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Committee: AWU should cut contributions to general fund during drought

Friday, May 30, 2014 by Kara Nuzback

Austin Water Utility should cut back on its contributions to the city’s general fund during drought conditions, according to recommendations by a committee formed to find ways to keep the utility financially healthy.


The Joint Committee on Austin Water Utility’s Financial Plan met Wednesday to finalize recommendations it will send to City Council on fiscal year 2015 water rates and drought rate options.


The city is currently in drought response stage 2, and as utility customers cut back on their water usage, the utility is losing revenue. The committee reconvened in March — after a two-year hiatus – to look at alternatives to a drastic increase in customers’ water bills to make up for the lost revenue.


Per City Council policy, Austin Water Utility makes an annual transfer of 8.2 percent of its three-year average revenue to the general fund. In its recommendations to Council, the committee said the transfer amount should drop to no more than 6 percent during stage 3 drought conditions; during stage 4, when the utility would likely be operating in the red, transfers to the general fund should cease, the group said.


AWU Director Greg Meszaros said the committee’s original plan to cut the transfer altogether was not workable.


“I didn’t feel it was a realistic option, considering that AWU is a public utility and has a responsibility to return funds to the city for fire, EMS, etcetera,” he said. “We need to return a dividend back to the city.”


David Anders, the utility’s assistant director of business support services, said AWU created the 8.2 percent transfer to be a stable source of revenue for the city. Lowering the transfer amount could lead city officials to raise taxes to make up for the shortfall, he said. At current revenues, 6 percent to the general fund is $28 million, while the standard 8.2 percent rebate is $39 million.


Committee Member Sean Kelly said if customers must pay more because the utility has to transfer revenue to the general fund, the higher rates are a de facto tax increase.


The committee is also recommending $25.2 million in cuts to the utility’s operating expenses. Based on several rate design options, the committee expects the average customer’s monthly bill to increase by less than $9 next year.


The committee unanimously agreed the utility should not pull from its reserve fund. Anders said use of the reserves could negatively affect the utility’s bond rating. “It’s something I feel would be very risky,” he said.


In budget forecasts, prepared by officials at the utility, using reserve funds would have done little to lower customers’ water bills.

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