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'Financial Emergency' Not That Bad, Port Richey Officials Say

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By KLINT LOWRY | The Suncoast News

Published: October 1, 2008

PORT RICHEY - At a time when the nation's economic outlook is in a state of high anxiety, to get word that the state has defined your city as having a "financial emergency" of its own could understandably be enough to alarm concerned residents.

But there is no need to panic according to the man who recently reviewed the city's books. In this case, the phrase "financial emergency" is nowhere near as bad as it sounds, he says.

In addition, City Manager Richard Reade says, the problems contributing to the city's seeming financial problem are being corrected.

Judson Baggett, a certified public accountant who serves as the city's auditor, came to the Sept. 23 City Council meeting to explain a notice recently sent by the state Auditor General's Office informing the city that its Fiscal Year 2007 Comprehensive Annual Financial Report for its 2007 carried the financial emergency tag.

"This is new territory to us," Baggett said.

More red flags

The Auditor General's Office is looking at these financial reports in a different manner than they used to, according to Bagget. That means the numbers are being broken down in a more compartmentalized way that makes it possible for a red flag to go up in more ways than before, he explained.

"I think a lot of cities have been surprised this year that they have met these criteria without realizing what was going on," Baggett said.

A comprehensive annual report to the state is required of every city, and they all get a desk audit, Baggett said. As a result of one of these routine audits, Baggett got a phone call from Beau Brooks, an auditor in the Auditor General's Office.

"It looked to him you technically met one of the criteria for being in a state of financial emergency," Bagget told City Council members.

Florida Statute 218.503 outlines the criteria that can determine a state of financial emergency. According to the law, "if you can't pay your bills on time, you're in a state of financial emergency," Bagget said.

Pretty good shape

None of that, however, applies to Port Richey, Baggett continued. The city actually is in pretty good financial shape, with total net assets of $24.6 million and liabilities of only $6.4 million.

"Then there's another paragraph that's not so clear that talks about fund balances and retained earning balances and cities' total net assets and calculations that are done to see if you meet this criteria of being in a financial emergency," Baggett said.

In Port Richey's case, at the end of fiscal 2007, on Sept. 30, 2007, the city had a positive balance in its general fund. The retained earning balance in its utility fund, however, was in negative figures.

"And the combination of those two came to a negative number, about $147,000," Bagget said.

In his conversations with Brooks, Baggett said, the state auditing official seemed to be emphasizing that the "financial emergency" term was more of a warning than a declaration of doom.

"I think the Auditor General's position is to catch anything they can as early as they can to give you a chance to look at it early on," Baggett said.

By law, upon a finding like this, the Auditor General's Office sends notice of its findings to the Governor's Office. The governor's staff will, in turn, contact the city inquiring what they are doing to fix the problem and offering help if needed.

The city is way ahead of the game in this regard, Baggett said. The city's water system has been losing money for some time, about $1.5 million over the last three years.

Loss known

This has been widely known, as has the knowledge that some part of this financial loss has been because the water system had been losing about 22 percent of its water, or almost 30 million gallons, a year.

There are two ways you can look at it, Baggett said. Given the price at which Port Richey buys water from New Port Richey, that's $87,000 that disappeared before it got anywhere. If people are somehow getting the water without being charged for it, that translates into $227,000 in lost revenue.

As Baggett and council members reiterated several times last Tuesday, the figures and the Auditor General's emergency finding refer to the city's financial state of a year ago.

"These issues are being fixed and I think Mr. Baggett will attest to that," Reade said.

In an interview the day after last week's council meeting, Reade explained the Utilities Department was overhauled in 2008.

The last of four wells has been completed, meaning the city doesn't have to buy as much water from New Port Richey. Leaks have been found and repaired and outdated meters have been replaced.

Perhaps most importantly, the city has taken control of its own system after years of relying on U.S. Water, a private company, to manage it, Reade said. The city has contracted with Lloyd Garner, who has a Class A certification in water system management, to work with the city on a fulltime basis. Two city workers have gotten Class C certification.

Progress seen

Progress can be seen in terms of lost water. In December 2007, there were 11 million gallons lost, but only 32,000 gallons were lost in August 2008.

But stemming the flow of water is only the beginning. As Baggett pointed out Tuesday, whether you consider it an $87,000 or a $227,000 water loss, neither accounts for most of the money lost in the Utilities Department over the last three years.

This is an accountability issue that covers all city departments, Baggett said. Tuesday council held a preliminary discussion on how to conduct an internal forensic audit of the three fiscal years prior to the city's just-completed 2008 fiscal year.

The forensic audit would explore how closely purchasing and contract bidding procedures were followed during those years.

Meanwhile, the city has put the purchase of new financial software on the fast track to improve recordkeeping and make it easier to spot problems.

And there is a new spirit of accountability and frugality at City Hall, Reade said.

"There are 52 employees of this city who are trying to get it right," he said. "We're very fortunate that we have a staff that's committed to fixing the issue; fortunate to have a council that's showing us leadership to do it right.

Klint Lowry can be reached at 727-815-1067 or klowry@suncoastnews.com.

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