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City receives $1,352,000 from Chesapeake

November 13, 2012
The Review

SALEM - The city's bank account received a one-time boost of $1,352,000 last week from Chesapeake Exploration for an oil and gas lease deal signed earlier this year, but city officials don't plan to spend the money for day-to-day expenses.

"This isn't money that's going into the operating budget," Councilman K. Bret Apple said he wanted to make clear.

Mayor John Berlin told members of city council's Finance Committee about the windfall, noting it represented 390 acres of city-owned property. Auditor Betty Brothers is awaiting direction from city Law Director Brooke Zellers on what they're permitted to do, with plans calling for the money to be placed in the debt service fund used to pay on debts and in capital improvements.

A three-year lease agreement was signed this past summer 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.

Berlin said having the money in reserve should help out the city's bond rating. He said the city has experienced growth in the income tax revenue, but the economy could turn again, so it's nice to have some money in reserve.

He also said that some land already under lease to another company is now under lease to Chesapeake because Chesapeake

purchased the lease and the city will get royalties on that for 12.5 percent.

As for a water selling deal, he said he talked to a Chesapeake representative and some testing has been completed on the city's water, but the representative told him "there's no 911 on water."

The water is not in demand right now, but a deal remains pending for the company to purchase water from the city. Berlin said they're still trying to get $7.50 per 1,000 gallons for the price, but it's getting more and more difficult. There's no sense of urgency for the company at this time.

The Finance Committee started the meeting by offering condolences to the family of Olivia Thompson, the 9-year-old girl who was struck by a vehicle Friday night in downtown Salem and died Saturday morning.

"Our hearts go out to the family," Apple said.

With a new police chief slated to take over in February due to Chief Bob Floor's pending retirement, the committee agreed to recommend tweaking the starting salary so after three years the new chief will be making as much as what Floor's making.

At the urging of both the mayor and Auditor Betty Brothers, the committee also agreed to change the starting salary for a new fire chief so when it occurs, they'll already have the change in place.

Currently, the starting salary for the chief of police position is $2,104.06 per two-week pay period, which is the same for the fire chief. Floor is currently making $2,356.39 per two-week pay period, with the amount increasing to $2,427.08 in January. It would have increased to $2,499.89 per two-week pay period after Jan. 1, 2014.

The proposed starting salary per two-week pay period being recommended to council will be $2,251.34. After one year, the amount will be $2,368, then go to $2,418.37 after the second year and $2,495.49 after the third year. Those will be the same amounts for a new fire chief.

In other business, the committee had a brief discussion about next year's budget, which Brothers hopes to have in place before the end of the year. In previous years, council has adopted a temporary budget to cover the first three months of the year, then adopted a final budget in March.

She said her preference was to get it done before the year begins, so that's what they're trying to do.

Brothers said she's projecting revenue for 2013 as $4,414,541 and expenses as $4,808,747, with a carryover of $678,398. She said that's a conservative estimate and said she thinks the amount will likely be a little higher than that.

The Finance Committee will meet again at 4 p.m. Nov. 29 to review the budget more thoroughly.



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