City Addresses Local Government Commission's Concerns About Fund
Last updated 8/19/2020 at 4:05pm
The City of Brevard responded to a letter from the Local Government Commission (LGC) expressing concern regarding “indicators of financial weakness in the Water and Sewer Fund.”
The letter was addressed during a recent Brevard City Council meeting.
In the letter addressed to Mayor Jimmy Harris, the LGC said the fund reported a net loss and a negative cash flow, excluding transfers, for the fiscal year. Net cash provided from operations of $1,351,374 was insufficient to cover debt service of $1,673,464, the LGC reported.
Operating income declined over $200,000 (41 percent) since the prior year, but the principal and interest obligations increased over $1 million, the letter reported.
Brevard City Manager Jim Fatland said in a phone interview that the reason for the letter from the LGC is the loan payments for the Neely Road Force Main Pump Station and Equalization Tank, which, he said, was a $13.6 million project that was completed in 2017.
In response to the letter, the city said that 10 years ago the city had begun the process of planning to address sewer system overflow, and that review of the study provided data and a recommendation to upgrade the basin infrastructure.
According to the city’s response, “projects were designed and $23,6 million financing was obtained from the State Revolving Loan Program,” and that the loan repayment “has commenced.”
Fatland said that in North Carolina the audit contract is approved by not only the City of Brevard, with its auditing firm (Gould Killian CPA Group, P.A.), but also with NC Department of State Treasurer.
“Each year the city is required to file its audit report with the state treasurer, and all the invoices and so forth are approved by the state treasurer before we can pay the auditor, so we do that normally,” he said. “In their review of financial statements for the year (fiscal) ending in June 30, 2019, they noticed a few spikes in financial reports, and they look at last year’s financial statement and the following year. They don’t know what we do as a city day-to-day. One of the things they questioned was that our overall debt payment was a million dollars since the previous year.
“The first loan payment started June 30, 2019, fiscal year, but in advance of that, the city had been ramping up its rates incrementally over the last six years. We’ve raised rates about 48 percent for an average customer of 5,000 gallons. We wanted to get the rates up, so we could handle that debt payment that hit in the year that they are questioning. So, they wanted an explanation on what we are doing to get ready for this large loan payment.”
He said the city has been working on this for several years in advance.
“The bottom line is, we wouldn’t want to raise rates 48 percent in one year; we did it incrementally, so we were prepared for that,” he said. “They also wanted to know why we weren’t funding depreciation, and most utilities do not fund depreciation. It shows in their financial statement that it’s a noncash outlay, and the city, when it’s time to replace major infrastructure, we’ve been fortunate enough to get zgrants and low-interest loans on several of our big capital projects, so we basically address major infrastructure replacement with a low interest or available grants.”
He said the LGC was satisfied with the city’s response.
“When I first became manager we got interviewed by the press for the sewer system overflow, but the bottom line is the city did the planning, did the design and now it’s finished most of its infrastructure now,” Fatland said. “We are still going to have overflows from time to time because this area is unique and we get a lot rain, but the aging infrastructure was the big culprit. Now that we’ve had this Neely Road Force Main Pump Station EQ Tank, we aren’t getting as many fines, and we are able to address these rain storms.
“The EQ tank allows us to store untreated waste water, and when the rain stops, it’s pumped back into the waste water plant for full treatment and discharged.”