Audit finds issues with Kittery sewer department finances

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KITTERY, Maine – The town’s sewer system is running at an operating deficit and will require action over the next year.

That was the assessment of town auditor Ron Smith, principal of RHR Smith and Company, following a review of the town’s finances during Wednesday night’s Town Council meeting. Though he said overall the town’s general fund was in good shape.

The news about the sewer department didn’t come as a surprise to Smith or the town.

“It was struggling in 2015, it was struggling in 2016; I think that the construction project with the debt service payment around the project actually kind of emphasized some of its struggling,” said Smith. “To the point where last year I recall there was some talk about looking at operations in the whole sewer (department); the structure, the fees, enough to sustain the whole operation.”

Smith said the financial issues surrounding the sewer department were “obvious” in 2017 because the sewer department went from a “minimal operational” surplus at the end of the previous year and became a deficit of close to $1 million.

“That put a strain on two things. It put a strain on your general fund and your reserve cash to fund that operational deficit and it really put a strain on the operations,” said Smith. “To the point where clearly the fees that are being generated out of that department appear not to be enough to cover the operations of that department, including the debt service; principal and interest and just the current operations and usage of the sewer department.”

Town Manager Kendra Amaral said she had been working with town finance director Patricia Moore since she started working in Kittery earlier this year and the audit confirmed to them the financial issues that will need to be addressed going forward.

“Really what the outcome of the audit was, one the general fund is in great shape. With the sewer fund we need to address in terms of its annual operation and its depreciation funding. The second issue we need to address with the sewer is the debt that was generated as part of the sewer expansion,” said Amaral. “We’re going to present the council with options but I want to make sure those options can address the issue and make sure the sewer gets on strong financial footing for the long term. If there are any cuts to make, we will but otherwise we’re operating how we have to. Then you look at revenue opportunities. We’re going to look at rates, we’re going to look at making sure we’re collecting revenue we should be. Then we’ll take a look at rate structures and seeing what we need to do to fully fund the sewer operation.”

Councilor Gary Beers said he wanted to examine the sewer fees and that the sewer capital improvement plan was separated from the entire program.

“The sewer operation rates have not changed in nine years and we’re long overdue for addressing that factor,” said Beers. “The sewer capital improvement program was an indigenous part of the program created in 2008 but in 2013 and 2014, it was removed from the overall integrated program and separated and consequently it got lost sight of for kind of attention (Smith) is suggesting needs to be done.”