Along with a freeze on cost of living wage increases, 13.5 vacant employment positions will remain unfilled. The budget also includes deferment of some studies and water projects.
So how does a reduced budget in 2010 relate to shortfalls in future years at NID? During the final budget discussion at last week's board meeting, Finance Manager Marie Owens also presented a list of assumptions for future projected budgets in 2011-2012. Here is where Owens' earlier statement about NID potentially "heading off a cliff in 2012" became increasingly relevant.
Regarding projected reserve withdrawals, NID will need to shore up deficits and balance its budget in 2012, Owens said the district will need to borrow $8.1 million to meet operating expenses that year. However, Owens pointed out there is a major problem with this assumption. "We do not have an Operating Reserve in 2012 to take this $8.1 million from," Owens said. "We will need to borrow from the Capital Reserve -- if we have a Capital Reserve," Owens cautioned. Owens also reminded the board that NID will need to borrow $30 million dollars in 2011 to fund projects over the following year.
"So we are borrowing $30 million and then depleting it by 2012 -- then we are funding operations on borrowed money," Director Wilcox observed, speaking to the $8.1 million shortfall on the district's operations side in 2012. "So thinking ahead of 2010, we can balance the budget in 2011, but in 2012 we cannot balance it without borrowing -- the operations side is out of balance," he added, referring to the possibility that there won't be reserve money in 2012 to offset this deficit. "We can borrow from one reserve, but borrowing for operations from a capital reserve with no plan to pay it back -- we need to think ahead on this."
Director Weber also revisited her suggestion to sell some of the district's surplus property before considering borrowing money in 2012. But with tax revenues increasing at nominal rates due to a depressed real estate market -- in addition to $442,000 of these same revenues that the State will be "borrowing" from NID in 2010 -- water revenues and rates become significant factors in the overall picture of NID's financial future.
Currently, revenues collected from NID ratepayers fall significantly short of covering the district's cost to provide service to its customers. Treated water rates cover roughly 58 percent of the cost of service, while raw water rates cover less than 45 percent of what it costs NID to provide water to this customer base. And 85 percent of the water NID delivers is to its raw water users. Add to this the fact that NID subsidizes rates with property tax revenues that must also go to paying down the district's debt which theoretically should also go to helping people -- who in some cases have paid into the system for years -- access NID water at a reasonable price.
"When the Cost of Service study was done, it recommended average rate increases of 6.5 percent," Director Wilcox noted. "Had we instituted those recommended rates at the time, where would we be at 2012?" he queried Owens.
"We would be at break even based on the projections," Owens responded. "We would no longer be supplementing rates with property taxes or at be least supplementing at a much smaller percentage."
And then there's the newly-approved rate adjustment for 2010.
An NID treated water customer with a 5/8 inch meter using, for example, 10 hundred cubic feet (hcf) of water will experience a 77-cent monthly increase from $29.73 to $30.50. On the raw water side, NID's irrigation users at the 1 miners inch level, for example, will see an increase of $10.88 for the entire six-month irrigation season.
Continuing to voice concerns over NID's future reserves and financial security, Director Wilcox observed that while the district has no control over property tax revenues, it does, by contrast, have control over rates. He offered the one "nay" vote against the reduced rate increases.
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