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HomeMy WebLinkAbout2003 Financial Results535 North Hubbards Lane Louisville KY 40207 Phone/Fax: 502.894,8287 EmaiI: ramillermc~bellsouth.net Memo To: Sewer Board, City of Jeffersonville, Indiana Robert A. Miller ~ From-' CC: Hon. Peggy Wilder, Clerk/Treasurer Kim Johnson, Sewer Billing Office Date: June 8, 2003 Re.' April 2003 Financial Results This report is based on the Jeffersonville Wastewater Utility Billing Office's finandal report for the pedod ended Apd130, 2003. The Sewer Billing Office uses the modified accrual basis of accounting, which differs in measurement focus from the accrual basis of accounting that is used by the Utility to report its annual audited financial results. Additionally, the Utility has not adopted GASB Statement #34 for purposes of intedm financial reporting. These variances from generally accepted accounting pnnciples for govemmental enterprises may result in material financial or economic variances for purposes of this analysis, which is unaudited, comparative and intended to be indicative for purposes of planning. Following are key findings from review of the Billing Office's Apdl 2003 statements: , The Sewer Billing Office continues to do an excellent job implementing its new financial reporting system and providing useful additional detail in the General Ledger. Cost allocation problems, previously noted, remain, however, because the City's finandal reporting system makes it difficult or impossible for the Billing Office to break out its own salary/benefits expenses from the general Administrafive/Engineedng salary/benefits category. Sewer Board City ofJeffersonville, lndiana June 8,2003 Page 2 · The Apdl entries which Following is a 2003 General Ledger discloses substantial 2002 year-end journal call into question pdor years' reports of financial position and results. summary of year-end joumal entries reported in Apdl. Acct.# 101.601 101.601 115.600 115.606 126.606 126.608 126.608 143.610 149.620 149.630 162.600 164.600 161.600 164.610 165.610 202.600 202.606 203,600 204.600 205,600 231.641 231,646 237.601 237,602 272,600 272.600 272.606 272.606 Date Description Debit Credit 04/30/03 O&M Sewer 500.000 00/30/03 O&M Sewer 500,000 00/30/03 Sewer Accounts Receivable 345,150 04/30/03 Drainage Accounts Receivable 86.657 04/30/03 Due from Drainage 12.268 00/30/03 Due from City - Self-insurance 500.000 04/30/03 Due from City -- Self~Insurance 500,000 00/30/03 Prepaid Expenses 18.927 04/30/03 Deferral of Loss on Refunding 55.017 00/30/03 Unamortized Discount 2,431 00/30/03 Land 32.441~ 04/30/03 Building & Improvement 4.121.175 00/30/03 Equipment 5,408,197 00/30/03 Accumulated Depreciation 7,476,754 04/30/03 Construction in Progress ~-SRF 631,156 04/30/03 Sewer Accounts Payable 63,367 04/30~03 Drainage Accounts Payable 43,248 04/30/03 Due to City of Jeffersonville 84,123 00/30/03 Interest Payable 147,472 04/30/03 Construction Accounts Payable 122,436 00/30/03 Sewage Revenue Bonds -- 1995 126,727 00/30/03 Sewage Revenue Bonds -- 1999 449,476 04/30/03 Capital Lease - Caterpillar Truck 24,975 04/30/03 Capital Lease -- Caterpillar Exc 59,828 04/30/03 Sewer Retained Earnings 10,301,291 00/30/03 Sewer Retained Earnings 416,245 00/30/03 Drainage Retained Earnings 274,072 00/30/03 Drainage Retained Earnings 416,245 16,359,839 16,359,839 The bottom line appears to be that the Utility recorded a $10 million "hE' to equity. That represents about 40% of pre-hit total equity. This extraordinary loss was concentrated almost entirely in the fixed assets accounts, where a one-time charge of $7.5 million was made to accumulated depreciation (about 10 times the annual Sewer Board City ofJeffersonville, lndiana June 8,2003 Page 3 charge). While it is true that the principal measure of a municipal utitity's financial performance and adequacy of disclosure is revenues available to cover debt service requirements, this (presumably) one-time hit to equity may have important implications for rate-setting in that it indicates that the Utility's cost of service has been understated for a number of years. Additionally, most of the year-end adjustment has fallen to sewer retained earnings. Over the years, the Utility has not charged any depreciation to the Contributed Capital accounts. Yet a substantial portion of accumulated depreciation must be attributable to the use and aging of fixed assets that were provided from contributions of federal, state and city governmonts. GASB Statement 34 likely renders this a moot issue, with its focus on "net assets" rather than the traditional equity categories; but in the context of the Utility's current presentation of its financial position, the practice of charging all depreciation to retained eamings is misleading. · A total of $432,000 of sewer and drainage revenue accounts receivable were written off in the April year-end adjustments. The reason for these write-offs has been explained to the Sewer Board by the Sewer Billing Office. The write-offs were not taken to the bottom line via the income statement, but evidently were charged directly to retained earnings. Given the nature of the write-off (recognition of a one-time billing error), omission of atdp through the income statement probably does not amount to a material n~isstatement of earnings - certainly not for the four-month period ended April 30, 2003. However, it is worth noting that recognition of the write-offs in the income statement for the year ended April 30, 2003 (see