Faced with budget crunch, Hernando County will study privatizing utilities

A commissioner suggests taking a look at how to market the county's Utilities Department.
Published June 12 2012
Updated June 13 2012

BROOKSVILLE — As Hernando County's budget crunch has worsened over the last five years, commissioners have talked regularly about cutting costs.

One way they've done that is by farming out some services to the private sector. Operation of the Little Rock Cannery, county recycling services and some routine maintenance functions of the fleet department all have been privatized.

On Tuesday, Commissioner Dave Russell dropped a bombshell when he suggested that it was time for the county to analyze the marketability of one of the county's largest services — its water and wastewater utility.

"We have an asset in the Hernando County Utilities Department that is pretty significant when you look at it,'' Russell said. "There are a lot of questions that need some answers.''

His fellow commissioners nodded in agreement.

"Knowledge is good,'' said Commissioner Jeff Stabins.

As Russell explained after the meeting, the Utilities Department at one point last fall had $212 million in assets compared to just $63 million in debt.

"That's 3-to-1,'' Russell said. "As a businessman, that makes my ears perk up.''

He stressed that the analysis was not in reaction to the performance of county utilities workers. In difficult financial times, the county needs to explore different ways of doing business, he said.

"Now is not the time to be timid," he said. "We need answers to questions like this.''

Once they have their answers, Russell said, commissioners might determine that the status quo is better than a private purchase or some other option.

"The private sector isn't always the best bet,'' he said. "I'll point to the jail as the perfect example.''

Since the sheriff took over from a private jail operator several years ago, operating costs have gone down.

Russell said one catalyst for doing the marketability study is the fact that new County Administrator Len Sossamon has done similar studies in other places. Sossamon told commissioners Tuesday that he and the staff would work to produce the information in a timely manner.

Russell said the study should tell the county the pros and cons of various options.

"We wouldn't want to do something that would negatively impact the ratepayers,'' he said.

Russell's suggestion comes on the heels of news late last month that Moody's Investors Service had downgraded the county Utilities Department's bond rating, a measure of a system's fiscal health. Such a downgrade could mean higher interest rates for future loans the county needs to tackle tens of millions of dollars in capital utility projects that are needed.

The Moody's analysis blamed the downgrade on weakened reserves after several large projects were paid for with cash, as well as a decline in anticipated revenue because new connections have dropped with the stalled economy. Also, investments have not been earning at the rate anticipated.

Once the county's graduated water and sewer rate increases top out in two years, the county might be looking at another substantial rate increase, Russell said. That's where some other ownership option could provide some help.

Russell, quoting from information he found about public entities selling their utilities to the Florida Governmental Utility Authority, noted that the net funds a county receives after paying off debt could be used for any other essential government service or improvements.

The utility's assets, Russell said, are owned by the taxpayers, not just the ratepayers. That's why money can be used for purposes other than utilities.

While the size of the Utilities Department staff has shrunk in recent years, it is the shortfall in the county's general fund that has gotten the most attention.

The projected shortfall for the 2012-13 budget year is $7.1 million, and commissioners have said the situation is so serious that entire departments of local government might have to be eliminated.

Barbara Behrendt can be reached at behrendt@tampabay.com or (352) 848-1434.