Utility Director Bryan Bertacchi addresses the Assembly on Tuesday night (10-11-16). The city is trying to figure out how to support the electric fund in light of declining electric usage in Sitka. (Emily Kwong/KCAW photo)
The Sitka Assembly is raising electric rates for the second time this year, by an average of 7% across the customer base. That will close the gap in the electric fund for FY17. But the relief is short-lived. To address future shortfalls, the Assembly wants to dip into other pockets in the city’s wallet before raising rates again.
Electric Rates Rise by ~7%, higher reconnection fees too
The new Assembly is inheriting an electric fund that isn’t paying for itself.
Why? Well, the Electric Fund is paid for by those who use electricity. But Sitka customers aren’t using nearly enough. The money isn’t there to keep up with debt payments for the Blue Lake Dam and to fix power plants and transmission lines in need of repair.
So, for the past few years, the Assembly has been raising electric rates to make up the difference and to catch up to inflation. The problem is, the hikes have been pretty big in recent years. By 40% in 2010, restructuring in 2012, 10% in 2014, 7% in 2015 , and now 7% on top of an additional 5 % earlier this year. Customers are struggling to pay and disconnections are at an all-time high.
McConnell said this was the major conundrum before the Assembly. “Where is that sweet spot where you can make some increases and improvements and get the things done that need to get done, but not be so overwhelming to the community?”
For this year, they think they’ve found the sweet spot. This most recent ordinance (Ord 2016-38) – approved 6-1 – increases electric rates by 7% on average.
The Electric Department has also changed the rate structure by eliminating the tier for customers who use less than 200 kWh/month and less than 800 kWh/month. Now, all residential customers who use 1000 kWh/month pay $0.12 per kWh.
Electric rates have increased six times in the past six years for a few reason. Namely, to pay off the Blue Lake Dam, catch up with inflation rates, and compensate for declining usage from warm winters and customers switching to diesel or wood stoves. Source: CBS Electric Department. Graph: Emily Kwong/KCAW
There’s also a 5% raise for monthly connection fees. For Harbors, the increase is from $8.75/mo to $19.50/mo to pay for replacement of failed meters. The ordinance further alters construction guidelines and customer service procedure, the most notable of which is doing away with door-hangers when bills are delinquent and a disconnection is pending.
Eisenbeisz voted “no” on the ordinance. He also made a motion to delay the reading so the new Assembly members could weigh in. That was voted down.
His second motion had to do with the emergency reconnection fee, which is how much the city charges for re-connecting a customer outside of business hours. The ordinance raises that fee from $200 to $500. Eisenbeisz said, “That $500 charge might have been a little excessive. Mr. Sweeney and Mr. Bertacchi have suggested that $350 would be closer to the actual cost.”
Jay Sweeney, the Chief Financial and Administrative Officer, and Bryan Bertacchi Utility Director, approached the public bench. They explained that $500 was an average costs, when taking into account variables like holidays, equipment, and other ancillary costs.
This explanation seemed acceptable to Hunter, who likened it a $500 fee for a float plane to Baranof Warm Springs. “It’s $500 no matter what the weather is. That’s what it will take to get there. This is the same kind of thing. It’s $500 to get your utility service re-connected if you didn’t pay and need it now. It just seems reasonable in that sense as a business if we’re operating it as a business,” Hunter said.
To reconnect electrical service during business hours (8 a.m. to 4 p.m., Monday – Friday) will now cost $100 ($50 for the disconnect). It previously cost $20 ($10 for the disconnect).
The reconnection amendment failed, 5-2, with Eisenbeisz and Ben Miyasato voting yes. And the overall ordinance – electric rates and all – was passed.
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Electric Fund and FY18 Budget Planning
The Assembly then took a short recess, in which Deputy Mayor Matthew Hunter was sworn in as Mayor and Aaron Swanson appointed to a one-year-term. The 7-member group spoke candidly about how to electric fund crisis in the future. Rates will likely go up again. But the Assembly wants to do what it can do buttress the electric fund with money from elsewhere.
Hunter said, “Rates are going to have to go up some more in the coming years. And we can keep it moderate and try to keep it to something less than that drastic 40% a few years back. And we’re going to work hard to do that and we need to hear from people what kind of things you would like us to trade to keep our rates low.”
City Administrator Mark Gorman, at the direction of the Assembly presented a list of options. See that list here: revenue-sources-electric-fund
Here’s a list of all the money in the city’s reserves that can be accessed by the Assembly to address the fiscal gap. (Graph from CBS Administrator Mark Gorman)
“Where do you want us to go? My strong recommendation is that we go into reserves and present the Assembly with a plan to be totally out of reserves within three years. And I think we can get there,” Gorman said.
Here’s a list of possible revenue sources for the city, compiled by City Administrator Mark Gorman. CORRECTION: Increasing the sales tax cap to 10k can be accomplished through Assembly action alone. (Graph from CBS Administration)
While the Assembly took no action, they spoke openly about their preferences. Aaron Bean wants the Assembly to consider land sales. Eisenbeisz says he’s scratched off eliminating the senior sales tax exemption, while Assemblyman Guevin said he’d be open to a program that is needs-based. “I do think there are a number of seniors who can afford to pay that sales tax and looking at our demographics, we’re moving towards having a quarter of our population in that category,” Guevin said.
Here’s a breakdown of the General Fund allocation for last year. Roughly 1/4 of the city’s money goes toward the Sitka School District. The general fund budget was reduced by $1 million last year. (Graph courtesy of CBS Administration)
All of these are ideas for now, but there are some knowns.
- The draft of the FY18 budget currently has a $3.5 million deficit – $2.5 million in the general fund and $1 million in the electric fund.
- *The shortfall may increase if the Alaska state legislature reduces community revenue sharing, school support, and PERS/TERS contributions. Also at stake is federal government support through Secure Rural Schools and Payment in Lieu of Taxes
- The city has written into the budget a subsidy of $1.7 million from the general fund into the electric fund.
- The city has written into the budget an extra $900,000 for the Sitka School District.
- The Assembly will begin their budget process three months earlier than usual, to better align with the Sitka School District. See full schedule here: fy18-budget-process
To close the gap, the Assembly will likely pursue a combination of what Gorman has called “the three ‘R’s” – reductions, reserves, and revenue. Property tax revenue is officially off the table. Voters rejected the ballot question to raise property taxes last Tuesday (10-04-16).
Assemblyman Bob Potrzuski voiced frustration over that. “There was $1.1 million that the Assembly had pledged to subsidize the electrical rates. So now the citizens have put us in a situation to solve the problem. And we’re going to solve it,” said.
Speaking during persons to be heard, Matt Donohoe responded that it wasn’t the public that put the Assembly in this position. “It was the former Assembly that decided to pursue an incredibly expensive infrastructure project without funding that put the public in this position,” Donohoe said. He then added, “I have a lot of respect for the people that take the time to serve on this Assembly. There’s no way I can do it. I don’t know how you guys can do it. I hope we can steer our way through this problem.”
And steer they will. The Assembly plans to hold a visioning session, that’s open to the public, on November 19th to talk about what to do next. Assemblymen Knox mentioned he had a cabin booked that day, but was willing to change his schedule. Eisenbeisz responded in saying, “Welcome to the Assembly.”
