Water, sewer and trash rates will be under pressure to increase even more than expected, following the results of a new city audit that commissioners will discuss Tuesday.
A new financial indicators audit found that the city’s “enterprise funds” — funds that are designed to operate like a business in the fact that rates are supposed to pay for all expenses — are struggling to stay financially healthy even as city leaders increase rates.
“I think this is an area that we need to start asking more questions about,” said City Auditor Michael Eglinski.
The city’s trash service, in particular, may become the subject of a new city audit to determine why its financial condition has turned sharply downward. In 2008, the city’s solid waste fund fell $767,000 short of covering its expenses. That’s a sharp reversal from five years ago when the fund produced revenues that were nearly $670,000 greater than expenses. The downturn has come even as monthly trash rates have increased.
The downturn in Lawrence has been worse than in other cities that operate trash service, the audit found. A comparison of 10 other similar cities found that their trash services were still operating slightly above break even in 2008.
The audit also found that the city’s water and sewer fund — the largest of the enterprise funds — is struggling. In 2008, the fund had revenues of $2.3 million above expenses, but that is down from $6.1 million in 2003.
Mayor Rob Chestnut said the audit creates concerns about what rates for trash, water and sewer service will need to be in the future.
“What this suggests is that it will be a real challenge to keep those rates from growing even faster than we’ve projected,” Chestnut said. “We have to figure out how to avoid that for the next two or three years.”
Higher than anticipated rates are a concern because water rates, for example, already are projected to increase by 11 percent to 12 percent in 2010.
The audit doesn’t pinpoint the causes for the financial decline in the funds, but Eglinski said part of it is due to the city’s struggles to keep up with depreciation costs. Depreciation measures the loss in value of certain assets, everything from trash trucks to sewage treatment pumps.
The solid waste fund, for example, had about $730,000 in depreciation costs in 2008 as city trash trucks continued to age. The good news is that is not a cost that the city has to pay in actual cash. As a result, the decline in the financial health of the funds has not yet created any budget shortfalls. The bad news is that the numbers suggests the city is not setting aside enough money to pay for the trucks when the day comes for replacement.
“Depreciation is a real cost,” Eglinski said. “If you don’t cover it, somebody is going to have to at some point.”
City Manager David Corliss said he thought the audit presented an accurate picture of the city’s tightening financial condition. He said revenue in the city’s water and sewer and trash funds have not increased as much as expected because the city’s population has not grown as much as expected. The city built significant amounts of infrastructure — including an expansion of the Clinton Water Treatment Plant — based on a certain set of growth projections that are now too high. At the same time, Corliss said the city has challenges to adequately keep up with the cost of aging infrastructure.
“We agree that we particularly need to monitor the work in our enterprise funds,” Corliss said.
In other news from the audit, the report found the city’s tax supported funds were faring better. The audit found the city has adjusted the amount of per capita spending downward as city revenues have stagnated.
The city spent $760 per person in 2008, down from $791 per person in 2007. Both those numbers are down from a recent high of $926 per person in 2006.
The amount of long-term debt issued per person also is down to $790. That’s down from $809 in 2007 and from a recent high of $886 in 2003.
Commissioners will discuss the audit at their 6:35 p.m. meeting tonight at City Hall, Sixth and Massachusetts streets.