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Fate of $1.3 million discussed

Lease signing bonus main topic during Utilities Commission meeting

November 21, 2012
Morning Journal News

SALEM - City Utilities Commission Chairman Geoff Goll said the $1.3 million lease signing bonus the city recently received for property bought with water revenue could dissipate any need for a water rate increase in the near future.

"With $1.3 million, the need to increase water rates would diminish significantly," he said Tuesday during the Utilities Commission meeting.

Goll was speaking about the large check the city received from Chesapeake Exploration for an oil and gas lease deal reached earlier this year and making his case for the water department to get the money.

The three-year lease agreement was signed for $3,500 an acre for non-surface rights, a 20 percent royalty on gross proceeds and a three-year renewal option worth another $3,500 per acre. The check represented 390 acres of city-owned property, all out of the city limits.

During a Finance Committee meeting last week, receipt of the check was announced, along with plans to place the money in the city's debt service fund to pay on debts and in the capital improvements fund, for items such as streets.

Auditor Betty Brothers explained the check was placed in the general fund and she was awaiting direction from city Law Director Brooke Zellers on what they are permitted to do with the money. None of the plans included using the money for operations since it is a one-time windfall.

Goll expressed his feelings about the situation, pointing out that all of the land leased is land located outside of the city, purchased with water department fund revenue, not with taxpayer funds or other city funds.

He referred to a recent opinion by Zellers regarding use of the oil and gas lease proceeds which said the auditor should place the funds in the city's general fund and the funds should be disbursed as city council determines. He said the Utilities Commission hopes to be part of the discussion as to how the money is divided.

"Our argument will be that these funds should be returned to the source, the water fund," Goll said.

He acknowledged that the decision will be a difficult one for city council due to long-term capital expenditure needs. He also said that but for the purchase of those properties with water department funds, the land would not have been available for lease. The land was purchased with revenue which came from water customers, a population larger than just Salem city residents.

He said the commission has kept the water revenue fund steady with around $4 million in reserve for emergencies, although in recent years the amount has been reduced to $3.4 million due to some projects, such as putting up an additional water tower on the east side to increase water pressure and provide service to other communities.

With some of the lowest water rates in the state, he said it would be in the best interest of the citizens to keep those rates as low as possible.

Berlin said later he would like to see the decision process go forward and let council decide how the money should be used, noting the city has plenty of need for capital improvements.

He said he spoke with Goll previously and suggested an equalization of rates for water and sewer, such as lowering the sewer rate and increasing the water rate. Berlin referred to the revenue balances in each department, with the water department showing $3.4 million and the wastewater department showing $13.8 million, both as of October.

The utilities department is looking at some major expenses on the wastewater side in the near future for upgrades to the wastewater treatment plant and an unknown expense for a pending consent decree expected from the Ohio Environmental Protection Agency for alleged violations related to phosphorous levels. Both could affect the balance in the wastewater revenue fund.



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