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Editor's Voice: Reason must prevail in managing town's finances

Posted 6/11/13

The decision to sell, or not to sell, Middletown’s water system is complex. The advantages and disadvantages were outlined in our story on the issue, by reporter Daniel Walmer, in our June 5 edition. If you were looking to be told that the …

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Editor's Voice: Reason must prevail in managing town's finances

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While Borough Council has made no decision, its financial consultant, Mark Morgan, has recommended that Middletown sell its system for cash to stabilize borough finances if it can’t negotiate concessions from its employees. In the past, the borough has been able to transfer water and sewer revenues to its general fund – to help pay for other municipal services, whether its the salaries of police officers and codes inspectors to copy paper for borough office staff – but a change in state law forbids that practice, Morgan explained. And there is always the possibility of state or federal environmental mandates in the future that could force the owners of municipal water systems to borrow money for expensive improvements. “Why do you want to bear that burden itself as 9,800 residents?’’ asked Morgan, when it could be borne by, say, thousands more residents if the water system was owned by a larger, private, for-profit water company. “It is much more valuable to have cash in [your] hands.’’

While cash may solve the financial puzzle created by council’s desire to slash the transfer of profits from the sale of electricity to the general fund, and the rates the borough charges customers, it would seem to provide temporary relief, not a long-term solution. And Middletown would lose the control that owning its own water system could have on water rates to the state Public Utility Commission.

Morgan and a majority of council believe that a dependence on electric revenues has created a “structural deficit’’ in Middletown’s budget that must be resolved by other means. Higher real estate taxes? That has been one possibility raised, though we think we’re applying Morgan’s logic to our opposition to that option: Why burden a smaller number of property owners with the expense of municipal services when you can spread it out among a larger number of people – electric customers?

Of course, we all would love to have lower electric rates. No one wants to pay exorbitant rates. Council has found some ways to cut costs – hiring administrators at a lower salary than their predecessors, for example. Cutting expenses, then reducing electric rates accordingly seems to us to be the most reasonable way to deal with Middletown’s finances. But council has seemed to favor philosophy over a common-sense way to deal with the borough’s finances – and that worries us.

In 2012, Middletown lost $2 million in electric profits, partly because demand for electricity decreased – and partly because council slashed electric rates, and revenues, before reducing expenses to compensate, according to a 2012 audit presented by Morgan at a June 3 council meeting.

Even with a council eager to cut electric rates, and lay off employees and defund the Middletown Public Library to slash borough expenses, Middletown still is transferring some electric revenues to its budget today, despite the fact that it bucks council’s condemnation of ''structural deficits.'' It's proof that Middletown's financial well-being lies somewhere between the extremes of eliminating electric profits completely and charging outrageous rates to pay for borough government.

We hope council weighs the issue of selling the water system very, very carefully if and when the question comes before it for a vote. Managing the borough’s finances is a complex undertaking and an enormous responsibility that must be tackled reasonably.              

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