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Utility system sale isn't a magic financial cure

Hernando County is looking for a complicated answer to a simple question: How do you ensure the solvency of the county utility system? Establishing market rates for water and sewer service is a logical solution. Customer payments will take care of the overhead, plus pay off the debt to modernize the system.

But three years ago, Hernando commissioners chose to keep rates artificially low as they embarked on a $150 million renovation including consolidating small sewage treatment sites into regional plants. The financial community's response to the commission's short-sightedness came last month when Moody's Investors Services lowered Hernando's bond rating. It likely means future borrowing could carry higher interest rates and greater long-term expense to utility customers.

The lack of political will on the commission isn't entirely to blame. Hoped-for federal stimulus dollars never materialized and the prolonged economic doldrums meant few new customer connections because of little new construction activity.

Now, further rate adjustments are a secondary consideration as the county investigates divesting itself of its water and sewer system. Commissioner David Russell floated the idea last week as a way to tap existing equity to stabilize future rates while also using the windfall to plug other holes in the county general fund. Russell said the utility's balance sheet last fall showed $212 million in assets with a $63 million debt.

A likely suitor could be Florida Governmental Utilities Authority, (FGUA) the 13-year-old agency that has taken over troubled private utilities, but has never acquired a local government's water and sewer system. FGUA does have a 50-year agreement to run the utilities at McDill Air Force Base, but its mission, otherwise, has been to buy private utilities, repair them, and attempt to return them to public ownership.

FGUA provides the benefit of public control since its directors are local government officials. Pasco County's involvement with FGUA helped remove troublesome utilities there from private ownership.

But, in Hernando, the public scenario also raises a legitimate question of whether the commission's fiduciary responsibility would require it to seek private-sector bidders to avoid devaluing the sale price. It's one of many unknowns, including the actual value of the utility, that need appropriate vetting.

The county is about to embark on months of investigative work that, even if it results in a consummated sale, will not benefit the 2013 general fund budget. The proposed county spending plan, still being developed, has a projected $7 million shortfall because of declining real estate values, disputed Medicaid payments with the state and the commission's continued reluctance to raise the property tax rate.

Selling the utility could provide short-term benefits — financially to existing customers and politically to commissioners — but it should not be construed as a magic cure to the county government's financial woes.

Utility system sale isn't a magic financial cure 06/16/12 [Last modified: Saturday, June 16, 2012 10:31am]
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