Oxford Area Sewer Authority’s financial woes worsen09/27/2016 12:20PM ● By Steven Hoffman
Ever since the Oxford Area Sewer Authority Board approved a 30-percent rate increase in July as the first step toward addressing substantial revenue shortfalls, officials have been working overtime to find long-term solutions that might improve a dire financial situation that threatens to become a full-blown crisis for the Oxford area. But at the Sept. 21 meeting of the Oxford Area Sewer Authority Board, it was apparent that the financial woes are worsening.
The sewer authority failed to make the scheduled debt-service payment on a $27 million U.S. Department of Agriculture (USDA) loan that was due on June 25, and another $637,000 payment is looming on December 25. A $250,000 payment on the debt was recently made, but starting on Oct. 2 the sewer authority will be subject to late fees and penalties amounting to approximately $2,000 a day, which will push it even further into debt.
In order for the sewer authority to secure the $27 million loan when it was taken out five years ago, the four member municipalities—Oxford Borough, Lower Oxford, East Nottingham, and West Nottingham—had to agree to back the loans. Each municipality accepted responsibility for 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. At that time, Sewer authority executive director Edward Lennex told local officials that the municipalities would not be put in a position to cover the sewer authority’s financial obligations because the sewer authority can raise rates on users to balance its budget. But even with a 30-percent rate increase approved in July, the sewer authority’s expenditures are far out-pacing its revenues. The sewer authority needs approximately $1.5 million by the end of the year to pay its bills in full. They have revenues coming in to offset some of those costs, but it seems very likely that municipalities will need to step in and make up for all the revenue shortfalls at the agreed-upon percentages. That could mean increased municipal taxes in the borough and its three neighboring townships.
How did the sewer authority get into this dire financial situation? 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. The expansion also got the Oxford area out from under a sewer moratorium that stymied commercial, industrial, and residential development for years.
The current financial woes that the sewer authority is facing can be attributed largely 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 the sewer authority has been able to sell so far. Municipalities collectively projected that they would be needing 2,042 EDUs, but only 193 EDUs have been utilized. If the sewer authority had gotten connections that amounted to even one-third of the projected total, they would not be in the current financial situation. But connections have been slow to develop, especially in Lower Oxford, East Nottingham, and West Nottingham.
Other factors at work, according to sewer authority officials, include the fact 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 that would be necessary. The moratorium also stalled all commercial and residential development, which hurt the sewer authority’s revenue streams year after year.
Percy Reynolds, the chairman of the Oxford Area Sewer Authority Board, said that sewer authority officials recently had a meeting with the USDA, and they were essentially told that they need to come up with a local solution.
When several elected officials at the Sept. 21 sewer authority meeting asked Reynolds about viable solutions, he admitted, “We don’t have answers to give yet.”
They are taking steps to explore solutions.
Reynolds said that he and three other members of the sewer authority board—Geoffrey Williams, Randy Teel, and Robert McMahon—will serve on a special committee that will be looking at different alternatives to address the financial situation. Each member municipality will also appoint one person to work with this committee on developing a plan.
“The plan for this committee is to hold a meeting before we meet with the township officials,” Reynolds said. “We’re trying to come up with a reasonable solution.”
Oxford Borough Council members Peggy Ann Russell and John Thompson, and East Nottingham supervisor Shelley Meadowcroft were in attendance at the Sept. 21 meeting, all well aware that as the sewer authority’s financial woes grow, the time to find a solution shrinks.
“You guys are starting your committee, but we are already starting to work on our budgets,” Thompson pointed out.
Attorney Winifred Sebastian, who was in the audience at the meeting, also tried to impress upon the sewer authority board members that there is a real urgency to work on a plan. She emphasized that the sewer authority board signed a legal document that requires them to notify municipalities of any shortfalls that they will be obligated to cover by Nov. 1 of each year.
“Each municipality needs that information,” Sebastian said.
Meadowcroft also talked about the need to address the issues sooner rather than later, expressing serious concerns about the $2,000-a-day penalties and fees that would quickly accumulate to more than $60,000 in just a month and more than $700,000 in a year’s time.
“That’s a lot of money,” Meadowcroft said.
So what are some of the options that the sewer authority officials have been exploring?
Reynolds said that one option under consideration is having the sewer authority borrow an additional $1.5 million that would be backed by the municipalities. Reynolds quickly added that they have already heard from local officials that this is not a solution that the municipalities would be supportive of.
Another option is that the sewer authority could sell as many as 400 EDUs total to the four member municipalities. This would provide immediate revenues to the sewer authority, and the municipalities would then actually have something tangible that they would own. The municipalities could then sell the EDUs to developers that need them for commercial or residential projects.
It was also mentioned at the July 20 meeting that the sewer authority could explore selling the public sewage system to a private operator.
While Oxford area officials are obviously concerned with long-term solutions, dealing with the short-term financial woes of the sewer authority will be at the forefront in the next three months as the local municipalities prepare their budgets for 2017.
Oxford Borough residents, in particular, stand to be hit hardest by both the sewage rate increases and the tax increases that could be in the offing if the borough must accept financial responsibility for 44 percent of the portion of the debt-service payment that the sewer authority can’t make.
At one point during the meeting, Thompson noted that the borough might be obligated to come up with more than $500,000 for its share. And that’s just to make the payments that are due in 2016. Considering the factors that have put the sewer authority in this dire financial position, the municipalities may be in this very same position next year.
“If you think the borough can come up with $500,000…” Thompson said to the sewer authority board.
He didn’t finish his sentence.
He didn’t have to.