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!