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Erik Burgess, Published November 23 2013

Moorhead Public Service commissioners balk at higher revenue transfer

MOORHEAD – Facing a $342,000 shortfall, the City Council here could balance next year’s budget on the backs of utility customers by asking the public utility company for an extra quarter million dollars – or more – in revenue transfer.

The city’s budget proposes a $250,000 increase to the annual transfer from Moorhead Public Service revenue to the city’s general fund, and council members last week floated asking for even more than $250,000 to help cure the city’s budget woes.

nnual transfer to more than $8 million, and MPS commissioners say the only way the utility can provide that money is by increasing next year’s electric rates another 0.9 percent, on top of the 3.5 percent increase already proposed.

But several MPS commissioners are balking, saying it’s time for the city and utility to work out a long-range solution to the decades-old issue.

MPS President Ken Norman said the transfer is growing unsustainably, and that the large annual increases have forced MPS to raise rates and put off critical infrastructure projects.

“We do have to find a way to find other sources of revenue for the city other than the utility,” Norman said.

MPS Commissioner Ralf Mehnert-Meland, who serves on the utility’s budget committee, put it more bluntly.

“We cannot be an automatic cash machine anymore,” he said.

Rates going up

The transfer from MPS to the city is made up of three parts. Each year, MPS sends $50,000 to a city economic development fund. It also sends 5 percent of its gross revenue to a city capital improvement fund. That number is about $1.7 million right now.

But the biggest chunk of the yearly transfer is the money MPS sends to the city’s general fund. That number was about $6 million this year, and the yearly increases to that general fund transfer have grown markedly in the past three decades.

In the 1980s, the average annual increase to the general fund transfer was $60,000, according to MPS data. In the 1990s, it was $76,000. From 2000-09, the general fund transfer grew an average of $227,000 a year, and in the past five years, the transfer has gone up an average of $342,000 per year.

As more money is being sent to the city, utility rates are climbing, too, said MPS General Manager Bill Schwandt.

“We’re saying we can’t maintain that and competitive rates at the same time,” Schwandt said.

MPS is starting to suffer some of the consequences of losing its competitive edge, seen most recently when Anheuser-Busch, Moorhead’s largest industrial water user, said earlier this month that it could close its Moorhead plant if utility rates keep climbing.

Mehnert-Meland said he would rather see the city turn to property taxes for revenue because utility rates can’t be deducted at the end of the year. Norman said setting up special assessment districts could be another option.

‘Heated debate’

MPS Commissioner Dave Anderson said there’s a “real misunderstanding” that MPS has the revenue to simply write an increasingly larger check to the city each year.

“It really isn’t a piggy bank,” he said. “There isn’t money in this jar. We have to go out and find money to put in the jar.”

One way MPS can fill that “jar” is with rate increases, but that’s money commissioners said they would rather spend on replacing the aging cast-iron pipes and feeding a reserve fund that would be needed if an ice storm or tornado demolishes MPS infrastructure.

Two years ago, MPS raised rates solely to satisfy a $662,000 increase to the revenue transfer. In the process, it had to put off capital improvement projects, Norman said.

“We’re opposed to taking our reserves to meet the obligations of the city,” he said.

About 2.5 percent of next year’s proposed 3.5 percent electric rate hike would cover rising electricity costs. MPS doesn’t generate its own electricity, but buys it from outside sources that are raising their rates. The remaining 1 percent bump would go toward infrastructure.

The utility is also proposing a 3 percent bump to water rates, which would go toward $7.3 million in water main replacements and $6.9 million for a high-service pumping station.

“We have 55 miles of water mains that are literally falling apart,” Mehnert-Meland said.

Norman said he doesn’t think commissioners would support increasing the proposed rate hike any more solely to fund a city transfer. He also believes that legally, MPS doesn’t have to. The city charter gives MPS the “exclusive jurisdiction” over setting its rates, Norman said.

“If you look at the statutes in Minnesota, when we are setting our rates, our rates are supposed to reflect cost of the provision of those services to the community,” Norman said, not the cost of an increasing city transfer.

There’s another rub. By charter, Moorhead can ask for up to 20 percent of the utility’s gross revenue for the general fund transfer, but Schwandt said the utility has to actually be able to pay for that transfer at the end of the year after MPS pays its own bills.

“If there’s money left over, then we can give you this additional transfer, but we don’t have to budget for it,” Schwandt said.

Norman said it means that even if the city asks for more, the utility might not be able to pay for it.

MPS has historically budgeted for the transfer increase, but commissioners this year haven’t budgeted for the rates required to hit the city’s proposed $250,000 transfer increase for 2014.

“I think there would be a heated debate on the commission to say that we’re going to go above 3.5 (percent),” Mehnert-Meland said Tuesday.

In a Friday email, Mehnert-Meland said he and Anderson have met four times with the two City Council liaisons to MPS – council members Mike Hulett and Heidi Durand – and Mehnert-Meland said they appear to be making positive progress, but that the “proof will be in the pudding.”

The City Council is set to pass a final budget Dec. 9. MPS will look to finalize rates Dec. 17.

Readers can reach Forum reporter Erik Burgess at (701) 241-5518