By John Schaffner
When the city of Atlanta’s General Fund — the budget that funds most city operations — is running dry, the administration has a convenient money tap right at City Hall: the Department of Watershed Management.
While that department has angered thousands of residents with excessive bills, questionable service cutoffs, computer problems and poor customer service, it has floated almost $140 million in loans to keep other city agencies operating smoothly.
Mayor Shirley Franklin’s administration moved that money without the knowledge of the public or most of the City Council. The revelation of the loans came at a time of financial crisis when Atlanta has laid off hundreds of workers and furloughed all others.
An independent audit of the Department of Watershed Management (DWM) for fiscal 2008 and 2007, which was released Jan. 26, revealed that the city had borrowed $139,552,000 from the department for the General Fund.
Word that the DWM had extra money to lend to other agencies raised questions about the necessity of the 27.5 percent increase in water rates that went into effect in July.
The fund transfers, or loans, from the DWM were explained in notes to the audit statements made by the firm of Danks, Finley White & Co. Those notes mentioned two memorandums of understanding (MOUs) between the city administration and the water agency to pay back the money in annual increments that initially will total $14 million.
The first MOU, dated Dec. 23, calls for repaying $23,353,000 at $4 million a year plus interest, commencing July 1 with the start of fiscal 2010 and ending in fiscal 2014.
The second MOU, signed Jan. 23, is for the repayment of $116,199,000 at $10 million a year plus 3 percent interest beginning July 1 and continuing until the loan is paid off.
The General Fund, despite several rounds of cuts, is running a projected $50 million deficit and now must bear an additional $14 million annual expense for at least the next four years.
“It was made very clear that formalizing this agreement is necessary, and when the external auditor talks, you are obligated to listen,” said Councilman Howard Shook of Buckhead, who chairs the council’s Finance Committee.
“Council was not involved in the negotiations. That is an administrative function,” he said. “That said, we will do legislation anyway that makes it clear that this was a work product of these entities. That also gives us the opportunity to weigh in and lend our voice to it.”
Signing off on the memos “does not mean there are no outstanding questions,” Shook said. “I am awaiting a formal legal response that states in writing that no bond covenants have been violated. I have been told it is OK, but I also want it in writing.”
Shook said the management letter with the annual audit is supposed to note risks and problems. “If it was $100 million last year, why would it not have been noted in a document designed expressly for that purpose?”
He said Watershed Management usually is flush with cash, while other city agencies face steady monthly expenses but lack the same consistency in their revenues. “That explains the need for the borrowing.”
“The city does not shift funding from one fund budget to another but uses cash as a pooled resource using citywide funds to finance short-term needs between departments,” said Councilwoman Clair Muller of Buckhead, a member of the Utilities and Finance committees.
“The cash pool use is a legal activity,” she said, “but, until now, no repayment plans have been formalized at the city of Atlanta.”
Councilwoman Mary Norwood, a mayoral candidate, said: “Council doesn’t have any idea when this stuff started. We were all surprised when Watershed came up short,” reporting a $50 million deficit for the fiscal year.