For those in the audience old enough to recognize the lyrics of "Changes" by David Bowie, I use that as the lead-in to what I see as an issue that the Mayor and several City Council Members seem unwilling to "turn to and face the strain" of a growing financial issue. By the way, if you wish to visit your youth and want to find all the lyrics to the song, simple Google "Changes" by David Bowie and you'll get to LyricFreaks for the answer.
Tonight I want to review pages 7 and 8 of the Management's Discussion and Analysis (Unaudited) from the City's Financials. For you readers following along on the home edition of "Wake up Kennesaw" it should be easy to find. If you are new to the post, go to http://www.kennesaw-ga.gov/form-center/category/14-financial-reports and download your free copy of the financials. Take a moment to become familiar with it because it can be intimidating. Okay, let's start by agreeing on a few principles because there has to be a base-line of thought on why we are seeing what we are seeing. Then we can move through pages 7 and 8.
First, running a P&L (profit and loss) for the City, at it's core, cannot be too much different than how you run your household (maybe a little harder for some of our elected servants). Assets cannot be exceeded by liabilities, and revenue must exceed expenses, otherwise, you have to take from your balance sheet (i.e. your bank account to cover the short-fall). Can we agree that makes sense?
Unlike your household the City is a perpetuity which means it never dies...it goes on forever (or in the case of Detroit, maybe not as long!). Have you been following the travails of any of the California cities that have declared Chapter 9? Does the city cease to exist? No. It simply reorganizes its debts but continues to pay police and essential services. Most of the time pension and retirement benefits get taken out in the process. But the City continues to exist.
And that is the difference between you and a City. But there is one more difference. Politicians. Politicians can make promises regarding your tax dollars today and not be around when the checks need to be cashed. That's what happened in Detroit with Mayor Coleman Young....gold plated retirement packages and lucrative benefits that kept getting him re-elected. What did he care? He figured by the time it all blew up, he would be dead....and he's been dead for awhile.
Okay, so what's this all got to do with the "price of tea in China". Let's go to page 7 in the Management's Discussion and Analysis (unaudited). I'll make this real easy for you. Last year the Governmental and business-type activities combined provided a $3,832,043 increase in net assets. See page 8, third line up from the bottom.
You will further note the individual line item expenses. These are taken directly from the Statement of Activities...see page 15. Now what do you NOT see listed?My favorite subject matter: OPEB...Other Post Employment Benefits. See it anywhere? You will see it on page 15 of the Statement of Assets for a whopping $1,888,145...but it is not reflected on the Changes in Net Assets.
It's not there because it is not currently being paid out (we only have 7 retirees at the moment), even though every year the City accrues an increasing liability of OPEB. They show it on the Statement of Net Assets (the equivalent of your household Net Worth), but not on the annual income versus expenses (the equivalent of your net paycheck and all your household expenses)...it's not required.
DIRTY SECRETS
And here's the "turn and face the strain" that your servants don't want you to understand...nor do they care about addressing because when the bomb goes off, they will be collecting their pensions and living in Florida. Because if they had to fund the Actuarial Accrued Liability (see page 52, Financial Note 12), (the household equivalent of your children's college fund), they would have lost money in 2012...just like they did in 2011.
Let me use this analogy. The OPEB is the equivalent of mother's and father's in the City of Kennesaw saying to their children: "Children, we have WONDERFUL news...you are going to Harvard for college. Now we know that Harvard costs $60,000 per year in today's dollars to attend, but we are making the assumption that we will have enough money to pay the bill when you are ready to go to Harvard. We've consulted with our accountant who tells us that the pretend money that we have socked away is earning 7.5% annually!"
Want proof? Turn to page 53, Note 12 and look at the Annual OPEB Cost. The net cost was $642,560 for 2012...and the City put away $6,195 to fund it. Yup, congratulations...you is going to Harvard to become a "rith-ma-ticker".
