Sherman utility shortfall on the horizon for 2021-22
Sherman city leaders will be tasked with balancing the city's utility fund for the upcoming year amid forecasted shortfalls and a dwindling fund balance. The status of the city's utility fund was a center point of discussion during early budget talks Friday morning.
Friday's budget meeting represents one of the first council discussions on the budget during the annual budget season. The meeting comes ahead of the two-day council budget retreat this summer where members will discuss in-depth goals for the upcoming year, and the formal budget adoption in August.
"We've got some good news, some challenging news, and we will work through what our work plan will look like," City Manager Robbie Hefton said.
During the meeting, city staff said the council will likely need to increase utility rates, transfer funds to utilities, or a combination of both to help offset the expected $742,000 shortfall. The utility fund is expected to end the current fiscal year in September with $3.2 million in the bank, which represents 42 days of reserve. This falls below the minimum reserve of 60 days that the city wishes to keep.
The city's current utility woes date back to around 2015 when Sherman started work on its new water treatment plant. The new facility required the city to issue about $30 million in debt. The opening of the plant this fiscal year led to additional costs for operations, Hefton said.
Other expenses came following the February storms and a series of unexpected well repairs that were required. While one or two in a year are expected, Hefton said 2021 has seen four repairs so far.
Despite the rising costs for utility services, the city has not adjusted its water rates since 2017, with 2018 representing the last time that the city saw an increase in utility revenues.
During last year's budget season, the council elected not to adjust rates and instead commissioned a rate study to determine what the rates should be. In hindsight, council member Willie Steele said the council probably should have adjusted the rates.
Hefton remained firm that the expenses were necessary, but perhaps will not be useful immediately. Instead, he said the water treatment and capacity will be needed as the city is expected to grow in coming years.
This current capacity could provide the city a possible solution to its utility issues. Hefton said he is looking at possible ways to sell its excess treatment and transportation capacity to cities in the region that need water resources. This would not take away from the city's allocation of water and would instead focus on treating another city's water and transporting it to them.
Other solutions could involve raising water and utility rates following the results of the rate study, which is expected prior to the budget retreat. Another solution could come in the form of a transfer from other city funds that have done well during the pandemic, including the city's general fund.
The city's general revenues have remained strong in spite of the pandemic, which was expected to restrict the city's sales tax revenues. Instead, the fund is flush with cash and currently sits at nearly 90 days of reserve — the high end of what is recommended for the fund.
"I would say, given that we just helped the citizens through this crisis time, the appropriateness of coming back and saying we are going to charge back what we gave you ... in my opinion, I wouldn't want to do that," council member Shawn Teamann said, voicing support for transfers.
While some on the council preferred to raid the general fund, Hefton cautioned that it only solves the immediate problem and doesn't balance the issues with costs and revenues.
"The reality is we will probably be doing that," Hefton said, speaking about the combination approach. "It will be a part of the solution."
The next major budget meeting is expected to occur in late May as the city holds its capital improvements workshop.