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KG Service Authority ended year with sizeable surplus

The King George Service Authority’s most recent financial report last month indicated it would end the year with a sizeable surplus, estimated at $172,998.

Those year-end figures for 2013-14 will be finalized following an annual audit to be performed this fall and released later this calendar year.

The budget surplus noted was largely due to more water and sewer connections for new service than had been anticipated and budgeted, in addition to a vacant position carried on the books.

51 new service connections had been estimated with 62 new connections actually coming in. Eleven connections may not seem like a big difference, but that’s because the King George Service Authority is a very small-scale enterprise as utilities go.

That means five or ten connections either above or below estimates can make a big difference in cash flows.

STATISTICS      
The Service Authority had a total budget of $4,270,671 for 2013-14. The enterprise is described in the statistical section of the most recently-completed annual audit from the previous fiscal year, completed late last calendar year.

It notes that as of last June 30, 2013, the there were 3,896 water customers, and fewer than half of those with water-only service. The 2012-13 audit also indicated 2,092 sewer customers, only a few sewer-only customers.

The Service Authority owns and operates 12 water systems and five wastewater systems and associated water storage facilities, pumping stations, transmission mains and interceptor sewers in specific areas of the county. It does not benefit from the economies of scale advantages provided to larger systems.

It was formed in 1992 when the county’s separate sanitary systems were united. At the same time, private water systems were purchased to meet the demands of state regulations on localities for Virginia’s evolving standards required for community water systems.

ACTUAL CONNECTIONS    
Chris Thomas, General Manager, recently provided the following information regarding actual connections for the last fiscal year that ended on June 30, with Thomas providing a breakdown of the 62 new service connections.
As of June 30, 2014, the Service Authority received the following connections.
50 full service (water & sewer) residential connections.
5 water-only residential.
1 sewer-only residential connection.
2 water-only commercial connections.
2 sewer-only commercial connections.
2 water-and sewer commercial connections.

BUDGETED CONNECTIONS
The 62 connections were somewhat higher than the number conservatively estimated and budgeted for 2013-14, with 51 new service connections estimated.
The estimate included 35 full service (water & sewer) residential connections.
10 water-only residential connections.
6 commercial connections.

OPERATING BUDGET RELIANCE ON NEW CONNECTIONS      
The latest surplus realized for last fiscal year is the third surplus in three years. That track record could be considered by financial rating agencies as officially achieving self-sufficiency, a goal that has been worked toward for many years. But the previous two were much smaller five-figure amounts.

The main reasons for the 2013-14 surplus is because there was a vacant employee position carried in the budget, coupled with the eleven more connections for new customers than originally budgeted.

The unfilled position attests to the achievement of better efficiencies by employees, systems and its management, which is to be commended.

But the fact that a large part of the surplus is due to more connections than expected points out that there is still a heavy reliance on connection fees to subsidize the operating budget.

A better system that has been discussed in the past would be the use of connection fees to fund new capital project costs, including system upgrades and expansion.

It’s possible that moving in that direction may be part of any recommendations coming from Davenport & Company LLC at an upcoming meeting.

SUCCESSFUL FIVE-YEAR PLAN       
With the Service Authority board’s input, Davenport had devised a five-year plan in April 2009 and implemented the plan beginning in fiscal year 2009-10. The five-year plan had been requested by the Service Authority. The main goal was to stabilize rates with an ultimate goal of self-sufficiency.

At the time, the county and the nation were in the throes of the beginning of the Great Recession of 2008. The plan included calculated annual rate and connection fee increases, restructuring of the debt service fees, and refinancing of capital debt.

It also relied on operating fund increases to be limited to only critical areas, with overall expenditures to be reduced as well as the number of new connections on which the annual budgets were predicated. The reductions in connections reflected the slowdown in the housing market and the new economic conditions.  

Thomas has requested and the board has agreed to ask Davenport to perform another review and come back with recommendations for discussion and potential implementation for future budget years, including continued debt restructuring, if interest rates continue to be favorable to do so.

There is also a desire to take another look at changing the rate structure to provide a tiered system whereby customers who use more water pay higher rates.

Phyllis Cook
Staff Reporter

 

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