The Sunset Valley City Council reviewed how the city subsidizes water, wastewater and solid waste costs during its March 20 meeting.

City Administrator Clay Collins broke down how the subsidy is calculated, where the money goes and offered suggestions for next steps.

The consensus during public comment was that the subsidy should be continued, but perhaps with a cap on how much the city can transfer to the utility fund.

The council charged the Finance Committee with looking at the administrator's suggestions and asked for a recommendation at a later date.

Making the ledger balance

City law states that the utility fund should be self-sufficient—revenues should meet expenses. The utility fund's revenues do not cover all expenses.

"The subsidy is the difference between the revenue and the expense," Collins said. "This is all calculated on a gross level. We project revenue for the utility, the actual budget comes in and whatever we are short for becomes the subsidy."

This year, revenues from water, wastewater and solid waste budgets are expected to be $846,854.

Expenses are projected to be $1,214,213. So, to cover expenses, the city plans to transfer $367,359 from the general fund, the city's main operating budget, to cover costs.

In the last four fiscal years, the subsidy has ranged from $322,458 to $367,359.

Of that $1.21 million in expenses, contractual obligations make up $945,703—a full $98,849 more than the fund's entire revenue.

"The total revenue from all three doesn't cover the contractual expenses with the City of Austin and Texas Disposal Systems," Collins said. "We have other expenses, such as personnel costs. But even if we didn't have those, we still have contracts at almost $100,000 more than what we bring in."

Understanding the subsidy

Of that $367,359 subsidy:

Wastewater is $231,324, or 62.97 percent

Solid waste is $94,469, or 25.72 percent

Water is $41,566, or 11.31 percent

Wastewater is the largest part of the subsidy for a few reasons, Collins said. Revenue did not meet projections following a new commercial wastewater rate in fiscal year 2009–10.

The City of Austin increased wastewater service contractual expenses by 6 percent annually. Sunset Valley could not pass on those costs to customers because Sunset Valley residents do not pay for wastewater.

The solid waste budget only generates $25 from recycling, so the subsidy covers almost the entire cost of running that service. Most of the cost comes from contractual obligations with Texas Disposal Systems.

The water subsidy had been much bigger in recent years. Sunset Valley changed its commercial water rates to a meter-based system and then instituted 6 percent increases to both residential and commercial customers in 2009–10. Furthermore, the 2010–11 utility fund budget included an additional $90,000 for capital projects funding, the administrator said.

Collins noted that the $367,359 subsidy does not include any future infrastructure replacements.

At the end of his presentation, the administrator offered four possible options:

1. Revise city policies to allow the council to set rates consist with current practices

2. Revise policies to cap the amount that can be transferred to the utility fund or require a certain amount of revenues in order to set utility rates

3. Revise policies to justify excluding some expenses from the rate base

4. Phase in any or all utility services for full cost recovery

Response

Residents who spoke during public comment endorsed keeping some form of the subsidy in order to keep utility costs low.

Former City Councilman Donald Hurwitz said that the subsidy was a way to help all residents.

"We have a gigantic amount of revenue. We may have our different preferences as to what we should spend it on, but one thing we can do for everyone is to subsidize utilities and make it more affordable to live here," he said.

He added that not only does the city have the money to continue the subsidy, but also that the city has revenue to spare after doing so.

Former City Councilman John Moore agreed with Hurwitz, adding that surplus funds support quality of life issues, such as the upcoming art festival.

He advocated setting a cap on how much could be transferred to the fund in order to strike a kind of balance.

Resident Mary Black said the more affordable utilities help older residents on fixed incomes remain in their homes and stay in Sunset Valley.

"I could give examples of shameful waste in the functioning of the city. We could tighten those things up and not mess with programs such as this," she said.

Resident Melissa Gonzales said she was in favor of a cap so that there was some cost control should expenses grow exponentially.