The Sanitation Department – A Financial Review

Let us dig into some numbers from the City of Kennesaw, Georgia Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds, For the Year Ended September 30, 2012.  A copy of the annual financials can be obtained at http://www.kennesaw-ga.gov/form-center/category/14-financial-reports.  Select the 2012 CAFR.pdf document.  See page 22.

The Sanitation Department is identified in the financials as a “Business-type Activity”, designed to have its revenues cover their expenses.  The Sanitation Department does with plenty to spare.  Now, let’s start on page 5 of the Management’s Discussion and Analysis so we understand what we are looking at. 

Under Proprietary funds you’ll note that the “City maintains two different types of proprietary funds.  Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements.  The City uses enterprise funds to account for its Sanitation, Museum and Gardens.  Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions.  We will focus on Enterprise funds because these “are considered to be major funds of the City.”

Now, let’s go to page 21 of the financials for the balance sheet for the Sanitation fund.  Nice Total Assets of $2,708,796.  Current Liabilities of $710,283 means a nice positive for the Sanitation Department.  Note that we have some Noncurrent Liabilities which might apply to the trucks the City operates and note $135,981 of OPEB…Other Post Employment Benefits…the silent, growing unfunded liability for the City.  Working through to Net Assets, we have some Capital assets worth $531,496…that might be the Trucks, Trashcans, Recycling bins, etc…  No sure what Unrestricted means other than if it isn’t restricted then politicians can move it around.

Total Net assets for a department that will soon cease to exist, as of 9.30.2012 was $1,730,236.  So upon the finalization of the “outsourcing” of the Department, what happens to these funds will be of interest.

Okay, now that we have that clear return to page 22 of the financials.  Note that this page is neatly organized into five separate columns.  Let’s focus on Sanitation, the first column.  Top line revenue, identified as Total Operating Revenues for Fiscal Year 2012 was $2,558,808.  The cost to run the Sanitation Department is located under Operating Expenses which for FY 2012 was $1,648,179.  Toss in some interest expenses and the Net/Net was $907,386.

Now, note the Transfer Out of $1,019,325.  Where did it go?  Look right next door to the Museum Fund…note the $1,055,194 that Transfers In….go to the right a little more and note the $245,017 Transfer In for the Gardens Fund.  Review these two “business-type” activities on page 21.  Find the Museum Column and go down to Notes Payable…notice something? 

Digression Here:  The Museum has a note payable of $3,230,000, but they only have $135,110 of cash.  Sure they have Total Assets of $6.7 million, but it’s not cash.  They are leveraged their cash to the tune of 23-times.  Anyone out there levered up 23 times?

In summary, the City will be “outsourcing” a real money-maker for the City, selling off the equipment and eliminating employees (or re-assigning them). 

1.What happens to the net assets of the Sanitation Fund?  Who gets it, how does it get spent?

2. Will those assets be used for the Stormwater management upgrade?

3. Explain to the taxpayers how the outsourcing will result in more profit to the City? 

4. How will Republic be held accountable for service?

5. How will future rate increases be reviewed because they will surely come.

6. How are the investments from the sale of the Water facility doing?  Earning the 5% bogey it needs to replace the income sacrificed? (See page 14 of Management’s Discussion and Analysis)

Wake up Kennesaw.