Utility owes Marinette $1.5 million
Council members, commissioners shocked by report
Monday, August 05, 2013 7:00 PM
MARINETTE - Marinette City Council members and Water Utility and Wastewater Commissioners were identical in surprise during a joint special meeting Monday afternoon when they were told the utility owes the city almost $1.5 million.
When the first red flag was hoisted in March, Marinette Mayor Denise Ruleau and other key personnel at the Water & Wastewater Utility came together to figure out why there wasn't as much money available from the utility to the city as expected.
In a letter from Thomas Karman, chief auditor on the issue, he explained that the Water & Wastewater Utility had undergone a few significant changes recently, the first being a change in the demand of services from Waupaca Foundry. They decreased their water usage significantly in recent years and the utility failed to account for that in its business practices from then on.
The other two major reasons for the cash deficit were from both operational and capital spending - there was a 99 percent increase in the amount of overtime paid from 2011 to 2012, and the utility completed a number of capital improvement projects using the cash it had on hand instead of financing them.
Karman was not able to attend the meeting Monday, but his assistant, Kathy Cleven, was there to explain the situation and to answer questions the council and commission members had.
"It became very apparent that monitoring the cash and the cash flow was not being done," Cleven explained. "You're basically functioning from one period to another period without too much of an idea to what your long-term forecast is going to be."
She also added that the Water & Wastewater Utility has not prepared a budget for at least five years and that she, along with the office management, is working on a realistic budget for 2013.
She concluded her initial presentation with her explanation of what went wrong to cause such a massive debt.
"It's because of a philosophy and that philosophy is in regards to the capital projects," Cleven said. "That is, they have been paying for those all at the time that they're done. There are very few utilities anywhere, probably, in the United States, that are able to do that. Most have to borrow because it depletes your cash flow if you take it down all upfront."
But the payment of capital projects is only one side of the coin. The overtime paid to employees of the utility rose from $72,302.48 in 2011 to $143,926.24 in 2012, a 99 percent increase in just one year.
By June 30 of this year, the utility had already paid out $70,371.84 in overtime. In 2012, the office staff had accrued between $5,000 and $25,000 each in overtime payments. In comparison, the operational staff accrued up to $39,000 each.
Utility Administrator Tim Peterson cited new billing systems, training needed by multiple employees and a project to replace meters at residences as an explanation for the excessive overtime. However, some council members still did not think the overtime was justified.
"I was shocked when I got this information, totally shocked," said Alderman Dorothy Kowalski. "That someone can make $30,000 in overtime in one year, that is totally appalling. I can't think of anything that could justify the amount of overtime that we are looking at on this sheet. I do not see it."
Kowalski wasn't the only one who was unhappy with Peterson's explanation.
"When it was mentioned by Mr. Peterson that he needed more employees to offset the overtime, well that's not really true, the way I look at it," said Alderman Ken Keller. "You eliminated several employees years ago, but you also don't have those services anymore. That's all subcontracted. So I guess I can't buy that at all to say that you need more to offset the overtime."
Alderman John Marx said the problem with the paid overtime isn't just immediate.
"I just wanted to point out that I understand that when an employee retires, their retirement income is based on their three highest years of employment," he said. "So what we're looking at here isn't just a financial loss for 2011 and 2012 and 2013. This is going to haunt us forever."
After these concerns were shared, Ruleau brought the council and the commission back to the reason they were there.
"As unfortunate as it is, everything that has happened and everything that has transpired ... we're actually, if anything, ahead of the game because you typically wouldn't have this information until October or November," Ruleau said. "This is as good as we can get it and now we need to figure out what we're going to do and come to some agreement as to how we're going to fix it and that's why we're here."
At the end of Karman's letter, he recommended three actions to help decrease the Water & Wastewater Utility's debt to the City of Marinette. These included:
Start paying the stormwater and refuse fees to the city on a monthly basis.
File a rate increase application with the Wisconsin Public Service Commission.
Establish a repayment schedule and interest rate that is agreeable to both parties.
"I certainly hope this can be done without a rate increase," Marx said.
Ruleau gave the council and commission members her own list of possible actions that could help with the situation. These included:
Increase site management presence.
Borrow money to finance capital projects in the future.
Freeze office overtime and hiring office utility staff.
Gain approval from the finance director of operational staff prior to hiring.
Present budgets to utility commissioners at regular monthly meetings.
Alderman Martha Karban added that she would like to see an annual budget for the Water & Wastewater Utility submitted and approved by the Water Utility and Wastewater Commissions.
At the end of the meeting, the council members and commissioners agreed not to approve any motions at the time and to meet again Aug. 19 at 3 p.m. at 501 Water St., after they had time to digest the information, to discuss what actions they wished to take to resolve the debt.