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penalize them by denying the rate increase. With respect to <br />Rural's request for a 10% increase, staff is recommending only a <br />5% increase because we don't have a sufficient period of <br />experience under the new owner to justify the 10% profit. <br />Director Pinto did not believe that the numbers we allowed to be <br />used to justify the rate increase included the new salaries and <br />wages and were not part of the test year. <br />Mr. Barton advised that part of it was included. <br />Peter Wright of Rural Sanitation explained that the test <br />year was taken off the September 15, 1986 tax return which was <br />done at the end of the previous ownership. That is thy: most <br />recent data, and it has nothing to do with the purchase by Hudson <br />Management Corporation effective September 15, 1986. <br />Commissioner Bird felt that if he bought a company that was <br />losing money to the tune of $103,406 in their last taxable <br />corporate year, he would not begin new management by increasing <br />monthly salaries to any great extent in the first 4-5 months. <br />Mr. Wright emphasized that all the information here was <br />during the prior ownership; it is not since they purchased the <br />company. Thus, the salaries are the same. <br />Commissioner Bird stated that if he was the previous owner, <br />and knew he had the company sold, he would not have increased <br />salaries or made that amount of repairs during those 5 months. <br />Utilities Director Terry Pinto felt it was a Catch 22 <br />situation and they were concerned about the amount of repairs in <br />the long run situation. When you are looking at the difference <br />between profits and operating costs, the utility only passes <br />through their expense costs -- they have to pay for repairs. <br />Replacement of equipment becomes part of your investment and the <br />returns on that investment become part of the profit. <br />Commissioner Bird remained concerned over the substantial <br />increase in salaries during that 5 -month period and asked Mr. <br />Wright for an explanation of the following Supplemental Statement <br />of Income -and Expenses for fiscal year ending September 15, 1986: <br />b <br />23 BOOK S <br />