FINAL TAKEAWAYS
1. The Actuarial assumptions are reviewed every two years. You can see that on page 53 under Annual OPEB Cost. Note that the recommended contribution was determined as part of the January 1, 2011 actuarial valuation.
2. The City's Unfunded Actuarial Accrued Liability (UAAL, page 52, Note 12), is $3,784,934 and that number is as of January 1, 2011. Now if you turn back to page 53 and look at the annual OPEB Cost, it went from $925,175 in 2010 to $2,162,589 in 2012. Houston, do we sense a problem here?
3. This means that when the actuaries come back to take a census of the workforce for the City of Kennesaw, the UAAL will probably be much higher, because it's two years later and the actuarial healthcare cost trend rate is 9% (page 52, Note 12, City Contributions, actuarial assumptions).
4. However, it may go down slightly because, guess what, the City is outsourcing the Sanitation Department and all those bodies that get laid off will be dumped from the UAAL. How many? See the Organization Chart at the front of the report, Roman Numeral xii. Find the Sanitation box under Public Works and there are 20 workers for Sanitation. That's a lot of future liability going away.
5. Changes? Ask the Mayor, City Council, Steve Kennedy or Gina Auld about GASB 45. Better yet, read up on it yourself. Follow this link for a great piece that was written in 2007 and leave a comment if it doesn't sound like what is happening to your City. http://online.wsj.com/public/resources/documents/DroppedB.pdf
If you cannot find it, shoot me an e-mail to kennesawcitizen@gmail.com and I'll send you the PDF. One of the takeaways from this piece is that City's will have to do a couple of things to meet their OPEB promises: Cut services by cutting personnel, sell essential services (sound familiar Sanitation Department) or raise taxes. And this report was written SIX years ago.
6. Spread the word readers. Get more people to link to this blog and get educated. Share the link on your Facebook, or better yet, run to the window, and yell "I'm made as HELL and i'm not going to take this anymore".
7. Finally, finally....What the heck has the Mayor and his cabal done over the past several years while these liabilities have gone unnoticed?
Answer: I don't know. Protect nice benefits for City Employees (and they deserve some benefits, but not empty promises that could be reduced or taken away in the future), accumulate a Pension for themselves and control the City Manager's employment contract and get re-elected. On this last point I ask you....how does the City Manager, Steve Kennedy, who must be a financial guy, not put this on the front-burner? How can Steve rock the boat at City Hall? He may not want to rock too hard...there is something wrong with the "checks and balances".
The Mayor and his cabal will most likely be long gone when the check comes due...and this is why my friends it is important to understand the financial backgrounds of those you elect to office. You must ask yourself if a "poor country boy" can ask these questions then how do they miss it?
Answer: Might it be their lack of financial education, poor money management skills or is it our own collective apathy (mine included) that these guys are doing what's best for the City?
Just because the Mayor and many of the Council members do not have college educations does not mean they are not smart. The world is full of educated idiots. Does what occurs in their personal lives mean they cannot manage finances or personal relationships? You can decide that. Would the voters or readers of this blog feel comfortable receiving financial advice from a counselor who had gone through a bankruptcy? Maybe, maybe not. Leave it to the voters to become educated on the subject of their civil servants (serving and seeking) and decide accordingly.
As a small-business owner I can understand the moves one would make to save a business, but you have to back-up and understand how the business got to that point. Did the owner not capitalize properly? Did they take on too much debt?
Over promise, under-deliver? Not provide a good product or service? Not see the business failing and take moves to cut losses and shut down. And there are a host of other questions one would ask.
Bankruptcy itself is not "Scarlet Letter" for life, it is just a black-eye for those seeking to place themselves in a position of Trust.
And when you read the financials and try to reconcile why things are as they are (i.e. a Museum that loses $1mm in 2012), their financial acumen is called into question. These are reasonable questions to ask.
All the while they refuse to "turn and face the strain" while turning you away from some real issues they would rather you not notice.
Wake up Kennesaw!
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Wake Up Kennesaw
Money Losing Operations and Your Tax Dollars
Good evening. Tonight I would like to discuss the items in the budget called "Business-type Activities".
