SMITHSBURG, Md. –- Smithsburg’s water, sewer and trash collection services are operating at a loss, and an annual audit has raised questions about whether the town’s investment portfolio complies with Maryland regulations.
Cheryl M. Dodson, a certified public accountant with Hagerstown-based Albright, Crumbacker, Moul & Itell, presented the findings to the Town Council on Tuesday, Oct. 27. The council also heard objections to proposed housing regulations and moved forward with financing arrangements for the planned Cloverly development.
Utility services operating at a loss
Dodson told council members that the town’s water and sewer systems recorded a combined operating loss of $219,000 during the fiscal year ending June 30. Trash collection has also failed to cover its operating costs since 2023.
The losses mean that the town’s general fund and tax revenues are helping subsidize services that do not generate enough money to pay their expenses.
Dodson warned that accumulated surpluses cannot sustain those losses indefinitely.
“It’s essentially from our own budgets where you’re paying for your everyday spending on your savings account,” she said.
Town officials said Hagerstown, which supplies Smithsburg’s water, increased its rates by a cumulative 28% over two years, while Smithsburg raised its own customer rates by 14%.
Trash collection faces a similar imbalance. Officials estimated that the town will charge households about $62 per quarter while paying approximately $65 to $66 for the service.
The auditor said the town had sufficient cash to cover approximately $860,000 owed by its utility funds to the general fund at the end of the fiscal year. However, she cautioned that continuing operating losses would eventually exhaust accumulated surpluses.
Investment portfolio out of compliance
Dodson also identified investments that did not comply with Maryland regulations governing municipal funds.
Town officials acknowledged that the compliance question affected roughly half the investment portfolio. Smithsburg has since updated its investment policy, but officials must still determine what to do with holdings that fall outside state requirements.
Council members discussed having financial advisers review the entire portfolio, including whether to move some money into higher-rated bonds or make additional funds readily available.
The audit also found approximately $321,000 in grant revenue that had not been properly recorded in the financial statements initially submitted to the auditors. The figures were corrected during the audit, and officials discussed improving grant tracking and communication with the town’s outside accountants.
Despite those findings, Dodson issued a clean audit opinion, meaning the town’s financial statements fairly presented its finances under applicable accounting standards.
She reminded council members that an audit focuses heavily on identifying problems.
“I sit here and tell you everything we found wrong. I don’t tell you everything I found right, and there was a majority right,” Dodson said.
“I didn’t read anything that set off alarm bells,” she added.
Council members praised town employees for their work preparing the financial records and voted to accept the audit.
Developer challenges in-law apartment proposals
Daniel Cross, developer of the planned 75-acre Cloverly community, urged council members to reconsider portions of a proposed ordinance regulating accessory dwelling units, commonly called in-law apartments.
Cross argued that the proposed rules could require an additional $18,400 in water and sewer connection fees for a basement apartment, even when the apartment shares the main home’s existing utility connections.
He estimated that finishing a basement as a small apartment would cost about $32,292 before the additional fees, meaning the charges could increase the cost by approximately 57%.
Cross also objected to restrictions on apartments in townhouses, requirements that separate entrances be located on the side or rear of homes, and rules requiring property owners to live on the premises.
He said the restrictions could interfere with housing for elderly parents, adult children, military families and caregivers.
Planning Commission representatives defended the proposed ordinance, explaining that they had spent considerable time considering how accessory apartments might affect established neighborhoods.
A major concern was preventing the units from becoming short-term rentals or creating additional rental properties without resident owners.
Council members acknowledged that some of Cross’s objections deserved further examination, particularly the potential effects on military families and multi-generational households.
“I would rather make sure we get it right the first time,” one council member said.
The Planning Commission will have another opportunity to review the concerns before a public hearing scheduled for Dec. 1 at 7 p.m.
No ordinance was adopted Tuesday.
Cloverly financing moves forward
The council also selected Davenport & Company as financial adviser for a proposed special taxing district associated with the Cloverly development.
The district could allow bonds to finance certain infrastructure improvements, with the debt repaid through special taxes on properties within the development.
Town bond counsel explained that existing Smithsburg property owners outside the proposed district would not pay those special taxes. Even within the district, the taxes would not take effect unless bonds were issued.
Cross urged officials to accelerate the process, arguing that delays were increasing development costs.
The council authorized Davenport to prepare an engagement agreement, another step toward consideration of the proposed district. The decision did not establish the district or authorize bonds.
