Union’s proposed 2009-2010 budget is nearly $8 million less than its current budget. The bulk of the decrease is largely due to a decline in the price of natural gas. The decline is a mixed blessing. On the one hand, it allows the city to reduce spending while also helping hold down its customers’ gas bills.
The decline, however, is due to reduced demand for natural gas caused by the ongoing economic downturn. This has been bad for the city because the sale of natural gas is a major source of revenue for its utility department. The downturn in the economy has forced many of the city’s industrial customers to either cease or cut back operations. This has reduced local demand for natural gas which has in turn reduce the revenue earned by the utility department.
The utility department accounts for nearly 80 percent of the city’s budget. It generates the bulk of the city’s revenue and pays the city an annual franchise fee that helps fund such general government operations as the public safety department, building and zoning and street and sanitation departments. It’s so large you’d be justified in thinking of Union as a utility department with a city rather than a city with a utility department. When it sneezes, the general government ends up in the hospital in intensive care.
Union’s general government can’t stand on its own without the money generated by the utility department. If it didn’t have a utility department the city would have to get one, otherwise it would have to raise the property taxes just to break even, which is what it should do.
While there’s nothing wrong with the utility department paying the general government a franchise fee, that fee, along with prior year funds, have become a crutch on which the general government leans. Over the years Union City Council has avoided taking the politically unpopular step of raising taxes to pay for general government services because of the utility fund. That might not have been so bad had the councils also raised utility rates over the years to keep up with rising costs. They were almost as reluctant to raise utility rates as they were to raise taxes, delaying action until they had no other choice.
Nobody wants to see their utility bill go up any more than they do their taxes and so we naturally applaud politicians who we think are doing us a service by refusing to give us the bill for the true cost of the services we receive. The problem with this is that economic reality is far more powerful than any group of politicians and attempting to deny that reality only sets the stage for greater heartbreak down the road.
A healthy utility system needs constant maintenance and, if possible, expansion. All this takes money and that means raising rates to keep up with rising costs and increased demand for services. If the rates for water, sewer, electricity and natural gas need to be raised this year it makes no sense to wait until next year or the year after to do so.
Union City Council has no control over the larger economy, it cannot pass an ordinance banning future increases in the price of natural gas, water or electricity. This lack of control, however, makes it all the more necessary for council to adapt to work with the market instead of against it. The councils of the past 20 years should have raised rates in accordance with economic reality. This would have allowed the utility department to more easily meet its responsibilities for maintaining and expanding its systems while building up its financial reserves and supporting the general government.
The current council should commit itself to a new policy of raising utility rates — all of them if need be — on an annual basis to reflect economic reality. Doing so will allow the city to regain a measure of control over its own future and remain a major engine of economic development in Union County.
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