The City of Salem collected $2.7 million less in utility revenue during fiscal years
2019-2020 and 2020-2021 than it did the previous two years, according to a financial summary the city supplied to The Salem News.
The drop in revenue coincides with utility billing issues that have plagued the city since November of 2019, when a new billing system was put in place.
The Salem News asked Ray Walden, city administrator since April of 2014, if utility billing issues were the main reason for that drop.
“The city’s utility customers used approximately $950,000 less in utility services for the two-year span of 2019-20 and 2020-21 [compared to] 2017-18 and 2018-19, which accounts for some of the difference in amount collected,” Walden responded in an email Monday morning. “Customers put approximately $460,000 of past due balances on payment contracts starting in June 2021, some of which are scheduled to be paid over two-three years.
“The city suspended disconnects and charging penalties for non-payment during the COVID-19 pandemic and had a number of customers who did not pay during that time until disconnects for non-payment resumed with the July 2021 bills. The cash impact of those customers resuming payments on their accounts will be reflected in the 2021-2022 fiscal year cash collection reports.”
The city collected $15.2 million for all utilities during the two-year span of fiscal years 2017-18 and 2018-19. That number dropped to $12.5 million during 2019-20 and 2020-21, a drop of 18%.
The Salem News asked Walden if there were other problems at the core of that drop, to which Walden did not respond.
Furthermore, the total utility budgeted revenue amount during those four years was $30.5 million and the actual revenue $27.7 million, which left the city $2.8 million under budget.
The trend in falling revenue for utilities is continuing this fiscal year (2021-22). The city budgeted $7.65 million for all utility revenue, and with less than a month left in the fiscal year has collected $6.6 million, according to the summary supplied by city finance director Stacey Houston.
To combat the lost revenue and increases in the cost of electric by its supplier, aldermen voted in September 2021 to raise rates 13.8%. Due to the city’s formula in place for electric rates, citizens are facing an additional automatic increase of 34% in July if aldermen don’t step in with an alternative plan.
Billing issues started in November of 2019, five months into the 2019-20 fiscal year. Inaccurate bills and delays for months without bills being issued caused a furor among customers. The city in March 2019 contracted with NexGrid for an AMI system for utility billing. After the system was installed, it failed and billing glitches have continued since, resulting in inaccurate readings, months when the city did not send bills and a large number of unpaid bills as evidenced by the decline of revenue vs. billed amounts.
The loss of revenue is having an impact on the city’s overall budget. The original budget for 2021-22 approved by the board of aldermen in June 2021 included $14 million of anticipated revenue and $13.9 million in anticipated expenses. The city projects revenue for the current fiscal year that ends June 30 to be $12.3 million. Expenses are projected to total $13.2 million.
The city expects to receive $1.6 million less in revenue than originally budgeted, and is spending $800,000 less. That leaves a budget shortfall of $800,000.
“The original budget adopted by the board reflected a portion of the total expenses funded from spending down prior year’s fund balances that was not reflected in the referenced projected revenue amounts,” Walden wrote. “The city’s primary revenue sources include sales tax generated from applicable sales in the city limits and revenue from city utilities. Weather is one component of how much utilities are consumed, and some businesses and residential consumers are still transitioning from pre-pandemic usage patterns.
“Inflation has resulted in many of the city’s expenses increasing 20% or more, including fuel, wholesale power given the February 2021 weather event, and some supplies the city uses. The city has tried to manage expenses to accommodate for the increased cost of many of the items in the city’s budget.”
The Salem News asked Walden to what he attributes the difference in projected revenue and expenses for the current fiscal year.
“The original adopted budget reflected expenses being funded from a combination of 2021-2022 fiscal year’s revenue and spending down prior year’s fund balances,” said Walden.
“As sometimes happens, during the year revenues and expenses came in different than what was originally budgeted. Some budget adjustments have already been presented to the board, others will be as needed for total expenditures not to exceed total revenues and available prior year fund balances.”
The Salem News subsequently asked Walden at what point in the year it became apparent that expenses were going to outperform revenues.
“The original budget as adopted reflected use of revenues and prior year fund balances to cover budgeted expenses for the fiscal year,” he wrote in response.
The Salem News also asked Walden once they had observed the difference between projected revenue and expenses, what steps were then taken to minimize loss to city funds.
“In cases where funds were needed for approved projects not in the original budget and/or if actual revenues were less than budgeted, some projects were delayed or modified to be done for a lower cost,” he said.
The city’s deficit spending has taken a toll on its reserves. Total fund balances increased to a high of $6.6 million in June of 2019. That number has decreased every year since and was $5.2 million in June of last year. The city projects the balance to be at $4.2 million at the end of the current fiscal year (June 30), a drop of $2.4 million, or 36%, since 2019. During this time $900,000 of the city’s revenue came as part of the American Rescue Plan Act, which was placed in the General Fund.
