Despite a $1.8 million decline in revenue in 2009, the City of Union Utility Department remains in good fiscal shape, according to finance director Walker Gallman.

Union City Council was presented with the annual audit of the city finances Tuesday evening. The audit was prepared by Terry Fant, CPA, who told council as of June 30, 2009, the utility department had experienced a $1,852,836 decrease in revenue. Fant said the decrease in net income occurred in all four of the utility department’s divisions including electric ($393,452), water ($177,482), sewer ($806,615) and natural gas ($475,287).

A major factor in the decrease was loss of industrial business through the closing of textile plants and other industrial customers reducing their consumption. Gallman said the decrease in industrial business is part of the larger downturn in the economy. Another factor is the city’s sale of its peak shaving power plant in 2009 to Lockhart Power. This reduced the city’s ability to generate its own electricity and offset purchase power costs. The city will not receive the $1.5 million from the sale of the plant until December and Gallman said this should have a positive impact on the utility fund.

Fant said the decline in revenue placed the city in violation of its bond covenant. Under the terms of the covenant, Fant said the city must either raise rates or cut expenses in order to bring its revenue back up to the level required by the covenant. Gallman said the city must have a net revenue of at least 1.2 percent of its bonded indebtedness to meet the requirements of the covenant but in 2009 this fell to below 1 percent.

In the months since June 30, Gallman said the city has taken steps to address this situation. During the 2009-10 budget process, council voted to raise natural gas and sewer rates and authorized the continuance of the purchase power adjustment on electricity. Gallman said these steps are already beginning to increase the city’s utility revenue stream and he expects the increase to continue into the future.

Also, Gallman said the divisions of the utility department are being scrutinized by consultants with an eye toward great cost-effectiveness in all divisions, especially electricity and natural gas. He said the matter will be dealt with further during the city’s budget process which begins March 23.

“The city’s utilities, even though our net income statement showed a loss, are still fiscally solvent,” Gallman said. “Retained earnings are still strong and city council has acted and adjusted rates for 2010 to assure our bond covenants are covered and our system is maintained.”