Vidalia may still be facing a multi-million deficit

Published 12:00 am Sunday, September 23, 2012

Photo illustration by Ben Hillyer

VIDALIA — Just a month and a half after approving a budget for the new fiscal year, the City of Vidalia made public financial woes that, even after cuts and layoffs, now leave the city hoping to make up an approximate $1 to $3 million deficit in 2012-2013.

The largest sum of losses expected to affect the city will come from the Sidney A. Murray Hydroelectric Station, which can’t produce power at its anticipated levels when the Mississippi River sits as low as it currently does.

The hydro plant accounts for 46 percent of the city’s expected revenues in the current fiscal year, according to the budget approved in late June, but city leaders are already saying the money won’t be there after all.

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Officials are projecting city revenues from the plant will be $4 to $6 million less than expected.

The budget planned for $14.6 million from the hydro plant, however a portion of those funds must first be used to fund operating costs for the Vidalia utilities. The remainder can be used for other city expenses.

The city also entered this new fiscal year with a cash flow problem, after paying $2.5 million out of pocket for flood protection during the 2011 Mississippi River flood.

Federal reimbursements for those costs are expected to come this year to the tune of $1.8 million.

In order to continue operating in the black while waiting on those funds, the city has cut approximately $1.2 million in budgetary expenses — including laying off 14 city employees in August.

Mayor Hyram Copeland said he hopes the remaining deficit can be closed through the flood reimbursement dollars, sales and property taxes and utility revenues.

But in the past four fiscal years, the utility fund has sustained total net losses of $1,880,152 — forcing the city to rely on net revenues of the hydroelectric fund to replace those previously supplied by utility revenues.

And external auditors have repeatedly pointed to low-river level years as particularly dire for the city’s budget.

What’s next?

Copeland said the city’s primary focus now is funding daily operations.

“We explored numerous ideas and put everything out on the table before making the decisions to let our hard working employees go,” Copeland said. “But that was something we did to get us through the next several months.

“It was a simple equation — we were going to take any preventive measures to cut expenses and continue operating our city.”

The salaries of the 14 employees across five different city departments that were laid off totaled approximately $600,000 in savings from the city’s $5.9 million annual payroll, which included 181 full-time employees in the 2011-2012 budget year.

Four full-time employees were moved to part time and another four full-time employees were asked to retire early as part of the cost saving measures taken in August.

Those savings didn’t account for the departure of former city manager Ken Walker who put in his last day with the city earlier this week to pursue another opportunity in Washington.

Walker received the highest salary of all the Vidalia employees at $110,669.20 annually.

The city does not plan to replace Walker.

The remaining $600,000 the city trimmed from its budget came from a variety of expenses including travel, building utilities and gas for work vehicles.

“Right now we think things are at that point we need to be as far as layoffs are concerned,” Copeland said. “We had to examine every spending expense the city incurs, while making sure we didn’t impact the services offered to our citizens.”

Looking down the budgetary road into the 2012-2013 fiscal year, the city will also have to begin paying off the $6.94 million U.S. Department of Agriculture loan that helped build the 30,000-square foot municipal complex that opened earlier this year.

That loan will be paid out over 40 years, and the new loan payment totals a $175,000 annual increase in the city’s debt service.

The cost of construction did not contribute to the current financial woes, Copeland said, and halting the project when troubles became evident was not an option.

“We plan three or four years ahead on the majority of our projects, and once you go to the USDA and get the loan package you can’t just shut it down in the middle of it,” Copeland said. “When you’re making good money, you spend it, but when you’re seeing that money is becoming limited you have to trim down what you’re spending.”

Double trouble

The decision to lay off employees and cut spending was the result of two natural disasters within as many years, Copeland said.

“There’s no way to plan for a 500-year record flood one year and then a drought the next,” Copeland said. “If you add the costs of those two together, it was absolutely necessary to take measures to continue operating our city.”

Last year when the river rose to 61.9 feet, the city spent $2.5 million in flood prevention and recovery.

FEMA reimburses only 75 cents for every dollar the city spent.

The $1.8 million in eligible funds the city hopes to collect by the end of the year will help, but paying those costs out of pocket drained city reserves.

“We hit crisis mode when the river starting falling, because we were still recovering from the flood,” Copeland said. “But it was worth every penny to save those businesses on the riverfront.”

Funding sources

The city relies on four main sources of revenue to operate — the hydroelectric plant, sales tax, property tax and utilities.

The Sidney A. Murray Hydroelectric Station, located 40 miles south of Vidalia, generates power dependent upon the height difference of the Mississippi and Atchafalaya rivers and the amount of diversion flow from the Mississippi and Red rivers.

The City of Vidalia purchases 6 percent of the power generated at the station, which is then sold to the Louisiana Energy and Power Authority. The city then purchases the power back from LEPA.

Vidalia receives royalties from the hydro station that change each year depending on the total power produced by the plant that year.

