Letter: Treasurer explains 2002 budget
To the Citizens of Basehor,
I'm sure the article by Joshua Roberts concerning the proposed mill levy and sewer rate increases that appeared in this paper recently has generated questions. The purpose of this letter is to attempt to address those questions by letting everyone know how the 2002 budget was developed and what exactly it entails.
When the city borrowed money from the Kansas Department of Health and Environment to build a new wastewater treatment facility and improve sewer-related infrastructure, it committed to making large payments for the next 20 years. These payments amounted to $360,000 annually through 2004, $400,000 in 2005, and $440,000 in 2006. Additionally, the city had to pay the cost of operating the new wastewater treatment facility. The estimated expenses were expected to be more than $159,000 annually for the next five years. Unfortunately, initial revenue projections for 2002 to 2006 time period indicated a significant shortfall.
On July 6, I wrote a memo to the City Council in which I articulated my concerns about the sewer fund. In that memo, I explained that an increase in the sewer rates by 52.43 percent was necessary for the sewer fund to become self-sustaining (i.e., revenues would equal expenses). Even this dramatic increase in the sewer rate would not solve the problem, however. The projected revenue flow did not take into account when during the year large amounts of cash would be needed. In short, the city would not have sufficient cash on hand when its loan payments to KDHE fell due.
Despite this gloomy picture, there were reasons for optimism. The first was that my July 6 calculations did not account for any growth in the sewer customer base. Each projected sewer connection and resulting increase to the sewer customer base reduced the sewer rate increase necessary to make the sewer fund self-sustaining. The second was that my calculations assumed that tax money could not be used to repay the KDHE loan. Enterprise funds like the sewer fund are required to pay their own costs. Tax money normally cannot be used to pay enterprise fund expenses. Telephone calls to Topeka revealed that KDHE loan payments represented an exception to the general rule concerning the use of tax money. This gave the city considerable flexibility in addressing its sewer fund issues.
The task then became one of attempting to get the sewer fund financially healthy while minimizing the tax bite. Using growth projections provided by the city planner, I determined that a 12 percent increase in the sewer rate, from $4.82/1,000 gallons to $5.40/1,000 gallons, would enable the sewer fund to become self-sustaining in 2004. To get the city through 2002 and 2003, tax money would be needed to supplement sewer revenues. In 2002, the tax money allocated to the city's bond & interest fund (from which KDHE loan payments are made) would be increased by approximately $222,000 over the 2001 allocation, from 2.068 mills to 18.327 mills. To reduce the overall tax increase, tax money allocated to the general fund was decreased by over $35,000, from 14.484 mills to 10.335 mills. In total, the city's mill rate would increase from 16.552 to 28.662. Since Lansing has approved a 5.3 mill increase in its mill levy up to 29.69 mills, Basehor's mill levy would remain one of the lowest in the county.
In closing, I should mention two things. First, the projections used to develop the 2002 budget will be reviewed at least annually. Clearly, if actual revenues and expenses are significantly higher or lower than projected, future tax requirements and utility rates will be affected. Second, the proposed increase in the mill levy to support road improvements does not appear on the 2002 budget.
Treasurer, city of Basehor