City made $17 million misstatement in utility fund; planned water rate increases still moving forward

photo by: Mike Yoder

Lawrence City Hall, 6 E. Sixth St., is pictured Thursday, July 7, 2016

A $17 million mystery has been solved in the City of Lawrence’s utility department, but, no, the answer isn’t going to lead to any breaks on your rising water bill.

City Hall officials have acknowledged that they made a bookkeeping error of about $17 million that artificially inflated — for at least two budget years — the amount of money that showed up in the city’s water and sewer utility fund.

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The Journal-World in August raised questions about the budget figures as city commissioners were approving a large increase in water rates. The budget documents presented to city commissioners showed the water and sewer fund had more than $40 million sitting in a type of reserve fund. That amounted to 84 cents in reserves for every $1 the city was budgeted to spend. Yet, city staff members still were asking for rate increases that would boost the department’s revenues by another 8%.

In August, city officials didn’t have an answer for why the utility fund had so much money in reserves. Officials have since discovered the answer: a multiyear typo that listed $17.19 million in funds from a bond issuance in the city’s general water and sewer fund when the dollars actually should have been listed in a special budgetary bond fund.

The mistake showed up in at least two years worth of documents that were presented to city commissioners for use in setting the city’s budget and establishing water rates. It is the latest in a series of financial misstatements by the city. The city’s financial audits for both 2017 and 2018 included findings that the city lacked internal controls for financial reporting. Auditors required more than $60 million in changes to the city’s books before they would sign off on the city’s 2018 finances.

In addition, the last several years have included billing errors related to how much people pay for trash service, and about $700,000 in billing errors related to various city leases.

New City Manager Craig Owens said residents were right to expect greater accuracy from the city.

“Going forward, people should expect the numbers we present are accurate and useful,” said Owens, who began work in July and was not responsible for producing the errant budget documents.

“Trust is everything when it relates to the finances of the city,” he said. “We intend to build a strong level of trust for the community.”

Any hope, however, that the large pile of cash in the city’s water and sewer fund could be used to mitigate the approved water rate increases is seemingly dashed. Now that the $17 million in bond funds have been properly labeled, the reserve fund is projected to end the year with about $25 million instead of $41 million. While that is a lot of money, Owens said it was not enough for the city to consider reducing the water rate increases scheduled for the beginning of 2020.

He said the city simply had too much water and sewer infrastructure to repair.

“We know the needs that are coming soon, and that are already upon us, are so substantial we will need every bit of the rate we are asking for,” Owens said.

Mislabeled money

City officials are quick to note that they did not lose track of the $17 million in bond money. It has been available for use in city utility projects over the last several years. Rather, in budget documents, they simply listed the money in the wrong place. City commissioners and the public were presented with inaccurate budget documents both in the summer of 2018 and 2019 as commissioners were going through the budget-setting process.

The mistake could have created major financial problems for the city. If city commissioners had relied on the inflated fund balance number to fund projects, they would have put the city in a position of spending money that actually wasn’t available to spend.

Instead, it appears city commissioners simply didn’t notice that budget documents listed the utility fund with nearly $20 million of unexplained cash. City Commissioner Stuart Boley, who was on both commissions that received the misstatements, said that was unfortunate.

“I sure didn’t see it,” he said.

City staff members hadn’t either. Owens acknowledged that city staff members only started looking into the issue after the Journal-World’s article.

Owens said his expectations for city financial records were that they be precise and helpful to the public and commissioners. He said the city’s money was ultimately the public’s money and the accounting of that money should meet rigorous standards.

“The public should be able to rely on what we present to help them understand their money and the ways we are using their money and the ways we are making decisions about their money,” he said.

Why staff members didn’t notice the misstatements — especially during the 2019 budget session when utility rate increases were the subject of much debate — is unclear. Owens said he couldn’t speak to what happened prior to his arrival.

“But this is now ours going forward,” Owens said. “I do want to see as much uncovered now so we know exactly the checklist of things to improve.”


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