In 2011, the hydro plant’s royalties to the city totaled more than they had in five years at just more than $7 million.

This year will be different.

Since the amount of power produced depends on a variety of factors, plant Station Manager David Harris said there is no set river level at which the station begins generating less than its normal 192 megawatts of electricity, but at current river levels the plant is producing 25 megawatts of electricity or approximately 12 percent of its normal capacity.

Saturday, the Mississippi River at Natchez was 9.3 feet on the gauge.

The lower production accounts for the $4 to $6 million loss for which Vidalia is bracing.

If matters get worse, that estimated funding loss would be on the high end — or could mean no funds at all are paid to the city.

Under the contract between the Louisiana Hydroelectric Partnership and the city, the partnership can defer paying royalties until the river gets high enough for the plant to once again make a profit.

In that situation, the partnership would incur the debt of the royalties not paid to the city and begin acquiring interest until being paid off.

Harris said the low river levels haven’t resulted in the station reaching that point as of yet.

But with river levels projected to continue falling in the coming months, Harris said it might be a discussion soon had with partners of the station.

“We are currently looking at that as a possibility for the latter part of this year, but that has not yet been determined,” Harris said. “That is based on a more long-term impact not a set condition, so we look months in advance and see if we will say it’s a ‘low-water year.’

“That’s something we’re currently evaluating.”

The hydro revenue funds make up 46 percent of the total $31,502,650 in expected revenues for the city in the approved 2012-2013 budget.

“When the river goes down, and we don’t get the same amount of royalties, that has a tremendous affect on our budget,” Copeland said. “We’re adjusting to that and trying the best we can to continue operating the city.”

In every annual Vidalia city audit conducted by Silas Simmons, a certified public accounting and consulting firm in Natchez, during the last five years, the potential for decreased revenues due to low Mississippi River levels is raised as a red flag.

The auditors included suggestions for the worst-case scenario levels.

“In the event that the net revenues of the hydro royalty fund would decrease due to a low water, low production year, utility rates would have to be increased by as much as 27 percent in order to generate revenues necessary to support general fund activities,” the most recent audit report of the city’s 2011 budget stated. “Or services provided to its citizens would have to be severely cut.”

In 1999 and 2000, the Mississippi River dropped to low levels and caused the city to request up to $4 million from the State Bond Commission to purchase power while it awaited more than $2.4 million in back royalties and interest from the partnership.

The money was also intended to help establish a larger reserve fund for times when the Mississippi River is low.

Currently, the city maintains a reserve fund that fluctuates between $2.5 million and $4 million depending on how much the city receives in royalties.

Walker said Tuesday, before leaving his job as city manager, the city began using some of those reserve funds to operate when the river began falling, but also said the remaining funds play a significant role in the city’s future plans for operation.

“If we didn’t have that money in the reserve fund, we’d be panicking, but we’ve planned ahead several months so we’re not panicking,” Walker said. “What we’re trying to do is make sure that we are financially sound in the coming months as the river stays low and slowly recovers.

“The layoffs were part of a long-term plan that were enacted when we were met with an emergency situation to allow us to continue the delivery of our services.”

When the river crested at 61.9 feet during the flood last year, the city saw hydro funds higher than it had in the past five years because the station generated more power.

Funds received from the hydro station have varied in recent years according to the city’s audits:

• 2011 — $7,139,846

• 2010 — $5,850,000

• 2009 — $5,500,000

• 2008 — $3,423,411

• 2007 — $2,525,000

Since the royalties received by the city fluctuate annually depending on the river, Copeland said he and city officials have to do their best to predict the unpredictable.

“It’s just like riding a roller coaster, and it’s always going to be like that,” Copeland said. “If anyone on this earth could predict the river and what it’s going to do throughout the years, they’d be millionaires.

“We just have to continue adjusting and adapting.”

The city’s main priority when adjusting and adapting to the loss of funds from the hydro funds, Copeland said, is ensuring that none of the services offered to its citizens are comprised.

“We have the best community in the state for our size, and our citizens have come to expect a certain level as far as services like garbage pickup and limb pickup is concerned,” Copeland said. “The hydro plant has been a plus for us, and we couldn’t have done some of things in this city without that revenue.”

The allocation of funds received from the hydroelectric fund, Copeland said, is divided between the city’s utility and general funds.

“We use those funds to operate the city — the utility system, paying the salaries,” Copeland said. “What we’ve done over the years with those funds, we’ve kept the utility rates down lower than any of the surrounding areas.

“Some communities would jump up right now and say we’re going to have big increases in taxes and this and that, but we’re not going to do that.”

And until river levels begin rising — or city officials acquire a magic ball to predict the river’s activity — Copeland said he would continue to closely monitor expenses and incoming revenue.

“It’s been 70 years since the river has been this low, so it’s difficult to plan for these situations,” Copeland said. “You can’t spend what you’re not making, so we’re going to continue watching the river and, hopefully, watch as it makes a slow recovery.”