The City of Amsterdam’s water system supplies not just city residents and businesses, but also customers in the neighboring Town of Amsterdam and Town of Florida, which do not have their own municipal water systems. The benefit to the towns from this deal is plain to see just by looking at the commercial and residential development that has blossomed over the years along Route 30 and Route 5s. Some might argue that these developments have been detriment to the city, reducing our tax base by competing for residents and businesses. However, the city’s benefit from the water deal is that we are able to make a profit from our water system and use that profit to lower our taxes.
In past years, estimated revenue from the Town of Amsterdam and Town of Florida, which is sold at a rate 50% higher than city users, has totaled approximately $1.2 million per year. In the last three budgets proposed by Mayor Michael Villa, roughly the same amount has been has been budgeted each year to transfer to the general fund.
Council members have agreed unofficially to increase the 2018-2019 transfer to $1,600,000 in order to reduce the originally proposed tax rate increase of over 7% down to under 1%, which seems reasonable to me given the most recent report on water fund balance shows a positive $2.1 million.
Without the transfer from the general fund in the current proposed budget, taxes would have had to increase by over 30% to make up the difference. If we cut the rate in the next year’s budget, we won’t have fund balance to make the same transfer down the road, and I believe officials will be hard-pressed to make up the difference other than by raising taxes.
Now the whole reason we have had those large amounts to transfer is because in every budget for the past ten years, water rates have been set at a level to generate a surplus. Except in Villa’s 2018-2019 proposed budget, in which water rates were set to exactly match operating expenses, with no surplus, resulting in a 17% drop in rates and a reduction in revenue of approximately $1 million. The Common Council has unofficially agreed to roll back the cuts to 2017-2018 rates, but the budget process is not over yet.
I spoke with both Villa and Controller Matt Agresta about the issue during the week of the budget committee meetings in April. Both expressed concern that using water fund profits to balance the general fund was a “double tax” on city residents. At the beginning of the budget sessions in April, Agresta was also adamant that water fund revenues could only be used for water system related expenses, similar to restrictions on the sewer and sanitation funds, and that rates could not be raised to generate a surplus for the sole purpose of transferring to the general fund. Villa said he wanted to get better clarification from New York State as to how water fund revenues could be used.
Checking with a few sources on my end, I found that NY State general municipal law 94 makes it explicitly clear that municipalities have the right to make a profit on their water system.
Earnings of municipal corporations from certain municipally operated public utility services. Any municipal corporation operating a gas, electric or water public utility service may earn from and out of such operation an amount equivalent to taxes which the said service, if privately owned, would pay to such municipal corporation; and, in addition, such municipal corporation may earn from and out of such operation a fair return on the value of the property used and useful in such public utility service, over and above costs of operation and necessary and proper reserves. Profits resulting from the operation of such a public utility service may be used for the payment of expenses or obligations incurred by such municipal corporation for municipal purposes or for the payment of refunds to consumers. The provisions of this section shall not apply to any gas, electric or water public utility service operated by the city of New York or any agency thereof.
In a nutshell, it says the city can certainly earn a profit and use it for any other expenses, up to an amount at least as much as the water system would generate in property taxes if it were owned by a private entity, and then some.
The next week, Agresta confirmed with state officials that the water fund is indeed an enterprise fund, and the city is allowed to generate a surplus and use it to balance the general fund.
So with that ideological hurdle out of the way, there should be no reason not to budget for a surplus, so that we can continue to benefit, as do the Town of Florida and Town of Amsterdam, from our water deal. It’s stable, reliable income that no one should have a problem budgeting on.
With regards to the water fund, I think its worth noting that city officials need to look two years down the road with each year’s budget. The city’s independent auditors have advised that the city needs to make transfers from the fund balance amount that already exists. Given any proposed budget is being prepared before the current year is completed, we have to look back at the prior year to get a fully accurate number. One big reason that the general fund balance deficit is so large and the water fund balance is so high is because the auditors haven’t counted budgeted transfers in the past three years as they were based on the projected surplus, not as an appropriation of an existing fund balance amount. Agresta has changed documentation in the budget accordingly so we shouldn’t have that problem in the future.
It still baffles me as to where the idea comes from that somehow using water fund revenues to balance the budget is something to be ashamed of. The town officials don’t seem ashamed at their economic growth. The deal should benefit everyone. And the notion that it constitutes a “double tax” on city residents is certainly flawed given that the transfers are approximately the same amount as the revenue gained from outside the city. The way I see it, city user fees cover the expense of running the system, outside user fees are what we use to use to reduce our taxes. There’s no “double tax.”
I certainly hope that the common council upholds their decision to keep rates at their current levels. I believe it’s the mayor, controller, and common council’s fiduciary duty to make sure our water system generates as much benefit to our city as possible. A stable water rate, with minor increases over time to keep up with expenses, is certainly in the best interests of the city and our neighbors.