Highland City Budget: HCS expected to run in the red for foreseeable future

Highland Communications Services (HCS) — the telephone, Internet and cable television company owned by the city of Highland — is not expected to start turning a profit for several years, while debt incurred building its fiber-to-the-premises network is paid down.

However, Highland City Manager Mark Latham said the enterprise venture that began six years ago is moving along according to plan.

“We are following exactly what the business plan model is,” Latham said.

The city currently has two different sets of bonds it is paying off for the fiber-optic system. Together, they total about $12.2 million. The city has budgeted to pay about $1 million per year on the bonds, but final payment is not due until 2032.

HCS has $665,000 earmarked for capital investment next year, most of which is finalizing construction of the fiber system within the city limits.

“We should be completed by this time next year,” Latham said.

That capital line item falls to $200,000 for the 2018 fiscal year budget and $150,000 for the three subsequent years, since the system would then be completed.

Budget projections also anticipate significant savings in personnel costs after next year. HCS personnel is budgeted to cost $265,500 in 2017, but fall to $162,810 in 2018.

The city currently has three full-time employees dedicated to building out the fiber-optic system. The workload was such that the city had to hire two technicians just to handle customer hook-ups and service calls. Once the system is completed, the tech positions will likely no longer be needed, Latham said.

HCS added about 400 customers in the past year and currently has about 1,900 customers, according to Latham, which is about half of the potential customers in the areas it services. Expectations are that HCS will have well over 2,000 customers by this time next year, when the system is completely built.

Increased customers, coupled with a rate increase, should help HCS realize about $2.4 million in revenue next year. Budget numbers anticipate around an additional $100,000 revenue added every subsequent year through 2021.

However, the market is changing, Latham said.

Landlines are becoming a thing of the past.

“The problem is people aren’t buying the phone,” Latham said.

That has altered the city’s original projections somewhat. When first envisioned, it was thought the typical HCS customer would be purchasing a “triple-play” option of all three services — phone, Internet and video — resulting in about $124 per customer, per month.

“We are lucky to break $90,” Latham said.

Demands for cable TV offerings, which are a large expense to the city, also are changing.

“Now we are seeing a trend with millennials that they don’t want video,” Latham said.

Many are simply using Internet-based entertainment, such as Netflix or Hulu.

“More and more of the younger people just want the Internet. They don’t care about anything else,” Latham said.

Still, Latham said the city’s fiber system has been a good thing.

“It brings service above anything else you would have,” Latham said.

The system can deliver Internet speeds of a gigabit or more.

Creating HCS has also been a benefit to city residents who are not its customers, Latham said, by forcing other carriers to make their own service better.

“It brings competition, which you never had before,” he said.

The redundancy now built into HCS’ system also means Highland should not face communications blackouts anymore, Latham said, as was the case two times before HCS had its system in place, when a cut cable knocked out the entire city. In those two instances, phones and Internet did not work, and businesses could not process credit card transactions.

HCS also has the potential to lure more high-tech jobs to Highland, because of its broadband capability, and it enhances what existing businesses can do now, Latham said.

“We see a lot of potential for our data center, not only to our current businesses here, but the resale of our broadband to other, smaller communities around Highland,” he said.

Debt

The city has about $27.6 million in long-term debt. Those bonds include $870,000 on the sewer plant, $2 million on the Korte Recreation Center, $6.3 million in various street bonds, $12.2 million in fiber optic system bonds, $3.6 million in TIF bonds, and $2.6 million in sewer system bonds. The city will pay $3.74 million in debt service in the upcoming year, which equates to 9 percent of operating revenue.

Police

The budget for the Highland Police Department is $2.58 million. The department has 27 full-time employees, which includes the chief, a lieutenant, four sergeants, 13 patrol officers, two detectives, and operations manager and six telecommunicators. HPD also employs five part-time school crossing guards. The department has vacancies in an administrative assistant, school resource officer and community service officer positions.

Capital items the department has budgeted include completing an in-car computer replacement program ($20,000). Some computers are 12 years old. The program is currently 40 percent complete. The department also plans to purchase two replacement vehicles ($55,000), one SUV police interceptor and one administrative sedan.

EMS

Highland Emergency Medical Service provides ambulance service to the city of Highland, as well as the Highland-Pierron, Grantfork, St. Rose, Marine and St. Jacob fire protection districts. Its territory covers 280 square miles and has a population of 28,000 people. Its budget is $2.1 million.

