Sewage rates to rise 30 percent in Oxford area07/26/2016 12:24PM ● By Steven Hoffman
The Oxford Area Sewer Authority Board approved a 30 percent increase in rates for customers at its meeting on July 20.
The new rates will go into effect on Oct. 1, but that could be just the start of the financial pain for local residents as the sewer authority attempts to deal with significant revenue shortfalls.
Patrick Hughes, a West Nottingham Township representative on the board, said that the sewer authority was not able to make most recent debt-service payment on a $27 million loan that was due on June 25. Another debt-service payment of $637,000 is due on Dec. 25. Even with the whopping rate increases, the sewer authority may not be able to meet its financial obligations for the rest of the year.
Hughes painted a grim picture of the sewer authority’s financial situation during the two-and-a-half-hour meeting.
The revenues generated from the rate increases will be used in part to secure new loans to buy some time for the sewer authority until revenues from tapping fees and new customers to the public sewer system increase.
The sewer authority secured about $27 million in low-interest loans through the U.S. Department of Agriculture’s Rural Utilities Service program and another $5 million was acquired through the H20PA grant program to pay for the additions of the Osborne storage lagoon, the Ross spray fields, and a new wastewater treatment plant that more than doubled the public sewage capacity. That expansion also got the Oxford area out from under a sewer moratorium that stymied commercial, industrial, and residential development for years.
According to sewer authority officials, the financial woes that they are facing now can be largely attributed to one factor—five years ago, when municipalities provided the sewer authority with the number of Equivalent Dwelling Units (EDUs) that they anticipated needing for projects that were on the books, those figures are much higher than the actual number of EDUs that have been purchased so far. Hughes said that the municipalities collectively projected that they would be needing 2,042 EDUs, but only 193 EDUs have been utilized at this point. An overwhelming number of those EDUs that have been utilized have been allocated for projects taking place in Oxford Borough.
If the sewer authority had gotten connections that amounted to even one-third of the projected total, they would not be in the dire financial situation, Hughes said. But connections have been slow to develop, especially in Lower Oxford, East Nottingham, and West Nottingham.
There are other factors at work that have hindered the sewer authority's efforts.
Hughes explained that the sewer authority did not adequately raise rates between 1992 and 2004—long before most, if not all, of the current board members were appointed to the board. Consequently, the sewer authority did not have an adequate reserve fund set aside to pay for the inevitable capital projects.
“We should have been fiscally responsible,” Hughes said, referring to previous sewer authority boards. “I am here to clean up a mess.”
Hughes added that if the moratorium hadn’t been in place for so many years, they wouldn’t be in this current position.
Another factor was a $1.3 million cost overrun on the construction of the new wastewater treatment plant that was officially unveiled in October of last year.
The new sewage rate increase, Hughes said, would be just the first step in the effort to right the financial ship.
Hughes and board members Geoffrey Williams, Percy Reynolds, Ronald Kepler, and Joseph Scheese voted in favor of the increase. Board members John Schaible and Randy Teel, both of whom represent Oxford Borough, voted against the increase. Oxford Borough residents, in particular, stand to be hit hardest by both the sewage rate increase that will begin in less than three months and possibly a looming tax increase that might be necessary because of the sewer authority's financial situation.
In order for the sewer authority to secure the $27 million loan, the four member municipalities had to agree to back the loans. Each municipality accepted a portion of the debt-service payment in the event that the sewer authority could not make those payments in a given year. Oxford Borough accepted 44 percent, East Nottingham accepted 28 percent, Lower Oxford accepted 16 percent and West Nottingham accepted 12 percent.
If the anticipated revenues from tapping fees and other revenue streams do not meet expectations, the member municipalities may need to step in and make up for those shortfalls at the agreed-upon percentages—a bitter pill that will be swallowed by taxpayers.
Schaible pointed out that if the member municipalities are forced to pay the balance of this year’s debt-service payment, borough residents will not only be seeing higher sewage rates, they will likely be facing tax increases that would likely be necessary in order to cover Oxford's portion of the sewer authority's shortfall.
A large portion of the audience was comprised of locally elected officials who sat grim-faced as they listened to the sewer authority board discuss the dire circumstances. Many of the elected officials likely recalled presentations five years by sewer authority executive director Ed Lennex when he talked about how unlikely it was that the member municipalities would have to step in to cover debt-service payments.
Tiffany Bell, a supervisor from West Nottingham Township, questioned why Lennex said at a 2015 township meeting that the current level of EDUs was adequate. She held what appeared to be minutes from that meeting in her hands.
Bell noted that, because there currently is no sewer line extending down the Old Baltimore Pike commercial corridor to West Nottingham Township, the municipality doesn’t yet benefit from the sewer expansion in any way.
