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Updated 12:17pm - Sep 29, 2014

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Council balks at sewer deficit

With a unanimous vote of approval, the final 2014–2015 city budget made it past the Crescent City Council earlier this week, but after some scrutiny from Council members, it’s now scheduled to return to the legislative ring for a second round later this summer to deal with unanswered questions about the sewer fund. 

Board members expressed  concerns about the fund — the black sheep in the city’s otherwise generally healthy financial family — saying they were reluctant to approve a plan that includes a fund budgeted at minus $651,000, although Finance Director Emily Boyd said that deficit could decrease by as much as $200,000 depending on 2013-2014 expenditure figures. 

But even that’s too much for Council members.

“We can’t just adopt a budget in the sewer fund that’s $450,000 in the red without going back and doing some serious work,” Councilwoman Kelly Schellong said during the Monday Council meeting. 

Boyd said final expenditure numbers will be calculated in late July. Currently total expenditures are budgeted at about $5 million. 

Regardless of what the expenditures turn out to be, the “serious work” will still be required and involves more than just waiting for figures to come in. 

According to City Manager Gene Palazzo, that work largely focuses on renegotiating the terms of a $44 million loan that the City is currently paying a 2.4 interest rate on — which comes out to about $2.1 million annually, with a payment due in August. The loan, which was taken out in 2007 for water treatment plant renovations and repairs, is set to be fully paid off in 27 years, Palazzo said.

If the city is successful in renegotiating a zero percent interest rate, the payment would be reduced to about $1 million annually. 

“Staff is doing that serious work right now. We’re in discussions with the state to retake a look at our loan with the state,” Palazzo said at the meeting.

He said he expects those renegotiations to be complete by the end of July or in early August, which is when the updated sewer fund budget will go back to the Council with those debt service adjustments, along with the final 2013–14 expenditures, included. 

In the meantime, however, city business must go on, and that required an approved budget, Boyd reminded the Council before they voted to approve.

“We need to move forward with our budget so we can continue to do operations,” Boyd said at the meeting. “And so I would ask you to adopt the budget with that caveat that we’re not extending the debt service till we return to you.”

If the renegotiation is successful and the zero percent interest rate granted, then the proposed sewer fund balance will be looking at positive $400,000. That’s a big if, though.

“We’re not sure where we’re going with them at this point,” Palazzo said at the meeting.

The interest rate discussions, which Palazzo said are still in their early stages, are a back and forth process that involves the state examining the cost of operating sewer facilities. Palazzo, who compared the sewer facility loan to a home loan, said the state at least wants to get the principal back, which requires the sewer remain in working order. And that’s going to require a healthy sewer fund.

“It’s going to cost more if you don’t maintain it correctly,” Palazzo said.

In the event that the negotiations aren’t successful — or are even only partly successful — Palazzo said another sewer rate increase is likely, even though until all these debt service discussions and expenditure calculations are wrapped up in July, it’s unclear what that increase will be or when it will take effect.

“The sooner you can get money into the system, the less the rates are in the future,” Palazzo said. “If you can start collecting sooner than later — timing-wise, we’re looking at that.”

Reach Aaron West at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

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