Madison Water Utility faces $6 million cash deficit

MWU went from surplus to deficit in 3 months
Madison Water Utility faces $6 million cash deficit
Photo courtesy of Madison Water Utility
Paterson Street Operations Center

The Madison Water Utility is $6 million in debt and needs a loan from the city of Madison reserve fund in order to pay its bills. That loan will eventually be repaid with interest by ratepayers at roughly 25 cents per year for every year the loan is outstanding.

“The teachable moment is to budget more conservatively,” said Tom Heikkinen, the general manager of Madison Water. “We don’t expect it to happen again. We’ll take a closer look, obviously at our cash, but it’s just a situation we have right now.”

According to Heikkinen, the budget shortfall exists because the utility overestimated its 2017 revenue during the budgeting process, not because it overspent. He said the reasons the utility took in less revenue include the closing of the Oscar Mayer plant, a wet summer, increased property taxes from the city and the Public Service Commission’s delay of the utility’s request for a rate hike.

Also, the fact that Madison Water uses a legacy accounting system as it tries to segue to the citywide accounting system could have led to figures being inserted in the wrong places.

“I was surprised,” Heikkinen said of when his finance team gave him the deficit news after it closed the books on the 2017 budget last month. “I wasn’t surprised we had a tough year. I knew revenues were down, but the magnitude surprised me.”

The board president was surprised as well when she found out. Lauren Cnare said, when she first joined the Water Utility Board in the middle of the last decade, there was also a deficit that required the city to loan the utility money to meet its obligations. She has met with Madison Mayor Paul Soglin about this deficit and expects Heikkinen and his staff to dramatically scale back the utility’s budget requests for the next two to three years.

“We know, when we look at the budget, that I don’t think the board will have much of an appetite for any non-necessary capital spending,” Cnare said. “There won’t be any new water towers being painted.”

.@MadWaterUtility went from surplus to deficit in 3 mos. Find out why and what you’ll pay to fix it @WISCTV_News3 at 6 and @channel_3000

— Adam Schrager (@aschrager) May 21, 2018

Utility officials will present a plan to raise roughly $2 million by selling seven properties the utility owns. They plan to keep the utility’s current level of service while canceling any nonessential spending.

“I don’t think we can continue business as usual,” Cnare said. “We’re going to have some lean years. We’re going to have some very lean years.”

Cnare said her board colleagues are trying to figure out how they missed the signs of this shortfall and if there were questions they should have asked throughout the year. She will propose future training for her fellow board members to better understand budgeting and to learn the right questions to ask during financial conversations. Heikkinen said that, going forward, he expects to get monthly economic snapshots from the utility’s finance department instead of the quarterly reports he currently receives.

Board documents show a $692,010.17 cash fund surplus at the end of 2016.

For the rest of the year, that cash flow would operate in a deficit that ranged from $9 million to more than $12 million before late bill payers at the end of the year brought the eventual deficit to the currently reported $6 million.

In June, an independent auditor highlighted a problem with the utility’s financial reporting, writing in a letter to the Water Utility Board, “At this time, the utility does not have internal controls in place that allow for the presentation of materially correct year-end financial statements.” The auditor also wrote that there was “a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis.”

That auditor gave similar feedback and articulated similar concerns during its report to the Water Utility Board for the previous year.

The Water Utility Board meets at 4:30 p.m. on Tuesday at the utility’s headquarters on Olin Avenue.