“We don’t get any public sewer, and we’re still on the hook for 12 percent,” she said.
Her colleague on the West Nottingham Township board, supervisor Eric Todd, took exception to the sewer authority members' refrain about how the municipalities overestimated the number of projects that would be seeking capacity in the sewage system. Todd said that the sewer authority was trying to place the blame for the current situation on the townships.
Oxford Borough Council president Ron Hershey asked whether the borough would still be on the hook for its 44 percent share even though the municipality has delivered an overwhelming majority of the EDUs that it said it needed in the projections.
Hughes said that all the municipalities would be responsible for the percentage that they agreed to.
At the very worst, Lennex said, the sewer authority could be facing $1.5 million in shortfalls at the end of the year, though that’s unlikely. The revenues that will be coming in over the last four months of 2016 will reduce that figure and should limit the amount of money that municipalities would have to contribute to make the debt-service payments. Even so, if the municipalities were forced to cover, for example, a $1 million shortfall, Oxford Borough would be responsible for $440,000 of that total. Oxford Borough officials usually spend November and December of each year looking for $5,000 here or $2,5000 there to balance the budget. An obligation of $440,000 would require drastic cuts or a hefty tax increase—perhaps both.
Hughes warned that the sewer authority needs connections to the sewer system from new residential and commercial projects or the financial crisis will continue.
Kepler, who is a supervisor in Lower Oxford Township, suggested exploring the possibility of selling the sewer plant. Several people pointed out that that decision might best be made by the elected officials from the four member municipalities because such a move would need to be approved by each municipality.
Hughes cautioned that the USDA loan would need to be paid off in order for a sale to take place, which would greatly impact the level of interest any potential buyer would have because of the price that the sewer authority would be asking. Additionally, any proceeds from the sale would obviously be impacted by the debt that would need to be paid off.
Another factor to consider would be that, even if the sewer plant could be sold off, the rate increases for users would be much larger from a new owner than even what the sewer authority is seeking now. It would seem that the customers and taxpayers of the area will shoulder a heavy burden no matter what.
To be sure, there’s no quick fix to the sewer authority’s financial woes. Any new development would not produce a steady revenue stream for the sewer authority for several years. Hughes said that by raising rates, the sewer authority is giving the municipalities more time to increase the sewer connections.
Lennex emphasized that elected officials in the Oxford area need to take steps to encourage commercial, industrial and residential projects.
“If they really want to help the sewer authority,” Lennex said, “they need to look at their zoning and how they can use it to their advantage for commercial and industrial projects.”
Commercial and residential projects in the area have been impacted by a number of factors—some of them local, some of them not. The broader economy certainly impacts local commercial and residential development in a variety of ways. For example, banks are simply not lending money to developers in the same way that they were a decade ago. Consequently, developers are not willing to pay for infrastructure upgrades, like running a costly sewer line to connect to public sewage. Lennex said that developers won’t consider a project if all the infrastructure isn’t already in place.
Scheese, a representative on the sewer authority board from East Nottingham, said that the most suitable location for commercial and industrial growth is the Old Baltimore Pike corridor from Waterway Road to West Nottingham. This area is already zoned for industrial and commercial development. The problem—and it’s an enormous one—is that a sewer line needs to be installed before a new development could tie in to the public sewer system.
That’s a costly proposition. The sewer authority is not permitted to run the sewer lines on its own, according to the organization’s bylaws. Instead, that responsibility falls to the individual municipalities. Hughes said that he thinks the sewer authority should be able to extend the sewer lines if it’s deemed appropriate and necessary. If there's a way forward for the sewer authority, indeed for the Oxford area, it's to increase the commercial, industrial, and residential projects that need connections to the sewer system.
Several elected officials who were at the meeting declined to offer immediate comment about the situation.
David Ross, a former West Nottingham supervisor who serves on that township’s planning commission, said that there were a number of public comments that were shared with both the sewer authority and elected officials back in 2010 and 2011 that raised questions about the feasibility of the regional Act 537 Plan.
Ross wrote letters back then pointing out that revenue projections were internally inconsistent and overly optimistic and, and that the Act 537 Plan included plans that depended on the construction of sewer lines by municipalities with the costs and logistics of that construction ignored.
“Too many board members and too many elected officials signed off on documents they had not read, relying on vague verbal assurances and the lobbying of individuals who stood to gain from particular development projects,” Ross said. “But, I also fault officials at DEP and USDA who failed to heed the critical comments they received at the time. The result is a mess.”
Ross said that, in his opinion, the sewer authority board should seek advice from an independent, outside source with expertise, but he worried that local leaders won’t listen to that advice, even if it is sought.
“It feels as though the board is making a panicky response to a crisis that has been a long-time coming without considering the financial capabilities of a rate base that is quite different from that served by other sewer systems in the area.”