At the regular meeting of the Lyons City Council held on September 3, 2019, I, along with all the other members, voted to amend the budget and increase the millage rate in Lyons from last year’s 2.89 to 3.89 mills. While still significantly below the statewide average city millage rate of 5.0 mills, it is nonetheless disappointing to have to raise taxes, but I saw it coming.
Those of you who follow this blog will remember the city’s struggle to repair our aging water and sewer (W&S) system. The two 30-year old sewage treatment plants were in bad need of repair or replacement. Those city elected officials that preceded me had been working on the problem for years. Adding urgency to the problem was the Toombs County Development Authority (TCDA) urging Lyons to increase the size of the north sewage treatment plant to provide additional capacity to the Industrial Park located on US # 1 North.
The TCDA had told Lyons that they had several prospects of industrial food processors that were interested in locating in the park, but they were worried about the sufficiency of the excess capacity of our existing north plant to meet their needs. If we built a bigger plant this time on the north side, they argued, industrial clients would beat a path to our door and the W&S revenue from these new industries would more than pay for the system. Everyone would be happy.
I was skeptical. The industrial park has only managed to attract and keep only one industry in its 20 years of existence … Chicken of the Sea (COTS), and it has only been there 9 years. One other industry, a dog food processing plant, did not last long enough to begin paying property taxes (the TCDA normally exempts new industries from paying any property taxes for their first 10 years as an incentive to get them to locate here). There was no guarantee that new industries would come or that COTS would remain.
The engineer had designed a new sewage treatment plant for the north site and a refurbishment of the east plant and the city had put it out for bids. The low bid was an eye-popping $17,538,000! On my second city council meeting, on February 6, 2018, I moved to reject all bids and start over. That motion passed. After a long search for a better way, I suggested we just refurbish the two existing systems and connect them together. That way, we could give the industrial park access to both treatment plants and increase the available capacity without expanding the size beyond what Lyons could afford. On March 5, 2019, I seconded Councilman Rick Hartley’s motion to award a bid to McLendon Enterprises, Inc. to do just that, for $6,706,948.36. Almost an $11 million dollar savings from the original plan!
But more trouble was unfolding.
When we were in the process of preparing the 2019 budget, I discovered that we had another growing funding problem. Four years ago, presumably when the city was preparing to replace its aging sewage treatment facilities and its W&S infrastructure, the city council voted for a rate increase for W&S customers. It was designed to be greater than the current needs for maintenance and operations, I understand, to build in a surplus to pay down the debt the city would incur when it borrowed the money for the new system and to replace the aging pipes throughout the city, which were bursting at an ever increasing rate as they got older. (I should note that I was not there for these discussions and am just basing this on what I have been told.)
The new rate structure indeed generated about $200,000 to $300,000 more than was needed to cover ongoing maintenance and operation of the W&S system, but rather than put the excess funds in a sinking fund for future use as originally planned, the city started transferring the surplus to the general fund to pay for expansion of the other departments (primary the police department, but also the recreation department, street maintenance department and administration department).
I questioned the legality of these transfers and the Mayor agreed to have the city attorney look at it. He opined that it was legal. I then asked the city auditor whether the practice was consistent with generally accepted accounting practices. He opined that it was not only consistent, but common among cities.
I was disappointed. But while it may be legal and common, I argued at our workshops that it wasn’t prudent for the city of Lyons’ financial circumstances. I told the Mayor and Council that the practice was going to come back to bite us.
And it did.
Our largest water user, Chicken of the Sea, put in new equipment and procedures not too long ago and started recycling their water. Their water bill dropped in half and the city lost more than $30,000 a month in water revenue. With that, coupled with the loss of the dog food processer, the surplus in the W&S fund changed to a deficit that was growing at a rate of about $484,000 a year.
By the end of this calendar year, the W&S fund deficit was projected by the City Manager to be about $231,000. The city had lost the surplus from the W&S fund and was now facing having to supplement the fund from the General Fund. Overall, we were facing a $330,000 deficit over and above what we budgeted in 2018. While there were other contributing factors (for example, there was a 33% decrease of $49,272 in fines and forfeitures collected by the police department), that one industry alone changing its water usage pattern was the major factor that had thrown us into a fiscal crisis.
I had seen this when I was heading up the Property Tax Division of the Georgia Department of Revenue before I retired. Counties and cities would take on huge debt to lure supposed job-producing industries to their communities, only to have those industries adopt new technologies that reduced the promised jobs significantly. Additionally, since NAFTA and free trade has driven most of our industrial production to China, India and other countries, it was not uncommon for industries to leave the country before the community where they were formerly located could collect enough revenue from them to offset the cost of building out the infrastructure necessary to serve them. Adding to the woes, modern industries were offering fewer jobs compared to the industries of old. Most are now automated, and when you figure in the property tax exemption incentives they get, it is not uncommon for a city or county to find, after all the smoke has cleared, that it costs more to attract industry than they get out of the industry in the form of jobs and taxes. Local taxpayers are effectively supplementing the industry’s bottom line.
So, here we are. The city has expand its other services using revenue from the W&S fund that turned out to be temporary and the TCDA turned out to have no tenants waiting in the wings after all (at least not yet). We are now in the throws of a fiscal crisis. Just like I predicted.
The Finance Committee (I don’t serve on that one) met to figure out what to do. One mill only produces about $98,000 in our city, so they were looking at a 3.41 mill tax increase to balance this year’s budget at the current level of spending. After weeks of struggling with the problem, that committee decided the best course of action was to increase the millage rate by 1 mill, draw some funds from the city’s reserves, and make dramatic cuts in budgets of the city departments.
The Council voted to approve this recommendation of the Finance Committee. It is not going to be easy. Virtually all of the part-time employees and some of the full-time employees are going to have to be let go, which is not going to help employment opportunities in our community. Repairs are going to be delayed, services are going to be cut back and purchases are going to be postponed.
These are temporary fixes to get us through the end of 2019. Later this year, the Mayor and Council will need to sit down and figure out a more permanent solution as we prepare the 2020 budget. We will need to look again at further spending cuts and for new sources of revenue, along with a new look at the level of services we provide the citizens, and whether these align with the needs and wishes of the community we serve.
Rest assured I will be advocating for a W&S rate schedule that provides what we need to maintain and operate the system, have a reasonable reserve for the replacement of our aging infrastructure, and to pay down the debt for the refurbishment of our sewage treatment facilities. I will strongly oppose any effort to use any accumulated surplus funds for anything other than being maintaining in a contingency fund to replace our infrastructure as it wears out. I will certain resist any move to transfer surplus funds, if we have any, to the general fund to support the other departments which should be funded by sales taxes, fees, fines, forfeitures and property taxes.
There is a happy balance between what level of services the citizens need and want and what they are able to afford. I will be comparing our level of services to those offered by other cities of comparable size and comparable circumstances to help strike that balance. Stay tuned and stay involved …