The Atlanta City Council recently passed the administration’s request for water and sewer rate increases that will nearly double rates in four years. The Norwood-Mitchell amendment to the ordinance requires the completion of an audit of the water and sewer department. This letter is in response to an Aug. 8 letter to the editor from a member of the Finance Committee of the Atlanta City Council, Clair Muller, addressing my call for review of the water and sewer short-term borrowing (commercial paper) program.
The Atlanta Finance Department, on which the City Council and taxpayers must rely for information regarding city finances, lacks credibility. In April, the internal auditor report found that the city of Atlanta had been running a General Fund deficit since 2005. In the investigation of the General Fund, the auditor found that the city overestimated “cash-carry forward” in the revenue anticipations by $241 million and overspent the budget by $90 million for fiscal 2007. The auditor also found that the budgeting process was not consistent with the City Charter (i.e. violated the code of ordinances) and that “the City has not published a budget document since 2005.” While the internal auditor should be commended, no explanations were provided as to how the deficit was funded.
So how did the Finance Department operate with a deficit since 2005?
The city’s Comprehensive Annual Financial Report (fiscal 2007) shows “cash advanced” and “transfers out” of $111.5 million from the water and sewer department to “other funds.” In the same fiscal year the department borrowed $123.4 million on a short-term basis but lists more than $900 million in water and sewer department restricted investments and cash. Why did the water and sewer department transfer $111.5 million out and at the same time borrow $123.4 million on a short-term basis?
The fund balance confirms a debt of more than $100 million from other Atlanta government funds to the water and sewer fund. So is this how we funded the deficit that we were not aware of? What is the policy on “cash advanced” and fund transfers? Does this require City Council approval? What are the current fund balances?
The most recent “short-term loan” ordinance appropriated $74.6 million for a new sewer tunnel project from apparent proceeds of commercial paper sales. This project was only 20 percent complete in design as of April and will probably not be under construction for a year. The maturity (period of repayment) is 270 days or less, so will these funds actually be spent on this project? In between the time the money is appropriated to a project and the time when the money is actually drawn for invoice payments, where are the loan proceeds deposited, and how are they used?
While I’m not a CPA, I’m a business owner and a professional engineer. Working in governmental jurisdictions in the Southeast, I am yet to find a jurisdiction other than Atlanta that has sold commercial paper to finance water and sewer capital projects. What are the risks?
Other Georgia cities and counties fund with cash or long-term bonds, and they monitor their expenses. Given the Finance Department’s poor track record of providing accurate information, I believe a thorough review is in order. Let’s ask how much we have outstanding in short-term loans. What happens in February when the irrevocable letter of credit expires? What is the risk of paying up to 12 percent interest as authorized? Under what circumstance will the city sell up to $600 million in “short-term loans,” and how much of the more than $2 million in authorized fees has been paid?
I think it time for the Finance Committee of the Atlanta City Council to get more aggressive about getting information. The Finance Department took advantage of our trust, and I don’t think we should give it back until the department has earned it.
Justin Wiedeman is a Buckhead resident, engineer and former candidate for Atlanta City Council, who has spent years reviewing city financing of projects and city budgets.