General Fund subsidizes sewer plant for now

The town plans to make loans of more than $2 million from its capital fund and General Fund, which serve the entire town, to the wastewater fund, which serves Rancho Sahuarita, in the wake of a lawsuit settlement approved by the Town Council last week.

The loans should be repaid over time by increased hook-up fees, the town finance director said.

The lawsuit was filed in 2007 by Rancho Sahuarita, alleging the developer lost millions because of slow expansion of the town sewer plant.

The council voted to approve a settlement on July 14 and that agreement drew praise from Mayor Lynne Skelton and Rancho Sahuarita developer Robert Sharpe. Backers have said a negotiated settlement would keep the matter out of the hands of a judge who might issue a ruling against the interests of both parties.

Under the settlement, the town must pay Rancho Sahuarita $2 million by Sept. 1 as partial payment for the original section of the wastewater treatment plant, which the developer built and turned over to the town.

“The settlement agreement calls for the first of three installment payments to be made by Sept. 1 in the amount of $2 million. This was not accounted for in the current year’s budget. Therefore, we will need a subsidy to cover this. The subsidy will likely come from the General Fund,” Town Finance Director A.C. Marriotti said in an e-mail message.

“This should be in the form of a loan. In this circumstance, the wastewater fund will be responsible for paying back any and all interfund loans with interest (paid at the rate those funds would have earned had the money not been transferred). As demonstrated in our latest connection fee report, by keeping our fees the same as the County’s, which we are contractually obligated to do, we will have significant surpluses in the future that can be used to pay back any loans,” the finance director said.

Marriotti was referring to the fact that the Town Council on July 14 approved higher sewer connection fees in line with Pima County connection fees, to an average of $4,603 from $4,077, and because the town expects to match future county fee hikes.

In another provision of the settlement, the town dropped its claim that Rancho Sahuarita must cover past operational deficits, estimated at nearly $2 million by the town and $1 million by the developer.

The town has covered past deficits with unspent connection fees, but in the fiscal year that started July 1 it has budgeted the Wastewater Enterprise Fund to borrow $839,000 from the CIIF (Capital Infrastructure Improvement Fund). The finance director said this figure reflected conservative budgeting and the town may have to shift less money than is budgeted.

Marriotti said, “The wastewater operational deficit is being covered with fund balances that have accumulated from unspent connection fees. We will continue to cover the deficit in this fashion as long as there is a positive fund balance in wastewater. If necessary, however, we will borrow from other town funds. This year’s budget already accounts for a $839,000 subsidy from the CIIF.”

This year’s budget was approved in late June, before the settlement was approved.

The wastewater operating fund should not run any more deficits after this year, Marriotti said, because the Town has recently put two rate increases into effect and will continue to analyze the fee structure to ensure rates will prevent future deficits.

The lawsuit claimed Rancho Sahuarita lost some $20 million in development opportunities because the town failed to expand the sewer plant quickly enough to match growth.

The wastewater enterprise fund is intended to break even. Its main sources of revenue are monthly user fees; one-time connection fees, and borrowing for plant expansion. From fiscal year 2006 to fiscal year 2008 (which ended June 30, 2008), user fees have grown steadily from about $400,000 to $750,000 while hookup fees have dropped from $3.3 million to $1.5 million.

pfranchine@sahuaritasun.com | 547-9738