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Auditor gives twp. finances high marks, expresses concern over water debt, retirement funding

June 19, 2013 - A positive audit report regarding the municipality's finances for the 2012 fiscal year was presented last week to the Oxford Township Board.

"The township is healthy. The general fund is healthy," said Auditor Rana Emmons, from the Plymouth-based firm of PSLZ LLP Certified Public Accountants.

Once again, the township's finances scored the highest possible rating an audited entity can receive, the unqualified opinion.

An unqualified opinion is issued by an auditor when the financial statements presented give a true and fair view of a company or municipality's condition, position and operations.

As of Dec. 31, 2012, the township has a total fund balance of $2.63 million. Of that, $269,872 has already been designated for certain bills and a potential road/drainage fix in the Elk View Estates subdivision. The fund balance's other $2.36 million can be spent or saved at the township board's discretion.

Emmons noted the township retained its 'AA' credit (or bond) rating from Standard & Poor's. This rating means the township has a "very strong capacity to meet financial commitments."

"Nothing to be concerned about there, which is great," she said.

Despite all the good news, Emmons did mention two areas of concern as the township looks ahead to its future.

One is the water bond debt.

Right now, the township owes approximately $13 million for previous improvements to the municipal water system. Those upgrades included the construction of two treatment plants and a 1-million gallon elevated water storage tank on N. Oxford Rd.

The township is scheduled to make its last bond payment in October 2030, however, it's likely the bonds will be refinanced in two years.

"When those bonds were sold, (the township) was relying on connection fees to make the bond payments," Emmons said.

The township charges a one-time fee of $6,075 per Residential Equivalent Unit (REU) for new connections to its water system. A single family home must pay $6,075 to hook up to the water system whereas a business that uses the equivalent of five single family homes (or 5 REUs) would pay $30,375.

Due to the economic downtown, new construction in the township slowed considerably over the last few years. As a result, Emmons said "the numbers haven't come in . . . like they were originally projected when those bonds were sold."

"(You) look fine for the next couple years, but after perhaps 2015, then we start getting a question mark," Emmons said. "We're not saying you're not going to make the bond payments or anything like that."

Treasurer Joe Ferrari indicated he spoke with Paul Stauder, of the Ann Arbor-based Stauder, Barch & Associates, the firm tasked with analyzing the township's water and sewer usage rates, connection fees and debt service charge for the water bond.

Based on what Stauder told him, Ferrari said the township "should be okay for the foreseeable future" because the debt service charge assessed on water users is making the bond payments. It amounts to $180 per REU annually.

"As long as we don't have any major infrastructure improvements that we don't plan on, (we) should be okay," Ferrari said.

"The issue that he's more concerned about it sewer," noted the treasurer.

"Basically, what we're charging sewer customers (for) usage is not making our annual sewer payments (to Oakland County)," Ferrari explained to this reporter. The difference is being made up by the sewer fund's reserves.

The township must also take into consideration sewer projects its required to help finance such as major repairs to the Oakland Macomb Interceptor and construction of a 36-inch sewage diversion line and pump station leading to Pontiac's wastewater treatment plant.

The diversion line project alone is estimated to cost $24.4 million, of which the township will be responsible for $939,362 (or 3.85 percent). The county is expected to finance all or part of the project by issuing bonds. The township will be expected to pay the county in annual installments.

Emmons praised the township for having an expert study the current water/sewer rates and project their ability to meet the municipality's financial obligations.

"That's exactly what you need to be doing right now," she said. "It's not like (you're) going to default on the bonds, but now is the time to be looking at that and projecting out, and monitoring (it) from year to year."

"That does alleviate my concerns for the near future," Emmons noted.

The other area of concern is the township's funding of retirement benefits for its full-time firefighters through the Municipal Employees' Retirement System (MERS).

Currently, the township has 71 percent of its obligation funded. As of Dec. 31, 2011, the township had accrued $3.95 million in liability and $2.8 million in assets, leaving $1.15 million unfunded.

"You're not in any trouble," Emmons told the board. "(You're) not in any dire straights or anything like that. I'm not alluding to that at all.

"I'm just saying that this is something that I'd like you to look at and keep an eye on. We don't want to drop too much below 70 percent."

Emmons noted that as of Dec. 31, 2005, the township had 77 percent of its retirement obligations funded. That amount has been declining since then.

"We don't like to see it drop," she said. "We'd like it to stay the same or increase."

Emmons explained that the reason for the drop is not the township's fault.

"The township has made all the contributions that the actuaries have told you to make," she said. "You've contributed 100 percent of what you've been told to contribute. So, no issue there."

The problem is the investments that are helping to fund the pension plan.

"You've made every contribution the actuaries have told you to make, yet it's still not enough because we're not getting the investment rate of return that they had projected for us," Emmons said.

The actuaries based their calculations on an 8 percent average over a 30-year period.

"Right now, even over that 30-year period, 8 percent is high," Emmons said. "So, (the township's) investments aren't making the money within the pension plan like we would normally hope they would, especially over the last four (to) five years."

But "hopefully, investments are going back up," Emmons said, so the township should "start seeing an upward trend."

Trustee Melvin (Buck) Cryderman asked why the township wouldn't just fund 100 percent of the retirement liability now.

Emmons called that the "ideal situation," but noted that "very few municipalities can get to 100 percent."

She stressed the need for the township to at least hold the line on retirement funding.

"We don't want to (go) too much lower than the 70 percent mark. It starts to get a little bit scary," she said. "It's not like the world's going to end, but that's not where we'd like to see you. We'd like to see you inching up toward 80 percent or more."

Supervisor Bill Dunn said the township board can keep this in mind when it comes time to craft the 2014 budget and decide "do we want to fund a little more."

Ferrari reminded the board that no matter what, "at the end of the day, (the township) is still responsible for" funding these retirement benefits. "If they only get half-a-percent (return on investment), we still make up the difference," he said.

CJ Carnacchio is editor for The Oxford Leader. He lives in the Village of Oxford with his wife Connie and daughter Larissa. When he's not busy working on the newspaper, he enjoys cigars/pipes, Martinis/Scotch, hunting and fishing.
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