For those that have been following my other posts, the information I cite will come from the City of Kennesaw, Georgia Comprehensive Annual Financial Report, for the Fiscal Year Ended September 30, 2012, Presented by Gina Auld Financial Director. A copy of which can be found on the City of Kennesaw website by following this link: http://www.kennesaw-ga.gov/city-services/finance
I want to specifically focus on the two money losing operations that the City of Kennesaw (read: your tax dollars) support. Now, I like the Museum and I'm sure the Smith-Gilbert Gardens are wonderful.
However, several questions must be raised for discussion:
1. How do they continue to lose so much money?
2. Are the people in charge running the operations correctly?
3. If we are out-sourcing the management of the Sanitation Department cannot the same be done with the Museum and Smith-Gilbert Gardens?
4. Has the City Council taken a hard look at the numbers and had similar discussions?
Okay, with that as a background, let's begin a review of the numbers. On page 4 of the Management's Discussion and Analysis (Unaudited) at the bottom of the page you'll find a description of how the government-wide financial statements of the City are divided, there are three categories:
1. Governmental activities - These include the basic services provided by the City including police, culture and recreation, public works and general administration.
2. Business-type activities - These include services for which the City charges specific fees which are meant to cover the cost of providing the services. These include sanitation (solid waste collection), the Southern Museum of Civil War and Locomotive History and the Smith-Gilbert Gardens.
3. Component units - Included in the component units for the City is Kennesaw Downtown Development Authority and the Kennesaw Development Authority. Although these organizations are separate legal entities, the City is financially accountable for them.
We will explore #3 in a later post because there is some good stuff in there. Let's focus on #2 and the two units listed. First, note the wording of the Business-type activities..."fees which are meant to cover the cost of providing the services." Pretty simple would you not say? If it costs $5 to run, you should be charging about $5 to put on a show, or open the doors. Unfortunately, that doesn't seem to be the case with the City.
Now, I'll give props to the Museum because on page 10 of the Management Discussion and Analysis. Note the second bullet under "Revenue Impacts": "Funds are transferred to the Museum and Gardens as cash is needed." Fortunately in 2012 less cash was needed because the Museum reorganized their workforce and put the marketing services out for bid during the year. As a result, their salary and marketing expenses decreased. Good for them.
Now before we get too far ahead, let's turn to page 15 of the Statement of Net Assets...then turn one more page just behind that one to get to the Statement of Activities for the year ended September 30, 2012.
This should be real easy to read since there are only four columns to review. Move your finger to the Museum and across to the Expenses column....$1,307,352 in expenses...now move your finger over one more column to the Charges for Services.....$378,466....oh, and move the finger over two more columns to Capital Grants and Contributions of $57,794.
So for 2012, the Museum brought in $435,000 in revenue and cost taxpayers $1,307,352 to operate. Any questions?
Look at the Gardens. $319,369 to operate versus $121,803 in revenue (plus the $934 in contributions).
Now to see just how the Sanitation Department fits into all this, flip over to page 23...Statement of Cash Flows and note the Transfers Out to Other Funds and Transfers in from other funds.....Now they don't quite all add up to the amount moved out of the Sanitation Department, but you get the gist of this. The Sanitation Department subsidizes the Museum and Gardens, along with some other funds from elsewhere in the budget. Oh, and for 2012 we paid to employees $503,426? Just look up at the Cash Flows From Operating Activities. Nice work if you can get it.
So, why does this continue? Why can't we have a discussion about the Museum and how they can run it better? I understand the Museum and they symbol it is for the City, okay, fine. But there has to be more efficient ways to run it? Let a private organization run it, bring in more and different exhibits and try to turn a profit. And what about the Gardens? Why not let a private enterprise take that over and run it for profit? Why does it have to suck money away from other issues such as the under-funded pension or growing Post-Employment Benefits.
