City’s financial audit shows pension shortfall; need to assess fees

City Hall, 6 E. Sixth St.

A multimillion-dollar shortfall in state pensions owed to City of Lawrence employees could negatively affect the city’s long-term budget, should contribution rates increase in the future.

The $58.8 million shortfall in the Kansas Public Employees Retirement System for City of Lawrence employees is not controlled by the city, but potential plans to close gaps in the state’s pension fund have included raising the employer contribution rate. The city employs about 750 full-time employees, and such a rate increase would impact the city’s bottom line.

“If we have to contribute more, that has to come from somewhere, so we’d have to make some decisions,” said City Auditor Michael Eglinski.

The city has always had pension debt, but this is the first year that accounting rules required that financial audit reports include net pension liabilities. City commissioners at their meeting on Tuesday evening will be discussing the annual audit from Eglinski, who takes a look at various financial indicators for the city.

The report measures totals for 2015, and compares it to the last 10 years of data, as well as benchmarks for other cities comparable to Lawrence. Overall, Eglinski noted that the audit shows mixed results. The report found that the city’s financial position remains above area benchmarks in 5 of 11 categories that he measured.

Owing in part to the inclusion of pension debt, the city’s long-term debt burden rose sharply from 2014 to 2015, and is now above the benchmark set by other communities, the report found. However, since credit rating agencies already consider a city’s pension liabilities, the change in reporting is not likely to affect the city’s bond rating. Instead, it’s just more information to inform budget decisions, Eglinski said.

“One of the reasons that they wanted to have that change in the accounting rules is to make organizations a little bit more aware of what the real costs were, and to make those costs a little more transparent,” he said.

Because KPERS is controlled by the state, Eglinski said the main means the city has of controlling how much it pays into the plan is its staffing levels.

“In the long term, we can be very aware of when we add an employee, it’s not just the pay, but there’s also these long-term benefits,” Eglinski said. “And we can make sure that we’re using that to make the decisions.”

The extent to which the city relies on fees to fund government services has been decreasing, with charges for services covering less of the city’s expenses than they did 10 years ago, according to the report. Eglinski said he first looked at the topic a few years ago and found that though the city has a policy to reevaluate fees on a regular basis, that wasn’t being done consistently.

“We would set fees, but then wouldn’t go back and revisit them,” Eglinski said. “So that a fee could be 10 or 15 years old, and we hadn’t gone back and said, ‘Should it be adjusted?'”

The actual cost of providing a service, though, is not the only determining factor. A key part of fee levels is policy-driven, and making sure activities — such as youth sports or entrance to aquatic centers — remain accessible, said Director of Finance Bryan Kidney. That is a decision made by the City Commission.

“One thing is what amount would it be or should it be, and then of course the more policy-driven is what amount would the Commission like it to be?” Kidney said. “If we charge people for some of our services for what it actually costs to provide those services, then no one would use those services… How much does the city feel that property or sales tax should cover a portion of that cost?”

Lawrence’s savings account took a dip, the report found. The city’s unassigned general fund balance declined slightly in 2015 and was at about the same level as it was in 2011. Lawrence’s general fund balance as a percent of expenditures is 20.6 percent, which is below the benchmark amount of about 23 percent.

City commissioners will review the financial performance audit at their meeting at 5:45 p.m. Tuesday at City Hall, 6 E. Sixth St.