Hillsboro reviewing need for utility cash reserves

How much money should the city of Hillsboro have in reserve to ensure it can continue to provide utility services in the event of an emergency or disaster?

City Admini?strator Larry Paine raised the question for discussion purposes during the Dec. 2 city council meeting in the context of reviewing utility rates for the coming year.

A year ago, the council had requested an annual review after struggling with the need to approve larger rate adjustments because the existing rates hadn?t been adjusted in four years.

As before, Paine addressed the need to increase cash reserves for the city?s four utilities: water, electric, refuse and sewer. Council members decided then to table the issue to avoid increasing utility rates even more than they did.

At Tuesday?s meeting, Paine reminded the council of the need to address the issue. He said in addition to improving the city?s ability to sustain operations in a crisis, a city?s cash reserves affect its bond rating.

As a discussion starter, Paine referred to Standard and Poor?s recommendation that a city have sufficient cash reserves to con?tinue operations for 90 to 120 days.

Paine said Hillsboro?s water utility currently has cash reserves to cover 10 days and the electric utility has enough for 11.

To meet Standard and Poor?s 120-day goal, Hills?boro?s four primary utilities would need reserve funds totaling nearly $1.5 million. The current cash balance for the four utilities was just under $589,000.

Paine said his goal is that the council approve a policy that will begin to increase the city?s cash reserves over time; he wasn?t recommending a particular amount for the coming year.

?I wouldn?t expect that we would go from where we are now to (being) fully funded in a year, but I think we need to develop an idea of where we need to go and how long it?s going to take us to get there,? he said.

The ensuing discussion raised numerous issues, several of which also surfaced a year ago.

Councilor David Loewen, who was not on the council then, asked if the city could establish a general fund that wouldn?t require each utility to be ?self-insured? separately. He said it is unlikely that all four utilities would go down at the same time.

Paine said state law requires that each utility have its own reserve.

Mayor Delores Dalke asked if the reserve could be put in a budget ?lockbox? that would prevent future councils from spending the cash for other needs?as has happened in the past.

Paine said a city council is authorized to oversee all of the city?s assets, and to use them in the best interest of the city, regardless of past decisions.

Councilor Bob Watson said he felt it is necessary to increase cash reserves, but perhaps not to the extent recommended by Standard and Poor?s. Rather than 120 days, he said, ?Maybe we ought to think about 30 days to start with.?

Paine said having adequate cash reserves ?is in my mind one of those elements…that makes government work a lot like business.?

But Councilor Shelby Dirks challenged the notion, noting that most businesses, because of the economy, don?t have the revenue to designate sufficient funds for cash reserves. It has forced some businesses to grow their cash reserves by cutting expenses instead.

?My question is, what expenses have we cut to offset some of these increases (in utility operations),? Dirks asked.

?We?re not extravagantly spending on things,? Paine replied. ?We?re not doing crazy stuff. We?re doing what the public is expecting us to do to provide basic services.?

Loewen noted that property taxes and utility rates are the primary sources of revenue for the city. He said the impact of each varies in different situations. He cited property renters and property owners as an example.

Paine closed the conversation by restating his intention for opening it.

?What this is on the agenda for, is for us to discuss it, to walk away, and then come back either next meeting or the meeting following and say, ?All right, Larry, this is what we?d like to do.??

Other business

In other business, the council:

? approved Ordinance 1257, which adjusts the monthly surcharge for recycling from $2.12 per household to $2.26, which is what McPherson Area Solid Waste will be charging the city.

? approved an offer to sell Lot 11, Block 1 in the Willow Glen housing development to a buyer who intends to build a house on the property. The parcel is one of several donated to the city several years ago by the developers.

? approved routine amendments that allow the city to make accounting adjustments to the 2014 city budget. The amendments cannot affect the mill levy.

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