Sunset Valley scrutinizes the cost of cheap utilities

After hearing the committee's recommendations, the council said it would do more research and hold public hearings before taking any action. Utility bills will not go up in the immediate future.

The issue involves more than simple water rates. Residents who attended council meetings in January and February tied the subsidy to long-term planning, the question of whether to revive the Sunset Valley's groundwater system and even the city's goal of fostering a unique, small-town sense of community.

"Maybe not this year, maybe not next year, but eventually, the health of our shopping centers will decrease," committee member John Bellanca said. "People who study shopping centers say that after 10 to 15 years, they start to go down."

"As city revenues go down and the cost of water from the City of Austin goes up, you have a disparity and an increasing subsidy," he continued. "You can keep it that way. You do not have to. This is a City Council decision, and it's one of those things you need to be aware of."

Revenues and utilities

Sunset Valley collects no property taxes. Almost all of the city's revenue—95 percent, or $3.88 million out of $4.09 million in 2011–12—comes from sales tax.

City revenue pays for the city's main operating budget, called the general fund. City Administrator Clay Collins said the general fund is used for expenditures such as police and fire protection that benefit everyone or that cannot be tied to a specific user.

Sunset Valley's utility fund, which is calculated separately, must be self-sufficient—revenues must meet expenses. Since the utility fund does not meet expenses, the city must subsidize it with money from the general fund.

Mayor Barbara Wilson said subsidies have grown from $72,000 when it started in the late 1990s to $367,359 in 2011–12.

Collins said the city's water expenses can be broken down into variable costs (costs that change based on how much of a product is used) and fixed costs (costs that do not change, such as infrastructure repairs). The city subsidizes any fixed costs that are not covered by customer base rates.

Collins offered three options at the end of his Feb. 7 council report: Change city policies to allow the city to set rates to match current practices, cap utility fund transfers or phase in any cost increases for services.

Finance concerns

In its September 2011 letter, the finance committee says it has long been concerned about the ever-increasing amount of the utility subsidy.

"The amount of that subsidy has, until recently, been substantially understated due to lack of rigorous accounting for all of the costs and the reserves for long-term replacement of utility infrastructure have not been reported in a manner which accurately reflects the total amount expended," the letter reads.

The committee argues that the $353,949 subsidy in 2010–11 should have included the $248,200 budgeted for equipment and infrastructure replacement. That would make the subsidy's true cost around $600,000, it writes.

The committee warns of rising costs. Fire protection—which comes out of the general fund—has doubled since 2006, it notes.

Other committees reviewed the letter before the council's discussion in January.

At a January City Council meeting, committee members said the issue is not as pressing as it sounds.

"We wanted everyone to be aware of it and bring it to everyone's attention," Councilwoman and Finance Committee member Rudi Rosengarten said. "If revenues dropped dramatically, we didn't want anyone to say, 'Why weren't we notified?' As long as revenues are good and expenses are watched, we are fine."

Finance Committee member Zubair Hamir, speaking as a resident, said that policy revisions would allow Sunset Valley to keep much of the current system.

"We are healthy financially," he said. "We carry no debt. If we were rated, we would be a AAA rating."

Next steps

In February, council members and citizens were split on the best way to solve the issue.

Councilman Bruce Smith said the utility fund is part of a larger long-term planning issue and cannot be dealt with separately.

Resident Melissa Gonzalez said that water costs were going to go up, and it was good that the council figured out its water strategy sooner rather than later.

Former Mayor Jeff Mills questioned the letter's statements and said public hearings and more information were needed before any action should take place.

Mills advocated for exploring all possible options, such as decreasing expenditures, for bridging a gap in finances.

"We're Sunset Valley. We're different from other cities," he said. "Sunset Valley does what it does, and what it historically does, because we are a community. We choose the way we want to do things."

Wilson said the city needs to come up with a plan, get accurate data and make realistic cost projections.

"What I don't want to see is that we make no plans and we have to dip into reserves or get sticker shock on water, wastewater and solid waste bills," she said.

The next City Council presentation on utilities is scheduled for Tuesday, March 6.

The groundwater debate

As the council considers the future costs of Austin water, it must also make a decision on the related issue of whether to revive its groundwater system.

Sunset Valley's water usage has averaged about 114.40 million gallons per year during the last four years. Last year, Sunset Valley used 116.54 million gallons.

A February report stated that prior to 2008, Sunset Valley treated groundwater that served 107 homes and four city offices.

Roughly 80 percent of Sunset Valley—most homes and all businesses—bought water from the City of Austin.

The treatment system has been out of service since 2008 due to mechanical problems and drought conditions, the report reads.

The report states that if Sunset Valley wants to keep its dual water system, it would cost $29.88 million over 30 years. That cost includes treatment plant upgrades.

If Sunset Valley exclusively bought water from the City of Austin, it would cost $28.49 million over 30 years. That means that keeping a groundwater system would cost $1.38 million more over 30 years.

The council plans to hear a presentation on the water system in March.