As city commissioners consider increasing water and sewer rates, the city’s auditor is calling for more transparency in how rate dollars are spent.

City Auditor Michael Eglinski issued a new report that questions whether the city is doing enough to ensure that money is not being transferred out of the city’s water and sewer account to fund broader governmental purposes.

“It is a lot of money,” Eglinski said of the transfers. “I guess that is the simple answer of why we need a policy, and there has been a big increase in the transfers in recent years.”

Eglinski is calling for the City Commission to adopt a formal transfer policy for the city’s business enterprise funds, which are funds that charge fees instead of taxes to support themselves. The city’s water and sewer utility is the biggest enterprise fund, but the city’s trash service, golf course, parking system and stormwater utility all fall under the business enterprise category too.

High transfer rates

In 2007, the first budget prepared by City Manager David Corliss, the city transferred $4.2 million in fees into the city’s general government accounts. That was more than double the amount in 2006. The transfers have been near $4 million both in 2008 and 2009.

Eglinski compared Lawrence’s transfers to 16 other similar university communities. Lawrence transferred a larger percentage of its fee dollars than any of the other cities.

A formal transfer policy would give ratepayers — in the case of water and sewer, for example — assurances that the money is being used to help pay for legitimate costs related to the utilities instead of subsidizing activities that should be paid for through taxes.

“It really just is a transparency issue,” Eglinski said.

Corliss said he’s confident the transfers have been legitimate. He said it is fair for the utilities and divisions to reimburse other city departments for functions that they would have to have if they were stand-alone business entities. For example, the city’s utilities department relies on the city’s legal services department for legal work, the city’s information technology department for computer services and the public works department for some types of building maintenance.

‘Stronger rationale’

Corliss said a larger expense, though, is that when the utilities department undertakes major waterline or sewer work — think of the downtown waterline replacement — it often involves work from many city departments that deserve to be reimbursed. Corliss said an increase in the number of large capital improvement projects is why the transfers has increased significantly since 2006.

But Corliss said he will prepare a policy for commissioners to consider.

“I think it is worthwhile to have a policy in place to provide a stronger rationale for why the transfers occur,” Corliss said.

Corliss didn’t provide a timeline for when the policy would be completed. Eglinski first made the recommendation that a policy be created in 2008. Eglinski said he decided to renew his call for the policy after it became clear one was not being developed.

City Commissioner Rob Chestnut said he thinks it is time to adopt a policy.

“It makes a lot of sense from a policy of transparency standpoint,” Chestnut said.

Chestnut said the issue may be particularly important now as commissioners are considering another round of rate increases for the water and sewer system. As part of the 2011 budget, commissioners will consider a 6 percent increase in water rates and a 2 percent increase in sewer rates.

Staff members have said the city could go without rate increases in 2011, but it would require the city to largely forgo its capital improvement and maintenance program for the water and sewer system.

Commissioners will finalize the budget and the rates by early August.