COLUMBIA, Mo 9/11/14 (Beat Byte) -- Concern over utility funds gone missing from Columbia Water and Light's balance sheet prompted members of the Downtown Columbia Leadership Council (DCLC) to question city administrators in May about the money -- and the legal violations that led to its disappearance.
The Columbia City Charter and a separate city ordinance require City Hall -- which owns the utility -- to put money every year into a so-called "Depreciation Fund" to replace and repair aging or "depreciated" infrastructure.
But as we reported Tuesday, the DCLC discovered that neither the Council nor the city manager has ever established such a fund, instead putting the money in an "Unrestricted" account where it is freely available for virtually anything.
In a report to the City Council about how to fund infrastructure, the group questioned Columbia city manager Mike Matthes, city finance director John Blattel, and John Conway, Chairman of the City's Water & Light Advisory Board. Blattel admitted city government broke the law, but claimed the city ordinance -- 27-44 -- was obsolete, and the City Charter in conflict with "standard accounting procedures."
Don't want no restrictions
The Water and Light utility's Unrestricted account held nearly $74 million as of 2013; the Sewer Utility's Unrestricted account held over $11 million. The combined $85 million is more than enough to pay for the $50-70 million infrastructure replacement city administrators have identified.
But city administrators do not want the money restricted, and are fighting attempts to change course with everything from yearly rate hikes to specious arguments.
"As a nation, we never funded depreciation. We don’t put money away each year saving up to pay for replacement of the interstate [highway] system," Matthes told the DCLC. "We just borrow the money again and fix it. That has been the nationwide approach to infrastructure. That is also true in Columbia."
But it's not supposed to be true in Columbia, DCLC members insisted. "In fact, Columbia’s City Charter requires the creation of "an adequate depreciation fund for the purpose of making renewal and replacements," they fired back. Borrowing is not mentioned.
The concept of depreciation seemed lost on Conway, who mistakenly testified, "In the Water and Light Department, depreciation is treated as a non-expense item. In an accounting sense, it is treated as a non-expense."
In fact, depreciation is an "operating expense" in the city's Comprehensive Annual Financial Report (CAFR). Last year, the Water and Light utility wrote off over $14 million in depreciation expenses -- literally, the cost of aging.
Conway did agree, however, that the utility should be setting money aside in what he called a depreciation "reserve". At year's end, "depreciation would flow to the balance sheet as a reserve," he told the DCLC. "It is real money. It's in the millions. And then if the budget is true, and is followed...it will flow to the balance sheet as a reserve."
But no such depreciation reserve exists either, in the city budget or financial report. As finance director Blattel explained, City Hall understands the law, but chooses to do things differently.
City ordinance 27-44 says "that the Water and Light utility will set aside funds for future replacement and renewal," Blattel told the DCLC. "But current practice is that bonds have been issued and the funds that would have been set aside are used for debt service, achieving the same end."
Bonds are voter-approved debt. "Once bond issuance is authorized by voters, bond debt is incurred to fund construction projects," Blattel continued. "This is the current standard practice within the municipal utility industry."
As for the City Charter requirement, specifically Section 102, "standard accounting practices do not require transfers to a Depreciation Fund," Blattel said.
The DCLC was unmoved. "Regardless of current practices within the municipal utility industry, the City Charter clearly requires a Depreciation Fund funded by a monthly revenue contribution," they reported.
"The Downtown Columbia Leadership Council recommends the City adapt its current practice to comply with the Charter by establishing and appropriately funding a Depreciation Fund. Or, the City should amend the City Charter and Ordinance to reflect current practice. This will require a vote of Council and a ballot measure."
PART ONE of our report
DCLC Infrastructure report
City Charter Depreciation Fund requirement
City Ordinance Depreciation Fund requirement