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Wastewater ratepayers shouldn't subsidize unrelated functions at $42.5 million campus, auditor finds

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"Storm Clouds are Gathering Over the City's Use of the Wastewater Enterprise Fund," a June 2009 Westword feature, focused on "how Denver officials are using funds designated for the improvement and maintenance of the city's storm-water drainage system to pay for various non-storm expenses," according to a subsequent blog also written by the piece's author, Jared Jacang Maher.

In the latter post, Maher maintained that "$42.5 million in storm fees have gone to foot the bill for the construction of a new state-of-the-art facility for the Public Works Department that has scant, if any, association to the storm or waste-water system."

Last week, a report issued by auditor Dennis Gallagher's office largely concurs with this assertion. In a letter to Public Works manager Bill Vidal, Gallagher writes, "The Campus will host several functions that are not related to Wastewater, and that Enterprise Fund ratepayers should not subsidize.

Access the entire report here, and read Gallagher's letter to Vidal below:

Bill Vidal, Manager Department of Public Works City and County of Denver

Dear Mr. Vidal:

Attached is the Auditor's Office Audit Services Division's report of their audit of the Wastewater Enterprise Fund (Enterprise Fund). The purpose of the audit was to ascertain whether the Enterprise Fund has been used in an appropriate manner.

The audit found that the Public Works Manager has authority to allocate some costs to the Enterprise Fund. However, despite this authority, the Public Works Department has an obligation to adequately document the rationale for making the charges to the Enterprise Fund. The Enterprise Fund is supported by service fees, and the audit team shows how the Colorado Supreme Court decision in Krupp v. Breckenridge Sanitation District requires that service fees be adequately supported. Without an adequate level of documentation, the City is at increased risk of having to pay refunds to ratepayers. The decision to allocate 100 percent of costs for maintaining curbs, gutters and sidewalks is an example of a cost that is not well-supported, and should be reconsidered. Similarly, the decision to allocate employee costs based on estimated time spent on Wastewater related tasks, when methods of capturing employee time more accurately are readily available, should be reconsidered to mitigate the City's liability.

The audit revealed that the Public Works Department moved expeditiously to assist with the development of RTD's FasTracks project. The use of Enterprise Fund monies to purchase and develop land for a new Central Platte Campus was appropriate. However, the Campus will host several functions that are not related to Wastewater, and that Enterprise Fund ratepayers should not subsidize. To ensure that such a subsidy is not made permanent, Public Works should formalize its stated intention to repay to the Enterprise Fund monies used for aspects of the Campus not related to Wastewater functions. To protect the Fund, Public Works should also ensure that it adequately documents its rationale for determining the amount that will be repaid to the Enterprise Fund.

In his response to the audit, the Public Works Manager notes his belief that the audit mistakenly cites a draft 2001 engineering report by Camp, Dresser, and McKee. This report was subsequently revised, but that does not invalidate its conclusions. Auditors only referenced the 2001 report regarding conclusions on the percent of curb and gutter replacement that could be paid by the Enterprise Fund. Auditors communicated with the author of the report about this conclusion, and the author did not retract the conclusion in the 2001 report. In fact, auditors found no engineer or engineering resource that could corroborate the Public Works Manager's contention that 100 percent of curb and gutter replacement costs should be borne by the Enterprise Fund.

If you have any questions, please call Kip Memmott, Director of Audit Services, at 720-913-5029.

Sincerely,

Dennis J. Gallagher Auditor

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