What do you do when you’re battling revenue shortfalls and the rate hikes you just implemented appear to be not enough? Those are the questions plaguing the Hilton Creek Sewer District, which tackled not only the issue of how to recoup mounting delinquencies, but also how to “right the ship” when it comes to operating expenses and shoring up its capital improvement fund budget.

After years of stagnation within the local construction industry, resulting in connection fees that never materialized, the District’s Board found itself covering its operating budget, which has been running at a deficit for several years, by substituting property tax revenues. With the state of California’s budget growing increasingly unpredictable, “borrowing” from special districts to help paper over its own budget shortfalls has looked more and more like a reality, forcing HCSD last August to pass a substantial rate hike: a phased, 15 percent annual increase across three years (45 percent total), that will result in an approximate $5 per month annual increase ($15 per month total by the end of three years) for a single-family residence.

At the time, Board Chair Steve Shipley said that the hike was necessary to provide “maintenance, supplies and equipment, as well as financial reserves necessary to maintain service within the District’s existing boundaries.”

It was, to be sure, a step in the right direction, one that ideally was to have brought the District to eventual solvency. But was it enough?

A recent hit to the Capital Improvements Project (CIP) fund cleaned out $75,000 for a needed pump replacement, which District Manager Bob Lavagnino called “a major blow,” though he did say the 10-year old pump had performed according to predicted life expectancy.

And with the housing market still trying to dig out of a deep recession, delinquent accounts — some as long as 40 months (or 20 bi-monthly HCSD billing periods) — have been on the upswing, piling up an additional $20,000 shortfall in revenue.

HCSD has a procedure for addressing late accounts, with a fairly standard letter in the short term leading up to a possible lien on the property after 90 days, but has done some checking around to find out how other local districts are faring and how they handle late- or non-payments. June Lake’s Public Utility District, reported HCSD Secretary Marianne O’Connor, is similar in some respects, with static rates for sewer service and a per usage rate for water. “June Lake also has lots of foreclosures, as in Crowley,” she told the Board. “After three months, it’s probably a walk-away that’s been given back to the bank.” She said only a handful are genuine delinquencies. It’s a sign of the times, she indicated. “We never used to have a delinquency report; there just weren’t that many … maybe one.”

O’Connor suggested not making any change in the billing software, which she said isn’t the problem, but asked for a review of the District’s formal collection policy.

“I understand if they’re going through the foreclosure process,” Shipley commented, “but not if they’re still living there and not paying. That’s $20,000 the District can use that could be vital to our survival.”

The problem, as Shipley sees it, is implementing a “collection” methodology and then enforcing it. A threat to plug up a sewer connection is just that … a threat, with no real “teeth” behind it. Plugging up a sewer line, apart from the prohibitive cost, is likely illegal, resulting in Health and Safety violations, according to Lavagnino.

Penalty fees were discussed, which might be a $10 late fee and then a 1.5% charge on the balance due up to 18% annually.

Newly seated Board member Tim Willoughby, who replaced the recently resigned Debbie Preschutti, warned that fees may not go very far. “People will put you off as long as possible, since [another bigger fish] probably already wants the money,” he pointed out.

Collection agency involvement didn’t sit too well with Shipley, who advocated avoiding going that route for now, and advised that the District would only get back a percentage (perhaps half) of what’s owed. Accepting credit card payments could, he thought, help clear up some of the delinquencies, but would cost the District 3-4% and miscellaneous service fees.

Regular customers will, however, soon be able to sign up for an auto-debit arrangement, which will automatically transfer between banks a consistent amount through Aug. 31, and then go to the next scheduled increase amount as of Sept. 1.

At its next meeting in March, the Board will take up forcing payments legally as part of the foreclosure process, examine collection agency options and review a draft of a letter outlining potential collection policy changes.

When enough is not enough

All that led straight to the larger, harder issue of how to address HCSD Auditor Bob Johnson’s concerns that the recent 15% rate hike just isn’t going to be enough. “We have to right the ship, and see if we can survive without running [the District] aground,” Shipley observed. “And we need to have the heartbeat of the community.” Shipley posited that raising the fees to $100 per month would certainly take care of the problem, but is hardly realistic.

Not ruled out, however, is a one-time Special Assessment (SA), which would be tied directly to addressing operation expenses and replenishing property tax money owed to the CIP fund.

Don’t look for an SA on any agendas in the near future, however; the timing and amount of any type of SA still needs to be reviewed for those points, as well as legality and structure, before it goes on the table for a vote, Shipley acknowledged.

The $26,000 raised by the first 15% increase was “more than the year before,” according to Shipley, but based on the HCSD’s billing cycle, the next increase may be moved up a few months earlier. According to O’Connor, the months of September (when the next increase is set to take effect) and October won’t be billed until November, and the District wouldn’t see any of that revenue until at least December.

Taking the offensive, Shipley pointed out that the District has a mandate to provide a necessary service, and those services have to be provided as efficiently as possible, including maintaining the equipment needed to do so. But ultimately, the costs are what they are. “It’s like Edison trying to keep power costs down when oil’s at $120 a barrel,” he analogized.

In any case, there is a “need for something to be done, and sooner rather than later,” O’Connor and Shipley concluded.