Watertown city manager: Council should set aside $4 million for end of hydropower contract

Jan. 9—WATERTOWN — To help prepare for an oncoming financial cliff, City Manager Kenneth A. Mix recommends setting aside $4 million to offset when the city starts losing millions of dollars in hydropower revenues.

In a memo to the City Council, Mr. Mix recommended using $4 million in the city's escalating fund balance to put aside in a Contingency and Tax Stabilization Reserve Fund for when a lucrative hydroelectric contract with National Grid ends in 2029.

"That's pretty much how much we can put in it," Mr. Mix said Friday, adding that the state limits the reserve fund amount at 10% of the city's $45 million budget.

Council members will discuss his ideas at a City Council work session Monday night.

A month ago, Mr. Mix said that the city's fund balance had reached $16.5 million, the most ever, and that the city has not been in such good financial shape in the more than 20 years he has worked for Watertown.

The $4 million will be added to the first $400,000 that the City Council set aside in the account to prepare for the financial shift.

For almost a year, former Mayor Joseph M. Butler Jr. has led a hydroelectric task force to study how to handle the situation. Before that, city lawmakers talked for years about what could be done to prepare for the end of the National Grid contract.

The city manager explained why the council should set aside the $4 million.

"This money can be used to reduce the impact of the loss of hydro-electric revenue at the end of the Power Purchase Agreement, if an alternative way of generating income cannot be found," he wrote in his memo to council. "It will also be available any year that something unexpected happens thereby reducing the risk of having to drastically increase property taxes."

Mr. Mix has said the fund balance typically hovers around $10 million, stressing that the city must keep it at that level for cash flow purposes for payroll when the city waits for state aid to arrive in late June.

Mr. Mix is also recommending using more than $8.3 million from the American Rescue Plan that can be used for government services. He's recommending appropriating the $8,332,913 in the current city budget for water and sewer infrastructure projects.

The $8.3 million is the amount of money the federal government thought Watertown lost in revenues from the ongoing COVID-19 pandemic, and is much higher than the city actually lost. Mr. Mix wrote in his memo that he is recommending the city take advantage of the federal allotment "because it gives wide latitude for its use."

The council had already set aside another $8.3 million in other American Rescue funds for water and sewer projects.

"We have a lot of infrastructure projects that we can do," he said.

Mr. Mix is recommending putting $1.5 million into the city's Capital Reserve Fund. This will bring the fund balance down to $11 million.