County Council Frets on Bond Rating, Sewage Fees; Compromise to OK Exec’s Fee Boosts for 2 Years

August 21, 2018

The Cecil County Council heard a strong pitch from an outside expert on the county’s bond rating on Tuesday (8/21/2018) to demonstrate fiscal responsibility on the county’s sewage funds, which have been running a deficit for years. In response, Council members indicated support for a compromise to give the county executive his request for the first two years of a fee boost plan but defer action on a larger, later fee increase.

The bottom line of the proposed compromise is that sewage user fees would have a small, pennies-per-day increase for the next year and a half, while putting the “enterprise funds” on a path toward self-sufficiency. But the deal would put off the political pain of a real deficit-reduction plan until after the next local election, or until the local economy has a major boost in economic development.

Cecil County Executive Alan McCarthy had proposed a three-year plan to put the county’s sewage treatment “enterprise funds” on a path toward fiscal balance, by having users of the services pay most of the costs. Currently, all county taxpayers– including the majority who do not use sewage services—pay as much as $3.2 million a year to subsidize sewer customers who are not paying the full freight for services they receive.

McCarthy arranged for the Council to hear from an outside expert on Tuesday to evaluate his concerns that failure to address the sewage funds shortfall could jeopardize the county bond rating and result in up to $1.5 million a year in higher bond borrowing costs for many major construction projects, such as new or renovated schools.

Jennifer Diercksen, first vice-president of the Davenport Group, the county’s outside bond adviser, told the Council that the two major bond rating agencies look closely at fiscal responsibility and balancing costs versus fees. She said that at the last bond rating agencies’ review of Cecil County, “there were questions” that the sewage funds “did not appear to be self-supporting.” She added that the bond raters will be looking, most likely later this year, to see if the county is “following through” on past pledges to move the funds toward fiscal balance.

Diercksen is an expert on what the bond rating agencies are looking for, having worked at one of the top bond raters, Moody’s, for six years, during which she was responsible for evaluating Cecil County’s fiscal health for that agency.

She told the Council that during the most recent bond rating review, fiscal experts were pleased that the county had taken steps to end “structural imbalances in the general fund” with McCarthy’s administration boosting tax and other revenues to cover countywide operating costs, instead of past practices of raiding emergency reserve funds to pay for day-to-day expenses.

The county goes to the bond markets every two years, and the last foray to borrow for major construction projects was in November, 2017. The next foray is expected to be in Fiscal 2019—later this calendar year– or Fiscal 2020, including about $15 million spread out over two installments for the planned new library in North East, which recently won County Council endorsement, according to Lisa Saxton, the county’s Finance Director. The county will also need to borrow funds to renovate or replace several aging county public schools.

At the same time, the national fiscal outlook and announced policies of the Federal Reserve Board indicate that market interest rates are expected to rise in the next few years, with higher borrowing costs for all construction projects. A ding on or lowered status of the county’s bond rating would boost the costs of borrowing funds for major construction projects even more.

In July, McCarthy revised a proposed sewer rate schedule to reduce the “minimum” quarterly fee base from 10,000 gallons of sewage flow to 9,000 gallons per quarter, a change that would lower base costs for over half of all county sewer users. At current rates, a 9,000-gallon user would pay $103.20 per quarter but under the newly proposed plan that cost would rise to $106.83 as of 10/1/2018, or a total increase of $3.63. Next year, the rates would rise further, even for small users, to $122.85 per quarter for a user of 9,000 gallons as of 7/1/2019—a $19.65 increase per quarter over current costs.

The Council’s proposed compromise is willing to go along with those boosts, but would put on hold McCarthy’s third-year proposal to up the fees to $141.30 per quarter for a 9,000-gallon user, or an increase of $38.10 over the current cost.

“That third year is the crunch,” said Councilor Bob Meffley (R-1). Meffley is advancing a compromise plan that would only OK the first two years of McCarthy’s proposals, for a partial year mini-boost in fees as of 10/1/2018 for the current Fiscal 2019 budget year, and the slightly larger boost in Fiscal 2020.

Lisa Saxton, the county Director of Finance, told the Council that the proposed boost this year amounted to a small increase of just 4-cents a day for small users of sewage services.

By accepting the executive’s first two years of modest fee boosts, Meffley said, it would allow the county to show bond rating agencies a positive commitment to begin to move the sewage funds toward self-sufficiency. But putting off a decision on subsequent years would enable the Council to re-evaluate the county’s economic conditions and whether there might be more “growth” in economic development that brings in new users of sewage treatment services who would help pay the costs of services, he added. (More overall users would translate to potentially lower costs per individual user.)

Meffley said it was important for all county taxpayers to realize that any fee boosts for sewage services were “not a tax” and that other residents who do not use sewer services were “paying the freight” for services they did not receive. “It’s not a vendetta” against sewer users, he said. “It’s a balancing act.”

Councilor George Patchell (R-4) told Cecil Times he would support the compromise plan and was reassured by the bond expert’s testimony. It was important for us to hear from an independent expert,” he said, and protecting the county’s bond rating and fiscal health is “very important.”

The McCarthy administration is willing to accept the proposed compromise, sources told Cecil Times, because the adoption of the first two years of the plan will demonstrate to bond rating agencies the county’s willingness to put sewer funds on a path to fiscal balance. The county can then re-evaluate the situation, as economic conditions might change, in the future.

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