“I am leery of continuing to increase the City’s debt. It is not sustainable,” Tolley said.
In the next breath he added, “We have deferred [utility] maintenance too many years.”
A few minutes later the City Commission approved acceptance of a $712,146 loan/grant. Nearly $260,000 principal debt and $71,000 in cash match will be added to the utility-payers’ burden, whose fees will go up July 1.
The money will be used to design and replace the Morgan Street and Cielo Vista pump stations, which have no “redundancy,” City Manager Morris Madrid said, adding the City has paid over $10,000 to rent a pump over the last two months when Morgan Street’s breaks down.
Madrid addressed Tolley’s comments on residents’ debt burden, claiming there is a difference between debt paid off from “taxes” and debt paid off from utility fees.
“The burden on the taxpayer is valid,” Madrid said. But the new debt will be “funded from enterprise funds,” he said. “Customers pay in proportion to their use. . . it doesn’t create additional burden without additional use. That’s why the water rate increased. . . We do not want to increase the tax burden.”
The water fees, Madrid admitted, are going up a large amount; about 50 percent or more, depending on usage.
Therefore Madrid’s statement is incorrect. The burden rises with rate increases. Besides water rates, the solid waste fee will go up 5 percent and the sewer fee will go up 5 percent on July 1, as they have for the past four years.
Madrid’s distinction between taxes and utility fees also ignores reality.
It is true that most cities depend on property taxes to fund projects and to feed the General Fund, which pays for governmental activities, such as law enforcement and administration salaries. Therefore most cities mostly monitor the debt burden on residents by looking at the property-tax burden.
But Truth or Consequences is not the norm. Property values are very low and the revenue property taxes generate are correspondingly low. According to the City’s 2018-2019 audit, the most recent available, the city collected less than $152,500 in property taxes.
To measure the residents’ debt burden by monitoring the property-tax rate is to ignore how the City really operates. The City operates mainly on utility fees, not taxes. The debt burden is borne by utility payers, not taxpayers.
The City transferred about $1.9 million out of “enterprise” or utility funds to make up for deficit spending in the General Fund and other funds, according to the 2018-2019 audit. The current budget states $2.56 million will be transferred out of the utilities by June 30, 2020, when the fiscal year ends.
The City has consistently transferred millions of dollars out of the utilities each year, creating the “deferred maintenance” problem Tolley mentioned. The utility money was not churned back into the utilities and now they are in crisis.
Again, Truth or Consequences is not the norm. Most cities run their “enterprise funds” as businesses, making sure they are self-sustaining, with each utilities’ fees kept separate to pay for that utility’s debt, maintenance and operations.
Madrid and Mayor Sandra Whitehead claimed that “lending sources,” including the New Mexico Finance Authority, “closely monitor” the City’s debt burden.
But that claim does not hold true for the recent review by Rural Communities Assistance Corporation for the U.S. Department of Agriculture grant/loan for $9.4 million to fix water pipes downtown.
The Sierra County Sun requested RCAC’s debt-evaluation documents. They showed RCAC used Madrid’s budget figures and not audited figures to determining how much rate payers could bear. Madrid’s figures did not include transfers out to cover deficit spending. Madrid’s figures also did not show the City pooled utility money.
Pooling funds obscured if the individual utility were self-sustaining or not, whether it could spare cash for deficit spending or not, whether it needed crisis repairs or not. In other words, the utility was not run as a business.
RCAC looked at the water utility in isolation, a false picture, in determining the 50-percent and more rate increase.
The debt load is going up at a precipitous rate, probably because the City is presenting a similar false front to other lenders.
For more information on the debt, see: “Truth or Consequences per capita debt is almost 60 percent higher than recommended,” and “Truth or Consequences capital projects for 2020-2021 could top $16 million.”
The Sun put in an Inspection-of-Public-Records-Act request for New Mexico Finance Authority documents demonstrating how it evaluated the City’s debt capacity over the last year. The City usually takes the maximum 15 days to fulfill such requests.