Schedule C) would have reduced debt service coverage from 211% to 180%. · The Utility continues to post strong operating results for the current fiscal year. Debt service coverage was 155% for the first four months of 2003 (see Schedule B). Excluding drainage net operating income, the Utility's debt service coverage was 131% on indebtedness issued entirely to fund wastewater projects. Sewer Board City ofJeffersonville, lndiana June 8,2003 Page 4 · Utility operating income improved $411,000 (411%)in the first four months of 2003, compared with the same period in 2002. Sewer operating revenues were up $190,000 (13.2%). Drainage operating revenues were up $135,000 (83.4%). Operating expenses were reduced by $86,000 (5.8%). Schedule A City of Jeffersonville Wastewater Utility Comparative Balance Sheets Assets: Current assets: Sewer operating cash and cash equivalents Drainage operating cash and cash equivalents Sewer.accounts receivable - net of allowance for doubtful accounts Drainage accounts receivable - net of allowance for doubtful accounts Prepaid expenses and other current assets Interfund receivables Total current assets Restricted assets: Cumulative Improvement cash and cash equivalents Bond and interest cash and cash equivalents Debt service reserve cash and cash equivalents Construction cash and cash equivalents Total restricted assets Fixed assets: Utility plant in service Accumulated depreciation Construction work in progress Total fixed assets - net Deferred debits: Unamor{ized bond issuance casts Total assets Liabilities and equity: Liabilities: Current liabilities (payable from current assets): Accounts payable Accounts payable -- drainage Contracts payable Due to City · Total currant liabilities (payable from current assets Current liabilities (payable from restricted assets) Interest payable Long-term liabilities: Revenue bonds payable Deferral of loss on refunding Capital lease obligations Total long-term liabilities Total liabilities At April 30: 2003 2002 (1,526,841) $ (1,383,090) 739,895 259,674 836,375 872,082 95,0O8 (7O8) 52,224 33,297 429,732 942,000 626,393 723,255 1,310,410 1,084,175 1,141,215 1,238,751 1,457,787 1,438,935 269,025 269,025 4,178,437 4,030,886 41,093,795 41,585,099 (14,788,789) (6,523,390) 631,156 26,305,006 35,692~865 335,477 371,059 $ 31,445,313 $ 40,818,065 30,594 170,254 43,248 122,436 21,999 143,511 95,841 436,201 147,472 13,723,215 14,003,739 (421,795) (495,151) 181,146 265,949 13,482,566 13,774,537 13,578,407 14,358,210 Schedule A ~ ~fersonville Wastewater Utility Comparative Balance Sheets Equity: Contributed capital Retained earnings: Reserved for: Payment of bond principal and interest Authorized construction Total reserved retained earnings Unreserved: Sewer Drainage investment in plant and equipment Total unreserved retained earnings Total retained earnings Total equity Total liabilities and equity At April 30: 2003 2002 16,280,974 16,280,974 2,599,002 2,530,214 1,579,435 1,353,200 4,178,437 3,883,414 (261,103) 28,088 791,655 258,966 (3,123,057) 6,008,413 (2,592,505) 6,295,467 1,585,932 10,178,881 17,866,906 26,459,855 $ 31,445,313 $ 40,818,065 Schedule B City of Jeffersonville Wastewater Utility Comparative Income Statements Revenues: Drainage operating revenues Sewer operating revenues Drainage penalties Penalties Tap-In fees Inspection fees Sewer income -- other Availability fee Drainage income - other Total revenues Operating expenses: Service and administrative Costs: Sewer maintenance Sewer plant operations Drainage operations Administrative and engineering Depreciation Total operating expenses Operating income Non-operating income (expense): Investment income Interest expense Amortization of bond issuance costs Payment to City of Jeffersonville Net non-operating expense Net income Debt service coverage: Available revenues: Operating income Add depreciation, investment incom Total Available revenues Debt service: Debt service coverage ratio Four months ended April 30: 2003 2002 294,343 162,765 1,316,601 1,183,367 4,539 26,559 225,172 217,300 8,900 3,800 31,648 18,316 23,643 21,600 50 25 1,931,355 1,607,173 193,585 262,439 598,041 602,203 176,473 198, 315 376,265 255,501 266,572 1,419,915 1,507,479 511,440 99,694 9,295 46,019 (19,149) (182) (10,780) (10,780) (20,634) 35,057 $ 490,806 $ 134,751 511,440 99,694 264,796 312,591 776,236 412,285 500,000 500,000 155% 82% Schedule C City of Jeffersonville Wastewater Utility Statement of Income Revenues: Drainage operating revenues Sewer operating revenues Drainage penalties Penalties Tap-In fees Inspection fees Sewer income - other Availability fee Drainage income -- other Total revenues Operating expenses: Service and administrative Costs: Sewer maintenance Sewer plant operations Drainage operations Administrative and engineering Depreciation Total operating expenses Operating income Non-operating income (expense): Investment income Interest expense Amortization of bond issuance costs Payment to City of Jeffersonville Net non-operating expense Net income Debt ~ervice coverage: Available revenues: Operating raceme Add depreciation investment income Total Available revenues Debt service: Principal Interest Total debt service 12 Months Ended April 30, 2003 1,041,729 4,532,408 8,545 89,014 603,232 16,350 151,607 30.316 50 6.473.251 796.634 1,648,062 340.339 884,873 788,645 4,458,553 2,014,698 93.159 (641,246) (32,340) (lOO,OOO) (68O,427) $ 1,334,271 $ 2,014,698 881,804 2,896,502 730,000 641,246 $ 1,371,246 Debt service coverage ratio 21 t%