Citizens, I ask you to simply look at the numbers and ask the questions I am asking. Ask yourself what type of public servant, duly elected to office to be a steward of your tax dollars would continue to run a money-losing operation such as this, then outsource the only money-maker the City has? How about outsource the stuff you are not profitable at and keep what you are good at doing? I laud the City for the outsourcing, especially if it makes the City more money, but if you are looking for ways to fund a storm water project, look at the entities that are costing you money first.
Wake up Kennesaw!
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Wake Up Kennesaw
I had an opportunity to meet with the folks at City Hall to try and make sure my read of the City’s financials were accurate and that I was not “crying wolf” over certain issues. I think anyone that posts anon, as I do, have a duty to correct or amplify issues raised when identified. Thus, I’m trying to keep the record straight.
Correction
Sanitation Department – The sanitation department does not “fund” the Museum and Gardens. The funds that are moved out of the Sanitation Department (page 22 for those of you following along in your personal copy of the City’s Financials (available at http://www.kennesaw-ga.gov/form-center/category/14-financial-reports) go to the General Fund. The Museum and the Gardens are funded from the General fund and to see that let’s follow the money:
Page 18 – You will notice in the Statement of Revenues under the column “General Fund” that $1,647,672 was Transferred Out (see close to bottom of the page).
On page 22 you can see that The Museum and Gardens received $1,300,211. So, for the Record, the Sanitation Department is not funding the Museum and Gardens, however, it all goes into the General Fund which then flows out to the two operating entities as well as to the storm water program.
Unfortunately, the Museum (shown at left) and Gardens are still money-losing operations.
Mayor and Council line item – I noted in a previous post the rather large line-item for the Mayor and council. That item is for salaries, pensions, storage…all costs associated with running the Mayor and City Council office. This includes about $25,000 for election costs.
Amplification
Pensions for our Mayor and City Council. Apparently, many years ago, the City Council voted themselves a pension benefit….how benevolent of them to spend our tax dollars in such a caring way.
You take the job of elected civil servant not to enrich yourself (okay I am naïve), but to make the operation more efficient, at least that is what one would expect. And far be it from those that come after those that voted for such a benefit to rock-the-boat.
If we can elect the right servants to the City Council Board we can actually agitate for a change in that benefit. The City Council could eliminate the pension benefit, freeze the benefit, cap the benefit, or any other host of ideas. Personally, eliminating the benefit is the best option while freezing it for all current elected servants who are eligible.
Since there is no cap on the benefit, my previous post regarding a potential half-million dollar pension for the Mayor stands (based upon the assumptions presented).
I believe Cris Welsh is already on board with freezing or eliminating the benefit; Debra Williams would be on board with that and Jim Sebastian would support that. I’ve spoken with Bruce Jenkins on the subject and I believe he would support it as well. Would Matt and Jeff support this? I’ll reach out to them, or they can e-mail me at kennesawcitizen@gmail.com with their thoughts. I note Jeff’s signage says something about being a good steward….I’ll put him to the test on why he should receive a pension.
Amplification
Other Post Employment Benefits (OPEB) – This is the “kudzu” in the budget which currently supports 7 retirees, but has 193 active participants that one day could be eligible. This is why the City accrues the benefit as a payable…one never know who will make it to be eligible. The benefit pays until age 65, then is eliminated after that age. Here’s how you become eligible:
1. You meet the rule of 70 (age+years of service = 70), and
2. Employee must be receiving a pension from the Georgia Muni Association – since the City’s pension fund is in the GMA program, all eligible employees satisfy this requirement.
3. So, if you start working for the City at age 30, and work until age 50, you meet the rule of 70 (20 years of service plus your age).
4. Therefore, you can retire at age 50, draw a pension from the City and collect Other Post Employment Benefits for the next 15 years…and maybe go to work somewhere else just to keep some pocket change around.
So, I confirmed the following with the City:
1. The annual required contribution represents 4% of the revenues of the City of Kennesaw ($642k / $17mm = 4%). Why is that number significant? Detroit’s OPEB is around 5% of the City’s revenues.
