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Cities asked to give up sales revenue for now

 

Posted 3/22/16 (Tue)

By Kevin Killough
Tioga city revenues will be down by $1 million this year, but an agreement to surrender those funds may leave open the possibility the city may get those revenues back in the future.
At a special meeting Tuesday last week, Tioga Commissioners signed an agreement with the Western Area Water Supply Authority to surrender the payments it receives in lieu of industrial water sales.
The authority is asking all entities that receive these funds to sign the agreement. 
Adjustments
As the oil industry activity slows to a trickle, WAWSA is generating less and less revenue from industrial water sales. 
The authority began making adjustments to its budget in order to ensure it can meet its debt obligations.
To pay for the WAWSA project construction, which expanded water services to western North Dakota, participating entities were asked to give up their industrial water sales revenues. 
The agreement to do so came with the stipulation these entities would receive payments equal to what they were receiving in revenues in 2010, and the remainder of the sales revenue would then go to support the construction and maintenance of the project.
In the 2013 legislative session, the state altered this arrangement to make the baseline payments a priority over certain loan payments. 
The agreements these entities are being asked to sign now reverts to the original arrangement in which the baseline payments are only made when industrial sales reach a certain level, and the principal and interest on some of the loans comes first. 
Of the $309 million spent so far on the project, $190 million came from state-guaranteed loans backed up by industrial water sales.
Jaret Wirtz, executive director of WAWSA, explained to the commission the authority is trying to be proactive by cutting the 2010 baseline payments. 
If it didn’t take steps now to address the need to meet debt obligations, the legislature would probably step in and take the payments away for good.
“If we don’t come up with a plan, they’re plan will be to eliminate” the payments completely, Wirtz said.
Wirtz said the authority has “every intention” of resuming the payments should industrial sales rise again. He also said it’s possible these payments would resume on a month-to-month basis or partial payments could be made.
“We’ll try to get that back to the members, so long as it’s available,” Wirtz said.
All for one
For the past several months, the authority has been making the payments from its own funds since sales have not been high enough to cover those costs. 
The baseline payments come to a total of about $4.8 million per year and are divided up between Williston, Crosby, R&T, Ray, Stanley, Watford City, and Tioga. 
Tioga’s share is $998,038 annually. Ray receives $77,952, and Crosby receives $258,451. 
Both Stanley and Crosby signed the agreement prior to Tioga’s decision to sign, while the Ray Commission is still in the process of consulting with its legal counsel before making a decision. 
Wirtz said none of the participating entities want to lose those revenues, but there aren’t a whole lot of other options to deal with the situation. 
“Nobody is jumping up and down, but I think everyone understands,” Wirtz said.
Commissioner Heather Weflen asked if all communities have to sign the agreement in order for it to work. 
“If one doesn’t sign, I can’t imagine anyone else signing,” said Mark Owan, chairman of the WAWSA board. 
Owan said the $4.8 million in baseline payments were the “lowest hanging fruit” for cuts to be made in order for the authority to meet its debt obligations. 
He stressed if the members were to reject the agreement, the state would zero right in on that money in the next session, and the option to return that money would unlikely be factored in to the legislature’s decision. 
“If we are going to attempt to save the baseline payments, we have to be proactive and show the state that we are in it for the long term as well,” Owan said. 
Overbuilt? 
Tioga resident Wayne Knutson asked Wirtz if any part of the authority’s financial problems stem from overbuilding the system.
“We’ve built for the population that’s here right now,” Wirtz answered. 
He explained project plans pushed the building to $500 million in the future, but up to $170 million of that has been put on hold as the projections of population growth have been greatly reduced. 
Wirtz said the system was built based on analyses by the state on what was expected to happen at the time, but no one had a “crystal ball” to know exactly what was going to happen. So, they are currently adjusting the plan based on recent developments.
“When we first started the project, we expected to serve around 50,000 people,” Wirtz said. 
Within two years, the population had already grown to that number. 
“Things grew fast and now they’ve kind of stabilized out,” he said. 
The plant in Williston that treats the drinking water for the WAWSA system is built to serve 80,000 people. Wirtz said it’s currently serving some 60,000 to 70,000 people across 11 cities and multiple rural areas. 
The plant’s current capacity doesn’t leave a lot of room for growth, and upgrades will likely be needed in the future, Wirtz said. But right now any such expansions are waiting until projections of growth will justify the costs. 
The authority is also holding back on plans to create multiple redundant transmission lines. 
Wirtz said the restriction on baseline sales payments to the seven members are not the only measures the authority is taking to adjust to the falling revenues. They also have reduced internal costs by trying to perform work within the authority rather than hiring consultants. They have also frozen new hiring. 
They currently have a staff of about 14 people.
“That’s something to say when you’re doing a $300 million project with 14 people,” Wirtz said.