Senior Editor John Schaffner interviewed Dist. 7 City Councilman Howard Shook, the chairman of the Finance Committee, on Feb. 13 about the most recent city financial discoveries. The following are excerpts from that interview.

Q: Why has nothing ever been done about the fact City Council has to approve all of the budgets but then has no control over how the money is handled afterward?

A: The cash pool and other transactions are properly handled administratively. These kinds of cash pools are rather standard government financing tools. The problem here is that we had a couple of these imbalances that clearly were allowed to drift too long without being made whole.

I find it kind of interesting that everyone has kind of discovered this issue. We talked about this on Channel 26 TV for years. Legislation I introduced last year is resulting in all this information coming out now.

I think we are the most open government. Everything is done live on TV. There is not another government that allows citizens to walk in off the street, sign up and ask questions. We have eight public hearings associated with the budget. With all of that, it is disheartening there are so many people who are unaware of what goes on.

Watershed Management is a cash-rich organization. In terms of cash, there is money coming in constantly. Our expense streams month to month run pretty consistently. We get some bills that come in that are bigger than others. But the money does not always come in consistently.

When property tax receipts come in and solid waste bills come in, there is a huge spike. What precedes that is a big trough. So cash pools exist here and elsewhere to smooth out those cash-flow problems. That explains the need for the borrowing. Watershed Management being a cash-rich organization explains why it is customarily a donor.

Council customarily asks how much is owed Watershed Management every time water-sewer rates come up for budget discussions.

I wrote a couple of pieces of legislation last year that are germane to this. One requires monthly reports on cash-flow activities. Another requires the Finance Department to issue a companion document that points out what they think are issues that need to be addressed. So, in time, we should have that, plus the management letter.

Q: Why is it that the financial reports don’t seem to ever be delivered on time?

A: The Finance Department can’t do much with reports until the Oracle system is debugged and we have people who can operate it. Then we will get monthly budgeting, monthly closings, the monthly cash work-up. The whole world is going to emerge into the sunlight when we finally get out of the woods with that crazy contract.

Q: Why do I keep hearing from all the City Council people that they had no idea of these fund transfers to this extent?

A: If you are on the city Utilities and Finance committees, you hear it, and I have been on both for six years. There is stuff on other committees that they discuss all the time that I would tell you I have never heard of. They have been discussed. But honestly, we were not aware of the extent of the draft. The reason we wrote this legislation last year is that we want reports on these activities.

Q: What is the real deficit?

A: The administration is still in kind of a blind spot. There have not been enough pay periods yet to ascertain how effective the furloughs have been to know how much of the $50 million we have filled in since those cuts were made.

Q: Would this $116 million loaned to the general fund by Watershed Management be added to the previously stated total deficit for fiscal year 2008, which ended June 30 of last year?

A: I don’t think that is the correct accounting procedure.

Q: Do these fund transfers require City Council approval or not?

A: A lot of council members will tell you that every activity in City Hall should require our approval, but does that make it so? What the Law Department said in committee is that when we approve the budget, that is a de facto approval. That is when you are approving all of these activities. Some people would feel more comfortable if each transaction did come out in some form of legislation. I think once we get to the point where we can do monthly reporting, I will have a better feel for whether or not legislation is needed to do that. We can always tighten it up if we need to.

Q: If Watershed Management has all of this money and can loan to everyone else in the city government, why are the citizens paying increasingly higher water rates?

A: In the Finance Committee meeting Feb. 11, several of us took a crack at putting that same question to (Watershed Management Commissioner) Rob Hunter, and then we just sort of gave up. I asked him, “Are you telling me that if someone gave you a check for $116 million, you still would have had to have made all the cuts and such?” He said yes. We all realized that discussion was going nowhere.

Q: Do you see any new legislation coming out of all this?

A: Deloitte & Touche is doing a pro bono analysis of the city’s financial systems, and they should be getting ready to make recommendations. Chief Financial Officer Jim Glass has been there long enough where he probably will be comfortable enough to make recommendations. So I think we probably are going to have information and recommendations coming in to consider how we tighten things up.

Q: Do you envision any tax increases?

A: If there was enough pressure brought to bear on my colleagues and it could be structured just to be used for public safety, you might find eight people in an election year that would do that and live to tell about it. We have not yet gotten to the point where the public sentiment is “You fix it, and I am willing to pay for it.”