BIDDEFORD —The sewer bill for most Biddeford wastewater customers will likely soon go up. Included in Biddeford’s proposed Fiscal Year 2020 city budget, which City Council gave initial approval to on Wednesday, is a 7.5 percent increase to the sewer rate, which equals about $85.52 more per year for an average family or four, and about $15.24 annually for seniors.

The proposed increase for the portion of homes and businesses on the city’s sewer system, about 4,180 customers, is scheduled to take affect in July 2019. In addition, there could be another increase, of 5 percent, the following year.

According to Finance Director Cheryl Fournier, who discovered the discrepancies in the Waste Water Enterprise Fund, and City Manager James Bennett, there were a series of events that created a financial perfect storm that masked the fact that the city wasn’t taking in enough revenue to cover wastewater costs.

Fournier, the former finance director in Saco, was hired in Biddeford in July 2017. She said shortly after being hired Bennett told her he thought there was a problem and she looked into the wastewater finances for the previous 10 years. She said she found revenue shortfalls dating back at least that long and possibly longer.

In FY 2015, an audit showed a $4.6 million internal loan from the city’s general fund to the Waste Water Treatment Plant, Bennett said during his budget presentation to City Council earlier this year. In 2017, Moody’s Credit Opinion noted the large receivable as a “credit challenge,” he said. Fournier said that Biddeford isn’t alone in dealing with wastewater interfund loans. When she went to work for the city of Saco, she said she was faced with a similar issue.

The major reasons the accounting problems went unnoticed for so long were twofold, Bennett said. One dealt with how the city was calculating sewer usage, the other dealt with using the wrong accounting protocol.

According to Bennett, during the budget process the units of water billed for were lumped together with water unit credits (instead of deducting the credited units), which caused a shortage of revenue each year of about $350,000 to $400,000. The city was over budgeting the amount of revenue it received from sewer bills.

In addition, the wastewater fund was being calculated using government accounting methods, rather than enterprise (also known as private sector type or business) accounting as required by the Government Accounting Standard Board, Bennett said. 

Among the major differences between the two forms of accounting, Fournier said, are that under business accounting the principal portion of debt is moved to the balance sheet, which reduces expenses; depreciation expense is posted to the income statement, which increases expenses; and fixed assets that are purchased are moved to the balance sheet, which reduces expenses.

Fournier said until the last few years that the depreciation amount was less than the amount of assets purchased and debt principal by about the same amount of the revenue shortfall from undercollecting for sewer usage, so it seemed to balance out. 

“The depreciation expense was masking the revenue shortfall,” Bennett said.

“Unless you were looking for it,” he said in an interview last week, “it just sort of gets glossed over.” 

As of the last audit dated June 30, 2018, the wastewater fund owes the general fund about $3.3 million, a reduction from the $4.6 million owed as of June 30, 2015. 

In addition, the City’s internal financials were carrying a wastewater capital fund of about $3.2 million  to pay for projects required by the Maine Department of Environmental Protection and U.S. Environmental Protection Agency, Bennett said.  However, those funds existed only on the City’s internal books; if they were spent, it would actually increase the amount owed to the general fund. Those funds need to be replaced, according to Bennett.

Included in the proposed budget, the city will likely get a bond to cover that amount, Fournier said

Money to pay back the city’s general fund will come from a number of sources; the rate increase should raise about $250,000 a year; the city will lower its annual budgeted capital amount $772,000 for the wastewater fund by $200,000 and use that to help pay back what is owed; payments for a wastewater bond will end in about three years and funds from that will also be used to pay back the general fund. In addition, Bennett said, with more and more new development coming to Biddeford there are more sewer uses and more revenue. If enough money is generated, another substantial raise to the sewer rate could be avoided, he said.

“It took 10 years to get here,” Bennett said, “we shouldn’t try to collect it all at once.” 

Fournier predicts it will likely take anywhere from five to ten years for the wastewater fund to pay back the loan from the general fund.

The City Council is scheduled to hold it’s final vote on the FY 2020 budget on Tuesday, May 14. Unless changes are made, the 7.5 percent sewer increase will be approved as part of the overall budget.

— Associate Editor Dina Mendros can be contacted at 780-9014 or dmendros@journaltribune.com