2. The current OPEB due is $2,162,589, which grew 41% in a year.
3. The unfunded Actuarial Accrued Liability for OPEB was $3,784,934 (as of January 1, 2011…so the number is even bigger today), which is 6% of the net assets of the City of Kennesaw. Net assets can be found on page 15, Statement of Net Assets. Take $3.7mm and divide by $57.1mm and you’ll see what I mean.
Now, it’s a fact that you get paid less when you work for the City but it gets made up in benefits. But I want to ask a question of a City Employee: Would you rather make more money today with a smaller future benefit, or make less today with a benefit that might not be sustainable in the future?
The City Council needs to take some action on this and “stat”. And I’m not sure how the City Manager can agitate the Mayor and Council when his contract is held in their hands and the Mayor controls the majority of the votes? Does Steve, our City Manager, go to Mark, our Mayor and say “You better do something about this growing liability or else!” How can he get anything done when you threaten the people that determine where your paycheck is coming from? Someone in the audience get back to me on this Gordian Love Knot.
How can they control this? It’s simple and it takes some back-bone. You either lower the benefit; raise the eligibility; eliminate the benefit, or make the employees pay more for the benefit.
The other "tongue-in-cheek" idea I suggest to City Hall was to only hire people age 60 or more. Since the benefit runs out at age 65, you'd have very little in the way of benefits to pay.
If you do nothing, you had better prepare for tax increases because it will consume an ever higher proportion of City revenues. The City will be forced to either raise taxes, cut services, or both.
In closing, I ask what are the elected servants doing to address the financial issues presented? It does not take much more than high school accounting to understand there are issues with growing benefit plans that consume higher amounts of capital.
Next up…let’s talk about that $8,400,720 “Voter Approved Use” line item budget. Why can’t we use that for storm water? All we need to do if put it up for a vote.
Wake up Kennesaw!
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Wake Up Kennesaw
Good afternoon. I took down my first blog because it apparently was a bit too controversial. I mean, all I did was to read the City's financials and apply a little common sense.
By the way, I am a citizen of the City of Kennesaw, I am not running for any office (although I thought about it but came to my senses which is why I'm writing this blog), and have talked to a few Council Persons about the issues that really bug me. Seems like a little bit of a logjam down in City Hall and that this election could decide how we could proceed going forward with some changes to the financials of this City.
And because I took down my last post, let me revise the things that bug me and they should bug you. City of Kennesaw financial report can be located at (http://www.kennesaw-ga.gov/city-services/finance)
1. Why does the Mayor and City Council people receive life time pensions for their part-time service? Even if it was full-time, why get a pension anyway? (See Page 48, Financial Note 11). If my math is correct, Mayor Matthews will be getting a nice, cushy pension for his close to 20 years of part-time work.
2. Why is the Mayor and City Council folks immediately vested in the pension (which they should not receive anyway) and the guy that rides the trash truck have to wait one year until he is eligible? (Page 48, Financial Note 11).
3. Are any of the elected servants or those running for office concerned that the City's pension fund is underfunded? I believe there are as I've spoken to two of them, but there seems to be gridlock in City Hall and they cannot get anything accomplished on the subject.
4. Are any of the elected servants or those running for office concerned that the Other Post Employment Benefits (OPEB) are severely underfunded. By my calculations the off-the-books liability to the City grew 41% to $2.1 million as of 9.30.2012 (page 53, Note 12). The City only put in $6,195. The Annual Required contribution of $642,560 was 3% of revenues. Taken another way, the Unfunded Actuarial Accrued Liability (UAAL) of $3,784,934 (page 52, Note 12), is 22% of Total Assets of the General Fund of the city which was $17,463,932 (page 17). You will see that the UAAL is not included on the balance sheet, but that is just how it is done in government.
5. Business-Type Activities (Page 15). The Sanitation Department, the Museum and the Smith-Gilbert Gardens are "business-type activities" (See page 4 of Management's Discussion and Analysis). "These include services for which the City charges specific fees which are meant to cover the cost of providing the services." For 2012 the Museum expenses ran $1.3mm and they charged for services $378,466. The Gardens were also unprofitable. Thankfully the Sanitation department earns enough money to subsidize those two "enterprises".
