Sumner city council’s June 20 study session concerning budgets showed multi-hundred thousand dollar deficits in two of three utilities studied, as well as a more than $130,000 deficit in the revenues and expenses of the city golf course.
The deficit utility funds, as determined by an examination of the budget year ending Dec. 31 2010, were the water fund and sewer fund, which had a $552,275 deficit and $476,728 deficit respectively.
The city’s storm fund, by contrast, ended 2010 with a $191,621 surplus.
Key to the utilities deficits was the city’s accounting for depreciation, City Administrator Diane Supler said.
Depreciation, as she explained to the council, is a commonly accepted accounting practice that sets aside a percentage of funds in case equipment breaks down or otherwise needs maintenance and repairs.
“A good example would be the water pipeline that was replaced during the Traffic and Main project,” Supler said. Without the rainy day funds provided by accounting for depreciation, the project would have to be funded by debt.
Water and sewer set aside $780,927 and $1,648,821 for depreciation, respectively. In both instances, the amount exceeded the net income losses, meaning the utilities would have had a net gain if depreciation were not accounted. The depreciated amounts were both added to the funds’ cash and investments, which, in total, more than covered the losses.
“So, what I’m understanding is that this report would show money coming in if we weren’t setting money aside for depreciation,” Councilman Randy Hynek said. The statement was echoed by a few other members of council.
Supler said that was true, adding that accounting for depreciation was important for seeking bond ratings when the city issues debt.
“When Standard & Poor’s sees we follow that accounting practice, it increases their confidence in our ability to pay back bond debt,” she said.
The golf course was in worse financial shape by the end of 2010. The course had a net income loss of $131,917, and still would have experienced a loss without accounting $74,929 for depreciation.
In regards to the statement of cash flows, the course began with $8,049. In addition to the $131,917 net income loss, the course fund also paid $264,375 on the principal and interest of debt. Cash flows were saved from going into the red by an interfund transfer of $311,000, allowing the course to end the year with $52 in cash.