Other information from the financial report from the city includes:
• Breaking the utility numbers down: electric was billed for $11.7 million combined (2017-18, 2018-19), then $10.2 million (2019-20, 2020-21), a drop of $1.5 million, or 13%. However, billing for water increased $200,000 (12%) and sewer $250,000 (15%) comparing those two periods.
• As far as fund balances impacted by the lost revenue, the city had 34 funds that totaled $5.3 million as of June 2016.
The electric fund dropped from $853,204 in June of 2019 to a projected $10,145 at the end of the fiscal year this month. The electric reserve fund was $571,943 in June of 2019 and is projected to be $169,070 this year. The two funds have seen a decrease of $1.2 million in three years.
City policy states that the electric reserve fund should strive to have 25% of the prior year’s expenditures in reserve. Houston in an email to The Salem News wrote that the city should have $1.5 million in the electric reserve fund to “allow for unanticipated hardships that come up.”
• Given plummeting utility revenue numbers, budget shortfalls and drop in reserve funds, the city is no longer in a position to cover rising utility costs, such as the increase from the supplier received during an unusually cold February in 2021. Many other utility companies had reserves and profits to carry some of the cost and ease the burden on customers.
• The City of Salem has seen many changes since the failed utility billing system was put in place in November 2019. Longtime city clerk Mary Happel was fired and mayor Brad Nash resigned. Alderwoman Kim Steelman was appointed to replace Nash as mayor but chose not to run for either position in the April 2022 election.
Former alderman Kevin James lost his bid for reelection to Kenny Nash in the April 2020 election, but was later appointed to the position when Nash died. James then resigned in December of 2021. To fill James’ spot, Steelman appointed Catherine Dent. Dent lost to Kyle Williams in the April election.
Alderman Greg Parker successfully won the mayor’s race in April, and Tod Kinerk was elected to replace Parker’s alderman position, leaving all but one elected position with a new face as of April 2022. Alderman and board chairman Shawn Bolerjack, elected in April of 2021, has been in his position a little over 13 months, longer than any other elected official.
Parker was alderman for two years before being elected mayor. The Salem News spoke with Parker Thursday afternoon and at that time Parker expressed that he plans to take the necessary steps to see funds built back up; however, that will take time and may not be easy.
“Before I came into office, I had already developed a thought process that there’s a difference between personal and professional relationships,” he said. According to Parker, a good city leader can distinguish between those two types of relationships. “I possess that ability,” he said.
“I may not make a lot friends,” said Parker. “But I want to make decisions that are in the best interest of the people.”
The Salem News asked Parker what steps he plans to take to face the difficulties facing the city. One area that Parker commented on was regarding committees. He said that he hopes to continue populating various committees with people who will be heavily involved. Parker said he hopes to have the Finance Committee meet more regularly on a monthly or quarterly basis in order to keep better tabs on what needs to be in the budget and in what ways the Board of Aldermen may need to adjust the budget.
The Utilities Committee is scheduled to meet at 6:30 p.m. tonight (Tuesday) at the Salem Community Center @ the Armory. On the agenda is discussion surrounding the possible advent of a service availability fee and kilowatt-per-hour recommendation for the Board of Aldermen as well as discussion surrounding water and sewer rates.
There is a joint Finance Committee and Capital Improvements Committee meeting scheduled 6:30 p.m. June 14 in the council chambers. At this meeting, the committees will have an update on the audit for the fiscal year ending June 30, 2021. They will also review an update on FY 2021-2022, including capital projects and collaboration agreements.
The committees will discuss 2022-2023 capital projects, though no quorum could be established at the past two Capital Improvements Committee meetings.
The committees will discuss the budget for the upcoming fiscal year beginning July 1. Once the Finance Committee meets and reviews the budget, the Board of Aldermen will have a little over two weeks before the new budget must be approved.
There is a specially called Board of Aldermen meeting 6 p.m. prior to the utilities meeting Tuesday night. One of the items on the agenda is the appointment of committee members. The aldermanic agenda does not mention budget or electric rates.
UTILITY BILLING AND REVENUE: THE NUMBERS
Fiscal years 2017-18 and 2018-19
$14.4 million total billed for all utilities
$15.2 million total collected for all utilities
$800,000 more than billed
Fiscal years 2019-20 and 2020-21
$13.5 million total billed for all utilities
Drop of $900,000 from previous two-year period
$12.5 million total collected for all utilities
Drop of $2.7 million collected from previous two-year period
