As the economy continues to weaken, city leaders now say they need to turn their attention to a new source of financial concern — the city’s water and sewer operations.

The city’s latest financial report highlighted that the city’s water and sewer funds are actually seeing declining revenues, despite several years of rate increases.

“I think that is an area of the budget that is going to need some significant review,” said City Commissioner Rob Chestnut.

The report released this week showed that the city water and sewer department has seen the amount of money it has collected from ratepayers drop by 1.4 percent — or about $300,000 — during the first three quarters of the year.

City leaders are vowing to keep a close eye on the fund, in part, because 2007 also was a weak year for the water and sewer fund.

“We’re going to continue to closely monitor expenses in that fund,” City Manager David Corliss said.

But Corliss and others said they aren’t yet contemplating reopening the discussion on water and sewer rates for 2009. As part of the 2009 budget, commissioner approved a water rate increase of 12 percent, but agreed to hold sewer rates steady.

“I think that would be a last resort,” Ed Mullins, the city’s director of finance, said about possibly asking for even larger rate increases.

City residents this year were faced with a 5 percent water rate increase and a 6 percent sewer rate increase, on average. Those higher rates are why city leaders were expecting water and sewer revenues to increase, not decline.

But Mullins said two factors have led to the decline — a mild summer that didn’t require much lawn irrigation, and a dramatic slowdown in the number of new homes being built in the city.

The slowdown in housing starts is the larger concern because the city eventually expects dry Kansas summers to return. But Mullins said the city isn’t projecting housing starts to return to historical levels in the next year or so.

The growth component is important because the city already has started a multimillion-dollar expansion of its Clinton Water Treatment Plant, and has bought about 400 acres south of the Wakarusa River to build a sewer plant. The city, however, put the sewer plant project on hold after it became clear the city’s growth rate had slowed.

In other news from the city’s third quarter financial report:

• General fund expenses have increased by 3.9 percent during the first three quarters of the year. General fund revenues also have increased by 4.8 percent during the period.

• The city anticipates that general fund expenses will exceed general fund revenues by $1.5 million or less in 2008. That amount of deficit spending is actually slightly less than what commissioners had planned for when they created the 2008 budget.

• Sales tax collections are up 6 percent, or $972,000, during the first nine months of the year. Property tax collections are up 3.3 percent, or about $400,000.

• The city’s public golf course fund is operating in the black. Revenues for the golf fund are $161,100 greater than expenses. But there is one caveat. The golf fund no longer is responsible for paying the bonds used to build the golf course. Those bonds are paid out of a separate city fund.