YOUNG HARRIS - There is no doubt water restrictions have resulted in a loss of revenues for Gainesville's Public Utilities department, but utilities officials told the City Council on Friday that they have a plan to keep their heads above water.

Several factors, including state-mandated cuts in water use, a slump in the housing market and new water conservation rates, have resulted in less revenue for the city's water department.

Those factors likely will cause the water department's expenses to exceed revenues in fiscal 2009, said Mak Yari, manager of the engineering division of Gainesville's Public Utilities department.

In addition, the utility may not be able to make bond payments that are required by the Georgia Environmental Facilities Authority.

The authority requires the utility to pay back loans at a rate of $1.05 for every dollar that the utility earns. For the next two years, it may not be financially feasible for the department to pay back GEFA at that rate.

However, Kelly Randall, director of the utility, said that GEFA officials have assured him that they understand the situation.

Until now, revenues were on a constant rise for the public utilities department, which brought in more than $57 million in fiscal 2007, Randall said. However, that is no longer the case. Randall said he expects the department's revenues for this year to come up about $10 million short of last year's.

Randall said revenues could be a little higher now that Gov. Sonny Perdue has loosened watering restrictions. "Things will look better than this, I'm sure, because of the governor's actions," Randall said. "But we need to ... err on the conservative side."

Cutting expenses proves difficult for the department, because most of its costs are fixed. To save money, the department has had to push back some of its planned capital improvement projects.

In May 2007, City Council adopted the department's five-year capital improvements program, approving nearly $24 million in spending for various projects such as sewer expansions and water meter replacements for fiscal 2009.

Lost revenues, however, have forced the utility to rethink expenditures, and cut out some projects that promised to boost economic conditions for Gainesville.

Council members became concerned when Yari told them that plans to complete a sewer extension on Athens Highway had been pushed back by four years, and that sewer on White Sulphur Road would have to wait another five years.

Tim Collins, assistant director of the utility, explained that those two areas had been expected to be areas of high residential development.

Randall said there was no way to continue with those expansions without a double-digit increase in customers' rates.

"Nobody goes through the eye of the needle without some repercussions," Randall said. "It's as dire a time as I think this utility has ever seen."

Randall did promise the council that none of the projects that the utility has postponed will immediately affect the quality of service.

Because of the uncertainty of the economy and drought conditions, Randall asked that the council hold off on voting for 2009 water rates until fall. By fall, the department should have a better idea of its financial future, Randall said.

The council is holding its annual planning retreat at Brasstown Valley Resort in Young Harris. The retreat wraps up today.