Report Highlights Huge Cash Flow Problem at Nome’s Utility

Photo: Matthew F. Smith, KNOM.
Photo: Matthew F. Smith, KNOM.

Nome Joint Utility is working on a broken budget—a financial plan that is unbalanced and unrealistic. That’s the takeaway from the Rural Utility Business Advisor report, or RUBA—delivered to the Nome City Council and utility board this week.

The RUBA highlights some good parts of the utility’s operations—noting its accounting is sound and has a well-organized management system. But the report paints a troubling financial picture for the finances at NJUS—which have been in turmoil since November, when the utility first took on a $2.2 million line of credit from the city. But while that money went to pay off loans guaranteed by grants, the RUBA found unpaid debts to vendors and creditors that presents and even bigger financial hole.

“Doesn’t look like there’s enough cash to be covering things right now, from what I can see. If you have $3.5 million in accounts payable out there, you don’t have enough money coming in to pay, you’re just trying to pay the one that screams the loudest, that’s what seems to be going on,” said Fred Broerman, who works for the state’s Division of Community Regional Affairs and wrote the RUBA report.

As recently as March 10, he says that $3.5 million was still owed on debts dating back as far as 2012—with many charging interest. But Broerman says the RUBA review didn’t find any mention of that debt on the utility’s monthly budget.

“We were looking for, you know, the transparency that all the finances are on the table. And that $3.5 million in accounts payable didn’t show up,” said Broerman. “And that’s significant enough to say, hey, the utility board needs to know that and the council needs to know that.”

The RUBA audit also found the utility’s revenue and its expenses are dangerously unbalanced. The money it takes in fails to cover its operating cost, let alone plan for repairs or replacements down the road—and it found the utility board reviewed those finances just once in the last half of 2014. That led to budgets that were unrealistic and projects with funding that was poorly tracked. Council member Jerald Brown asked Broerman for the bottom line.

“In your opinion, is the sky falling? I mean, is there a really big problem here?” saked Brown.

“Well, you’ve got a cash flow problem,” said Broerman. “You know, that accounts payable, that big…that’s a huge problem.”

Utility manager John Handeland took the podium to say that $3.5 million has been chipped away to a number now closer to $2.7 million. And Handeland says new loans are coming from the state Department of Environmental Conservation that would cover the rest.

“That loan comes it, it wipes out accounts payable,” said/asked? Brown.

“It pretty much wipes out accounts payable,” said Handeland.

Beyond finances, the RUBA report noted other areas of concern for the utility—mostly focused on personnel and staffing—but the warning bell on finances rang clear. Council member Brown says when it comes to righting the ship, every option is on the table—but the first step will be looking at a long-overdue rate increase.

“One of the things that is currently being considered and being discussed is the rate increase. That will address a lot of the operational accounting needs, or finance needs, going forward, is to put into place a rate structure that is sustainable,” said Brown.

And though she delivered her comments at the start of the meeting, City Manager Josie Bahnke told the council she and utility manager Handeland have been working to address the financial shortcomings at NJUS since a draft of the RUBA was released in February—and she says they’ve made some progress.

“You know, a lot of work has been done to address some of these issues. I think when this line of credit was approved, a lot of people jumped to conclusions about a lot of things that were going on. But this report, this evening, being presented, it’s in an effort to maintain public trust, and to provide for transparency at the utility. And that’s been our goal,” said Bahnke.

Wednesday’s meeting ended with an executive session closed to the public—where the council and the utility board met with representatives from Nome’s Wells Fargo branch to discuss a multi-million dollar fuel loan for 2015.