The department has a chief, operations manager, and 16 full-time and nine part-time EMS providers. The department is funded through taxes, fees paid by the other fire districts and billing individuals for services.

In the upcoming year, the department wants to purchase and implement a new software system that will dovetail with the police department in order to streamline dispatching and information sharing.

The lone capital item for this year is $60,000 for architectural design for building improvements, with $275,000 budgeted for 2017-2018 to complete those plans. Plans include ADA upgrades to the Broadway fire station, as well as creating additional space there.

The department is planning larger purchases in upcoming years, including replacing an ambulance ($275,000, target purchase 2018) and replacement of four cardiac monitors ($160,000, target of 2019).

Fire Department

The Highland Fire Department has a 35-man volunteer roster. Its budget for the upcoming year is $264,000. Budgeted capital items include purchasing six new laptops for the pumpers and squads. The department will also start gathering information on replacing a 1980 model pumper truck. The truck is reliable, but will likely need to be replaced in four to five years, according to the department.

Parks & Rec

The Parks and Recreation Department has eight full-time employees and uses 150 part-time and seasonal employees.

The Korte Recreation Center’s budget is $1.28 million for the upcoming year, with $58,000 planned to purchase a new pool heater.

The budget for department programs is $928,000.

The department has $16,000 budgeted for engineering on Troxler Trail; $25,000 to build a restroom at Rinderer Park; and $35,000 to put toward construction of the Jaycees Dog Park.

The budget for the outdoor swimming pool is $159,505.

The Highland City Cemetery budget is $25,800.

Building & Zoning

The Building and Zoning Department has a budget of $379,300.

Streets

The Streets and Alleys Department has a budget of $1.32 million.

Major projects for the upcoming year include preliminary engineering and right of way acquisition for the reconstruction of Oak Street, as well as resurfacing Broadway from Helvetia Drive to Iberg Road ($40,000).

Latham said the city is looking for an inexpensive way to resurface Broadway as a short-term fix that would buy time while the city awaits federal matching funds to do a more complete upgrade.

Resurfacing of Walnut Street from Broadway to U.S. Highway 40 ($550,000 with $412,500 expected to be reimbursed) is also budgeted.

The department also intends to put away $45,000 toward the purchase of a new street sweeper in five years (total cost $225,000).

Budgeted for purchase in 2017 is a canvas arch top storage building ($95,000).

Water

The Water Department has a $4.17 million budget, with $1.5 of that being construction of a new clarifier unit at the water treatment plant. The clarifier is major reason for the overall budget being in deficit; the city is paying for the project with cash reserves.

Other major expenses for the department include replacing two trucks ($50,000), replacing computer software at the treatment plant ($30,000), installing new security cameras and lighting at the treatment plant ($15,000), creating a water master plan in conjunction with the firm Hurst-Rosche ($40,000), investment in auto meter reading ($70,000) and replacing mains ($300,000).

Sewer

The Sewer Department has a $2.25 million budget.

Its major expenditure will be $250,000 being put toward further rehabilitation of the city’s aging sewer mains. The city has completed its rehabilitation of clay mains in the older part of the city, which a used unique method of creating a cured-in-place plastic pipe within the existing century-old mains. Now, the city is looking to address its three major trunk lines in the system. The money in this year’s budget is to formulate a plan to upgrade those lines.

“They are going to evaluate those and find out what kind of condition they are in and what we are going to do with that,” Latham said.

The department also plans $40,000 in upgrades to the Water Reclamation Facility and replacing the Deal Street lift station panel ($35,000).

Light & Power

The Light and Power Department has a budget of $14 million. Capital items include purchasing a boring machine ($140,000), replacing existing electric meters with smart grid technology to allow remote reading ($250,000), brush clearing along the city’s 138 KV main transmission line ($50,000), installing lighting at the new Highland High School tennis courts ($60,000) and along Sportsman Road and the Bulldog Trail ($80,000).

Latham said the electric system should have its smart grid complete within five years. Once completed, the system could save the city several hundred thousand dollars per year in labor, Latham said. Currently, hooking up or disconnecting meters requires two linemen. With the smart grid, meters could be left in place and simply turned on or off with the push of a button in the office.

This story was originally published April 14, 2016 at 4:27 AM with the headline "Highland City Budget: HCS expected to run in the red for foreseeable future."