ELLY GRIMM
• Leader & Times
Citizens of Liberal will be seeing some changes to their water bill later this year after discussions by the Liberal City Commission Tuesday evening.
Liberal City Manager Scarlette Diseker began by giving a general overview of the situation.
“As the commission will recall, on Feb. 6, there was a special meeting to review historical information and formulate a financial plan to properly address the Fund 301 Construction and Fund 520 Wastewater cash balances,” Diseker said. “For review, the Wastewater Plant Construction Fund balance is currently sitting at -$1,634,734.29 with only $158,000 in remaining KDHE loan funds to advance upon. It is my duty, and I’ve said this before, to make sure the Fund 301 Construction doesn’t sit at a negative balance for very long periods of time. Although it is the duty of the Finance Department to stay on top of that, reconcile it and make sure we have proper fund transfers to cover that. Although the cash basis statute treats construction funds differently than regular funds, the expectation is that loan advances and transfers in to cover capital projects are handled in a timely manner. We need to now tackle a two-fold issue: correct the construction fund situation, and then produce cash flow into Fund 520, which is the wastewater fund. Because there is not a surplus of cash reserves in the Wastewater Fund, an amendment to the KDHE loan must be considered in order to cover past and final construction costs. In order to pass underwriting, we must look at our current sewer rates and fees and make adjustments accordingly.”
Diseker then gave some history of the project.
“When the KDHE loan for construction was amortized out, it gave the City of Liberal from 2021 to 2023 to pay $100 principal payments and around $360,000 in interest and fee payments. It is my opinion that, during this time, we should have reviewed rates and made corresponding adjustments to better prepare the Wastewater Fund for when the larger loan payments were set to begin in 2024,” Diseker said. “Starting last year, our payment schedule shifted to the larger amounts due of around $2.8MM annually. Because the rate adjustments were not considered in the earlier years of construction or loan repayment, the Wastewater Fund, as it currently stands, is not producing enough revenue to cover the routine expenses and debt service. For example, in 2023, the Wastewater Fund ended the year with a cash balance of $719,919.95 higher than the previous year, but in 2024 when full loan repayment began, the Wastewater Fund ended the year with a cash balance of $1,348,018.84 lower than the previous year. This type of trend is not sustainable, as Enterprise Funds like the Wastewater Treatment Plant are meant to be utilities that run like a business and stand alone without assistance from other funds. Then, in 2024, the City Commission passed Resolution No. 2410 that adjusted the minimum sewer rates from $19.15 to $23.94 (25 percent) beginning April 1, 2024. The resolution also approved another 25 percent increase from $23.94 to $29.93 beginning April 1, 2025. From April 1, 2026 and thereafter, the intent was to increase by 3 percent. Even with these increased projections, the Wastewater Fund will not produce enough revenue to cover expenses and loan repayment, especially as it relates to the loan amendment that is necessary to cover final construction costs through 2037.”
Diseker then presented the commission with some options, and the commission will be making its final decision on the matter at its next meeting March 11.
“Our first option is an assessment of a flat $10 Sewer Improvement Fee. This fee would be assessed across both residential and commercial accounts and could stay in place through the duration of the loan repayment schedule, which ends in 2037,” Diseker said. “If this is the option the commission approves, the fee would generate an estimated annual revenue of $852,000, and it would assist the department in additional sewer infrastructure needs, with our main concern being the lack of funds to address any type of catastrophic failures within our dated sewer lines. If something were to happen right now, it would be a huge concern to me of how we would fund that situation because we have not planned ahead, and we’ve put ourselves in a defensive situation, in my opinion. The flat $10 Sewer Improvement Fee could be discontinued at any time based on our current financial situation and passed by a city commission vote. This fee would only show on customer accounts with sewer service.”
Another option, Diseker said, would be the assessment of a flat $5 Sewer Improvement Fee.
“Similar to the $10 flat fee, this fee would be assessed across both residential and commercial accounts and could stay in place through the duration of the loan repayment schedule,” Diseker said. “If approved, the fee would generate an estimated annual revenue of $426,000 and allow us to move through the next 12 years, but again, with no focus on catastrophic failures. It would pay the loan back, but that would be absolutely it. The flat $5 Sewer Improvement Fee could also be discontinued at any time based on our current financial situation and passed by the city commission’s vote, but it is our opinion it would need to stay in place long-term to cover existing needs. This fee would only show on customer accounts with sewer service. There is also the option of an assessment of a flat $5 Sewer Improvement Fee with Water Transfer, which would be assessed across both residential and commercial accounts and could stay in place through the duration of the loan repayment schedule. If approved, the fee would generate an estimated annual revenue of $426,000. Any additional funds to cover the debt service, departmental expenses, or catastrophic infrastructure needs would come from a Water Department Transfer. Like the other options, this could be discontinued at any time based on our current financial situation and passed by City Commission vote. This fee would also only show on customer accounts with sewer service. Being a finance person, I recently spoke to Brad [Beer] about these options, and we would put the water transfers on more of a routine schedule and not an end-of-year fix. We would write that into the budget in the coming years and make sure we have those funds appropriated and allocated.”
The final option, Diseker said, would be to do transfers as needed throughout the loan term.
“This method would shift the revenue generation from the shared customer account method to the Water Department solely,” Diseker said. “Routine reviews of the Wastewater Fund cash balance would need to be in place and monthly transfers would be implemented to assist in covering regular expenses and debt service. This method does not support a "stand alone" Wastewater Plant objective and places pressure on the Water Fund for support, which in turn, limits their capabilities to address departmental needs, and there are some of those funds earmarked for infrastructure and other projects. But we have built that fund up quite a bit over the past couple years to help prepare for this moment in getting those water infrastructure projects done.”
Diseker then ended her presentation by giving a brief overview of what each option would do.
“Leaving it the way it is now with just the percentage increases, we would only make it through 2027 before the Wastewater Fund would fall into a negative cash pattern. With a $10 flat fee, we would be able to pay our debt service without issue and begin moving towards a more stable Wastewater Fund by 2027 with steady improvements in order to properly plan for infrastructure projects,” Diseker said. “With a flat $5 fee, we would be able to make our payments and roll a little more than $1 million into each new year with a more healthy fund only building at the very end of the loan term. No attention to catastrophic planning could take place under this scenario. With a $5 flat fee combined with the transfers, you will see a very similar pattern to the $10 flat fee, with not all the burden falling to the account holders. It would shift 50 percent to the Water Department, but the overall stability of the fund would improve and have an end result almost identical to the $10 flat fee. Like I’ve said before, it is our goal to properly address both the Fund 301 Construction deficit and the revenue shortfall in the Wastewater Fund. Having a proper financial plan in place will benefit both city staff and the citizens of Liberal as a whole. Although it is not ideal to assess flat improvement fees, we want to reassure our citizens we are serious about addressing our debt repayment on a brand new facility, as well as planning for future needs that are bound to arise. It’s a wonderful facility, it’s state of the art, but we do have to have a plan where we don’t have shortfalls in revenue.”
After a few more questions, discussion on the matter concluded.
“Whatever option we go with, the Wastewater Treatment Plant needs to stand on its own,” commissioner Jeff Parsons said. “We don’t need to be borrowing from Peter to pay Paul. The plant needs to be able to pay for itself, and it needs to be able to sustain itself through its entire life.”
In other new business, the commission approved the adoption of the 2024 ICC Building Codes and International Fire Code, and also approved Resolution No. 2429 concerning the city’s fee schedule. The commission also approved the appointment of Jason Ingland to the Planning & Zoning Commission.
