This is a long and involved posting about the City's 2008 and 2009 finances. I didn't expect it to be as involved as it ended up. It is technical and really designed to supplement the article that appeared in the Free Press last week. This is their story. Hillsboro Free Press - City intends to monitor cash flow in troubled economy
The City of Hillsboro is starting 2009 as a number of other organizations—watching where and for how much our revenue stream takes us this year. Because of the national economy, how we operate the many facets of what we call the City of Hillsboro will be different in 2009 compared to any recent year of operation.
For most of 2008, I watched two of the city's funds—electric and water. Earlier in the year, I reported to the city council that the utility funds were under financed. We passed rate increases in Water, Sewer, Electric and Sanitation. Because of the cooler, wetter summer, water consumption was lower than the recent history shown here.
We all felt the hurt of rising fuel costs during the summer of 2008. In the electric utility, we felt the hurt of fuel costs in the cost of power. The cost of power always includes cost of fuel as one of the components. In 2008, our fuel adjustment was $432,525. When we forecasted the rate adjustment, we were expecting $272,613. Another way of saying this is the projected fuel cost was $0.0098 per Kwh. In August, we paid $0.031 per Kwh. The table below shows that the cooler weather this summer also affected the electric utility.
Traditionally, the City's general fund receives a transfer from the utility funds. Since the cash flow here was so low, we did not transfer the full amounts. Since every action has it consequences, the impact on the general fund was that $125,000 that it would have been received wasn't. We finished 2008 with a lower cash balance there as well. The bottom line for us is that we will be looking at possible rate changes in 2009 as a result of the lower than projected revenues. I am working on recommendations to the City Council now.
The rest of this post will be for the die-hard finance person interested in seeing how the municipal finance world works. If you bail out now, I won't be offended. It is stuff I need the keep the City Council updated on to fulfill our financial accountability responsibilities. Don Ratzlaff's (Hillsboro Free Press) story about our efforts covers the basics.
So the question "Larry, why should we care about these cash flows?" The Kansas "cash basis law" requires that we keep positive balances throughout the year including having a positive balance at the end of the year. As a result of not having a larger cash balance several months will have negative balances, thus violating the law. I know this now because I have projected the revenues and expenditures of several funds to see this.
The City of Hillsboro has 39 separate and distinct funds. It is somewhat like running 39 different companies and each of them must be profitable every month and at the end of the year. A large number of these were created for what is called a "special purpose." We have a number of funds for the Public Building Commission, Recreation Commission and several unique funds like the tree fund, K-9, DARE, paying sales tax and employee withholding taxes.
I said two paragraphs up that I was projecting the revenue/expense stream of several funds. What I am actually tracking are 17 distinct funds. These are the funds where a considerable amount of business is being done. Here is a list:
- Special Highway (Gas Tax for repairing roads)
- Special Law Enforcement/Fire
- Family Aquatic Center
- Equipment Reserve
- Sales Tax
- HCMC Plant Property and Reserve
- PBC Family Aquatic Center
- Capital Improvement
- Bond and Interest
An example of the complexity of the cash flow process is tracking the General Bond & Interest fund. It receives payments from other funds (City of Hillsboro companies like water and sewer) to pay debt issues. These debt instruments receive principal and interest deposits at least two times per year and are then paid twice a year. What makes this fund "fun" to watch is that the first series of payments start February, March, and April and the second set start in July and go through October. Each debt issue requires payment in the Bond & Interest Fund the month before it is to be paid. The Bond & Interest fund is also property tax supported, the property tax revenues received from Marion County must be in the Bond & Interest fund as well.
One of the more unusual flows of cash occurs with the Family Aquatic Center. When the sales tax issue was approved to build the pool, a Public Building Commission (PBC) was formed to be the owner of the pool during the duration of the pool debt. Sales tax is deposited in the General fund then transferred to the Family Aquatic Center (number 7 on the list above) as rent. Then the Family Aquatic Center makes a payment to the PBC Family Aquatic Center (number 11 on the list above) and that fund makes the pond payment. In my view, there is one too many funds in that transaction—that being #7 Family Aquatic Center.