Copyright © 2013 Albuquerque Journal
Albuquerque’s municipal water agency may need another rate increase to dig out of a growing financial hole left by the community’s water conservation success, agency officials acknowledged in a report this week to their board.
With rising costs and declining revenue in the first quarter of the current fiscal year, the Albuquerque Bernalillo Water Utility Authority already has raided a fund set aside for upgrading the agency’s decaying water pipes and sewage treatment plant to meet 2013-14 operating expenses.
Large residential and business water users saw their rates rise 6 to 7 percent on July 1. But that rate hike was not enough to stop the revenue slide in the face of a 15 percent drop in water use from July to September, leaving the agency a victim of its own water conservation success.
The decline in July-September revenue follows a trend. A Journal review of fiscal year 2012-13 data suggests revenue was at least $8 million below the agency’s $191 million budget plan.
The agency was able to cover the 2012-13 shortfall with money on hand, according to Executive Director Mark Sanchez. But the utility will only be able to continue to do that this year by moving money out of a fund set aside last year to upgrade aging infrastructure, according to a report from water utility Chief Financial Officer Stan Allred to the agency’s board of directors.
The problem, Sanchez said, is a budget dominated by the fixed costs of maintaining a water and sewer system. Most of those costs do not decline as water usage drops, leaving the agency short of money when conservation exceeds expectations, Sanchez said.
The utility is an independent government agency, providing water and sewer service to residents of Albuquerque and some surrounding areas of unincorporated Bernalillo County. A board of Albuquerque city councilors and Bernalillo County commissioners oversees its operation.
Elaine Hebard, a community activist and water utility watchdog, first pointed out the agency’s growing financial crunch during the public comment period at the agency’s Nov. 20 board meeting. She noted preliminary fiscal year 2012-13 data showing a revenue shortfall. In response, Sanchez told the Journal that the agency’s “rate reserve fund” – money set aside each year as a buffer against revenue fluctuations – was sufficient to handle the problem.
The agency’s board has already approved a series of rate hikes, one that took effect July 1 and two more taking effect in 2015 and 2017. But in an interview Monday, Sanchez raised the possibility of an additional increase in the fixed charge residents and businesses pay regardless of how much water they use if the shortfall continues.
That’s the base rate you pay on your water bill for water and sewer connections regardless of how much you use. Sanchez said the agency has not begun looking at how much of a rate increase might be needed.
Hebard said the agency’s failure to take action sooner is a problem. “It’s even harder to dig yourself out of a hole if you are in the hole already,” she said in an interview Monday.
In a report last June, the financial agency Fitch Ratings complained that Albuquerque had been slow to raise its water rates, jeopardizing the water utility’s bond rating, but that the series of rate increases approved by the board had improved the situation.
The current year’s fiscal problems sneaked up on the agency. In late October, in response to a question from the Journal about the impact of water conservation on the agency’s budget, Allred estimated that July-September revenue was up $4 million compared with the same period last year. But when more detailed accounting reports arrived in November, he found that revenue was headed down, not up. The first quarter’s revenue, $53.6 million, was $1.1 million lower than last year and $3.6 million below the agency’s revenue projections for this year.
Delayed financial reporting has been a chronic problem for the water utility. The agency’s budget policy ordinance requires a preliminary year-end financial report in October, with a final report in December, but according to Sanchez it will not be done until the end of January. “We’re late, obviously,” Allred said.
Fitch called out the problem in its June bond rating report. “Continued delays in the availability of timely information regarding the system’s financial position could lead to negative rating action,” the ratings agency concluded.
Sanchez blamed an old computer accounting system the utility shared until June 30 with the city of Albuquerque. Beginning July 1, the utility switched to its own in-house accounting system and, once the transition is complete, the agency should be able to meet the ordinance’s requirement for on-time financial reports.
Allred’s report on the agency’s financial problems is on the agenda for the water utility board of directors, which is scheduled for 5 p.m. Wednesday in the council chambers in the basement of Albuquerque City Hall.