Traversing the maze of inter-departmental municipal finances

From left, Finance Director B. J. Wilson, Energy Services Director David Jenkins and Town Manager Joe Waltz ready for public questions Monday evening. Photos/Roger Bianchini

During Monday’s citizen-town staff question-and-answer on Town electric utility rates, it was explained that increases already reflected in the Power Cost Adjustment (PCA) line item on utility bills is a reflection of the rising cost of doing business to provide the Town’s electric utility service.

A question on how the Town does business with its enterprise fund utilities and services departmental budgets came from a former councilman present at the Q&A. Current Shenandoah District County Supervisor Tom Sayre asked how much Electric Enterprise Fund money had been transferred to support Town General Fund (administrative) projects. After some quick research Town Finance Director B. J. Wilson replied $1,950,000.

Responding to a later Royal Examiner question, Wilson said, “The transfer is a contributing factor to the overall (electric) rate as are all expenses in the electric department, but is not a factor for the proposed increase.” Rather, he explained that the transfer is part of the annual town budget process and was already incorporated into the existing rate prior to the jump seen in recent months. See related story:

Town staff fields questions on electric rate and bill increases prior to vote

Short a social media mob – town officials prepare to open a citizen Q&A session to explain electric utility rate increases, both existing and proposed.

Wilson elaborated that the $1.95-million transfer is a typical annual enterprise fund budget item that covers administrative support of the electric, water, sewer and refuse departments. That support includes administrative functions such as Human Resources, IT, billing and collections.

Wilson told Royal Examiner that while the annual administrative support transfer of $1,950,000 is not reflective of an internal loan process, one such internal loan is outstanding on the Electric Fund books. That $1,500,000 loan dates to September 2011, when the sitting council authorized an interest-free internal transfer to pay for the purchase of and renovations to the current Town Hall building at 102 East Main Street. As some of you sports fans may recall, the new Town Hall was most recently used as a bank when the Town purchased it in 2011.

That purchase facilitated a move out of the old Town Hall on North Royal Avenue that was in need of its own renovations and was deemed to small to continue to function as the Town’s administrative seat of government. The old Town Hall building was eventually traded by the EDA, marketing it for the Town, for the Afton Inn. But THAT is a trip down Memory Lane for another day.

Town Hall, at right of the then-boarded up Afton Inn, was transformed from a bank to a municipal administrative headquarters with the help of a $1.5-million, interest-free internal loan from the Town Energy Services Department – money put to good use. Royal Examiner File Photo

According to Town Finance Director Wilson, the $1,500,000 Electric Fund loan for the new Town Hall is being repaid over the course of 10 years by way of annual payments of $150,000. By law municipalities must pay back such internal loans, though whether to include any interest in that payback is at the discretion of the municipality’s elected officials. The interest-free internal payback to the Town’s Electric Enterprise Fund began in Fiscal Year 2013 when the renovations at 102 East Main Street were completed. The full payback is scheduled for completion in 2022.

And that is the long answer to Supervisor Sayre’s query on the status of the Town Administration’s financial relationship to its Energy Services Department, which as staff noted Monday evening includes emergency operational reserves that have dipped below the recommended three-month reserve. Numbers in the Town Budget indicate a recommended reserve amount of $5,012,883 for the Energy Services department, compared to the $3,851,179 on the department’s books at the end of the last fiscal year.

The bottom line appears to be that neither the existing $450,000 balance on a seven-year-old internal loan or an annual administrative operational funding transfer of $1,950,000 to the current general fund budget, have anything to do with rising electrical costs seen on Town utility bills in recent months.

It’s just the rising cost of doing business, as town staff explained in detail Monday evening.