Auditors: Jackson’s Siemens settlement gone; city spent money based on revenues it knew wouldn’t come in

Published: May. 16, 2022 at 12:47 PM CDT
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JACKSON, Miss. (WLBT) - Auditors painted a bleak picture of Jackson’s water finances recently, saying the city for years had spent significantly more than it has taken in, while at the same time had relied on transfers from other sources to keep its water/sewer fund afloat.

Meanwhile, the Siemens settlement proceeds have all but disappeared, in part, due to the fact that the city has been unable to shore up problems in its water/sewer billing department.

At the same time, solid waste is reporting consecutive years of budget shortfalls due to the fact that garbage rates for the city have gone up, while those fees have not been passed on to customers.

In late April, Scott Hodges, a partner with Tann, Brown & Russ, the firm that conducted the city’s 2020 Comprehensive Annual Financial Report, shared auditors’ findings with the Jackson City Council.

The meeting was not available on the city’s website until late last week after WLBT asked for it to be posted.

[Click here to watch it.]

Among findings, he said Jackson experienced less than a $15 million gain from the Siemens settlement proceeds, with those funds being used to keep the water/sewer enterprise fund and sanitation accounts afloat.

Hodges also told council members the city in recent years had spent millions of dollars more in water and sewer funds than it brought in, with officials basing the spending on amounts billed, rather than amounts collected.

“You’ve got revenue reported during the year that is not going to be collected,” Hodges said. “That needs to be allowed for during the year, so you’re not looking at inflated numbers, and then at the end of the year, $7 million disappeared because it’s not going to be collected.”

Hodges says for the 2020 fiscal year, about $7 million in projected revenues were eventually written off as uncollectible, while another $1 million or $2 million in sanitation funds were. However, the city had already spent the money by then, leaving water/sewer in the hole.

“Revenues, as they’re billed, because of the problems with the system, all those amounts are not collectible,” he said. “And the city realizes those amounts are not collectible, but all that revenue has been recognized as it’s billed, rather than reducing it to the amount that’s expected to be collected.”

He told the council the amounts were not brought in, in part, due to complications with the billing system that was put in place by Siemens.

Jackson brought on the firm in 2013 to completely overhaul its billing system. In all, more than 50,000 residential meters were installed, as were an estimated 5,000 commercial meters.

Additionally, a new billing system was put in place in the Water/Sewer Business Administration Office, while a network of transmitters and repeaters was installed across the city to allow meters to communicate directly with the billing office.

The contract, which was approved under former Mayor Harvey Johnson Jr., was supposed to be “revenue-neutral,” meaning that it would pay for itself over time through the savings generated with more accurate billing.

In all, Jackson issued $89.9 million in water and sewer revenue bonds to pay for the work. The city is scheduled to pay off the debt by December 1, 2040, with the city paying $202,749,630 in total interest and payments, the city’s bond catalog states.

Jackson bond catalog info
Jackson bond catalog info(WLBT)

However, the system never worked. Tens of thousands of customers quit receiving statements because meters did not communicate with the billing office. Many customers also reported receiving bills that were thousands of dollars too high, in part, because the wrong meters had been installed.

Due to those issues, the water sewer billing system began running out of money in 2018.

Water/Sewer sales to customersOperating ExpensesEnd of year income/loss
2020$47,754,387$57,751,286($12,607,654)
2019$49,863,441$66,998,593($17,135,152)
2018$57,709,378$57,789,898($80,520)
2017$61,108,602$54,829,729$6,278,873

Mayor Chokwe Antar Lumumba’s administration filed suit against Siemens in 2019, and in early 2020, the city settled the suit for $89.8 million.

Despite the Siemens settlement being sold as a huge success for the capital city, auditors say Jackson only benefited from about $15 million in settlement proceeds, auditors explained.

“Your gross settlement was $90 million. You paid $30 million to the attorneys. So, the city netted $60 million,” Hodges said. “That settlement related to problems with the water billing system and water meters, and so, you had to write those assets off because they were impaired... That write-off was $45 million. You take $60 million, less $45 million written off... that gets (you a) $15 million net gain.”

That $15 million went to shore up enterprise funds for water/sewer and sanitation. Even with the additional revenue, Jackson’s water/sewer fund ran a deficit of around $6.6 million.

About $7.1 million of that went to water/sewer, while $7.6 million went to sanitation.

At a press conference Monday, Mayor Chokwe Antar Lumumba said some Siemens money remains but did not give details. He said a portion of the Siemens funds also was used to bring the city into compliance with its bond covenants.

Hodges said had the city not made transfers to water/sewer in 2020, the account would have had about a $20 million loss.

On the trash side, Jackson’s solid waste division is already out of money this year, due to the high price of emergency waste-hauling contracts.

The last six-month contract with Waste Management, as well as the current contract with Richard’s Disposal, charge the city $15 per home for collection services, based on approximately 53,000 residential units.

However, customers in the city are still paying what they paid for the previous contract, which was $10.56 per home.

The council has yet to raise rates to make up for the increase.

Ward 6 Councilman Aaron Banks asked if the administration had taken steps to prevent overspending in the future. “I don’t know of any business that should do anything as far as inflated numbers,” he said. “We need to be as close as we can to the true numbers.”

Sharon Thames, deputy director of administration, said the budgets for water/sewer sanitation have been lowered to account for the inflated figures.

“It wasn’t (received) well by anybody, but we felt we had to, by the numbers,” she said. “We kept getting, ‘it was going to be fixed. We’re going to have better revenues this year.’ It is something we’ve been looking at really closely this year, because they have spent continuously $10 to $11 million more than they brought in, and we just can’t continue to allow that to happen.”

“Solid waste is already in the hole (for 2022),” Thames added. “They closed out 2021 in the hole. We can’t continue to pay out the amounts we continue paying out for trash collection when the rate is not sufficient to cover that.”

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