Highland News Leader

Highland City Audit: Electric rate hike may be in order

Auditors said the city of Highland’s overall financial health is good, however they said an electric rate increase may be in order in the near future.

“It has been several years since there has been an electrical rate increase, not including cost of power adjustments. The city may want to consider the effects of the increased personnel costs, supplies, insurance, etc., on the long-term financial position of the electric fund. The long-term financial success of the electric fund is important, so funds may be reserved to continue to invest in and maintain the system,” said Mark Korte, principal at Scheffel Boyle, the accounting firm that performs the city’s annual audit.

The electric fund reported a net loss of $212,388 last year, according to the audit.

Auditors gave no recommendation on what sort of an increase might be called for.

“That is tough to answer, because I do not know how much the non-power related expenses are projected to increase in the future,” Korte said. “That would be determined by a rate analysis study.”

The city’s other enterprise funds have had increases recently and now show better financial positions, according to the audit.

“The water fund had a rate increase take effect in January 2016 and (that) has helped to stabilize the water fund,” Korte said. “The sewer fund has had two full years of the new sewer rates and this resulted in the sewer fund reporting a profit for two consecutive years.”

The city’s enterprise funds are meant to be self-supporting and not rely on any tax dollars.

“Business-type activities include the electric, water, sewer, and solid waste funds. These funds are intended to be self-sufficient and operated based on revenues derived from user fees,” Korte said.

The city’s solid waste operations are the only such activity outsourced to a third-party vender, Robert Sanders Waste Systems. The solid waste fund reported positive net growth of $84,777 last year, according to the audit.

The city’s other business venture, Highland Communication Services (the fiber-to-the-premises-project) showed increased revenues of $209,000 over the prior fiscal year, auditors said, however, expenses for the fiber fund also increased by $277,000.

“We made the decision to take on three more employees for HCS, which added to the increase. Plus, we had material installations we had to do, which the new employees are doing,” said Highland City Manager Mark Latham. “Things are starting to level off a little bit. Since last year, we’ve added 350 new customers, but each customer costs an average of $1,200 (to hook up).”

Other areas that used to determine a snapshot of the city’s overall health showed positive signs. The city’s total assets were $110.78 million, about a $100,000 increase over the prior year. Total liabilities decreased by $700,000.

The city saw an 8.8 percent growth in general property tax revenue, though that was coupled with a tax rate increase of 1.93 percent over the prior year.

“Projected property tax revenues are approximately $800,000 higher than they were 10 years ago. This is due to the city’s assessed valuation of property values increasing from $161 million in 2006 to $178 million in 2015,” said Korte.

Other positive fiscal signs are that the city also saw increases in sales taxes and income taxes. Overall, governmental expenditures only increased 1.51 percent, and the city’s general obligation debt has been paid off since fiscal year 2008. The city’s legal debt margin is $15.3 million.

“Overall the city’s financial health remains strong and stable. There are always opportunities to strengthen the city’s finances, and the city has been proactive in preparing for the future,” Korte said.

Other Council Action

Financial reports approved

The council also approved the 2016 Treasurer’s Report in addition to the Combined Annual Financial Report (audit).

Tax abatements approved

The council also approved the following levied tax abatements for:

▪ 2013 General Obligation Sewerage System Bonds;

▪ 2012 General Obligation TIF Bond;

▪ 2014A Korte Recreation Center Bonds; and

▪ 2014B Street Bonds.

All of these bonds are paid by funding sources other than property taxes — i.e., sales taxes, etc. However, in order to ensure good rates, the city ultimately backs the bonds with property tax levies, if those other taxes do not make enough revenue to cover the payments. Since they did, the levies were abated.

Ambulance services approved

The council approved a contract for ambulance services with the Marine Community Fire Protection District and the St. Jacob Fire Protection District. The city will continue to provide ambulance services to both districts from now until Sept. 30, 2017. Marine will pay $75,029 for service. St. Jacob will pay $46,738.

New street sweeper purchased

The council voted to purchase a new street sweeper, a Johnston VT651, from Wm. Nobbe & Company Inc. in Waterloo for $238,000. The council also agreed to trade in their existing sweeper for $17,000.

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