6. How can we continue to run unprofitable enterprises while the pension fund is underfunded and the post retirement benefits are growing like kudzu? Ask the Mayor or City Councilperson, or those candidates running for office at the upcoming Locomotive Chase what they are doing about this?
7. Line item budget for the Mayor and Council of $490,000 (page 20). I know it covers salaries for them and a couple of staff, which I calculate is about $150,000, so what is the other $340,000 for? Why do part-time public servants need a that line item.
Okay, that's it for now. Hopefully that gives you voters something to really chew on. I'll have some additional thoughts on this stuff in my next post. In the meantime, grill anyone who is running for office, or in office, about the financials of the City. I know I am.
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Welcome To Wake Up Kennesaw - First Blog
August 23, 2013
Hi, welcome to my blog. I'm a Citizen of Kennesaw, Georgia who just had a "WTF" moment when I stumbled across the beautiful 129 page City of Kennesaw Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2012. I printed out all 129 pages and started reading....yeah it was a boring night. All the sources I cite will be from this report....I'll provide the page number, you have to go to the City of Kennesaw website to get the report.
( http://www.kennesaw-ga.gov/city-services/finance ).
What I read was, to say the least a bit revealing. And that is what this blog is about. It's about shining a light on an area that most citizens of our fine City don't even know about, especially in advance of the upcoming elections. I have several topics on my mind which I'll cover over the next few weeks and my agenda is simple - let's get some good people onto the Council to turn this government around. I'll provide some "cover" for two Council people I have spoken with on the issues of concern: Chris Welsh and Bruce Jenkins. Solid people who share my concern and truly want to do something about how the city is run.
So, let's uncover the first topic on my mind: The Sanitation Department.
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WHILE THE TRASH MAN RIDES
Ever wonder about the guys that ride the trash truck for you around the City of Kennesaw? Not a particularly easy job to say the least. Good people trying to earn a living, probably not paid a great deal.
Slogging it every day to pick up trash, recycling and yard waste. The real "unseen" heros of this city.
Perhaps the trash man, as he rides his rounds, doesn't realize that on the day he joined the Sanitation Department (one of the only departments in the City of Kennesaw that actually makes a profit that is routinely raided by the City....more on that in later posts), he had to wait a year to be vested in his pension, while the Mayor, on the day he was elected to his first position in the city was immediately vested in the program? (See Page 48, Note 11).
While the trash man rides the back of the truck earning a living, he probably doesn't know that the pension he is depending upon from the City of Kennesaw is not fully funded (See chart on page 50, see UAAL as a percentage of covered payroll)? Is this Kennesaw or Detroit?
Citizens I ask you to consider the following questions:
1. Why does a public servant of a small city require a pension? Are they not elected to serve than to be served? Should we not suggest to our elected officials that their pensions be frozen and all future elected servants not receive a pension?
2. Why does the Mayor and elected servants have no waiting period to be eligible for the pension while the trash man is eligible after working one solid year....on the back of a trash truck?
3. If the Mayor has 20 years of service, he will amass a pension of over $1,200 per month...for life? Is that why our politicans serve for so long? To amass a pension?
Think about it.
Next blogs up for consideration:
1. Line item budgets - what the heck is the $490,000 Mayor and Council line item for....I know a little bit about that and will share.
2. How about the Other Post Employment Benefits program - when you hear about this one you'll storm City Hall for a job...and when you see how quickly it grows you'll reach for the duct tape to keep your head from exploding.
3. Pension liability - we will delve into that one a little deeper
4. Sanitation - Big profit center for the City....why does the City want to sell it off?
5. The Museum - I enjoy the Museum, but shouldn't it do more than lose in excess of $600,000 this past year?
6. The Smith Gilbert Gardens - Never been there, but it's a money loser too!
