‘Fundamental financial issues’: Report paints bleak picture of Jackson water finances

JACKSON, Miss. (WLBT) - A deep dive into nearly two decades of annual audits paints a bleak picture when it comes to the capital city’s water finances.

A report released Monday by the Mississippi State Auditor shows that Jackson’s water and sewer department could cover operations just 23 days with its existing cash-on-hand and incoming revenues.

Findings also show the city’s uncollected water debt has grown from just under $3.4 million in fiscal year 2003 to more than $94 million in fiscal year 2021 and that Jackson’s been able to keep its water department afloat, in part, due to infusions of cash from the general fund and the Siemens lawsuit settlement.

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

The audit states that without that money, Jackson would be belly up in a matter of days.

“Our analysis of Jackson’s audits shows serious and fundamental financial issues that have to be straightened out. Every concerned taxpayer should be reading this report,” Auditor Shad White said in a statement. “Whether you happen to live in Jackson or you happen to live in Madison or Monroe County or anywhere else, I think it’s important to know what’s going on in the capital.”

Jackson Mayor Chokwe Antar Lumumba said the findings are nothing new and something his administration has been open about for years.

“These are trends that this administration has long since recognized and continues to address on a daily basis,” he said in a statement. “Though we’ve never seen the state auditor address the media regarding any other city’s audit, we appreciate that his ‘findings’ mirror what we’ve been saying for years.”

White says his office is legally not allowed to audit municipalities. However, his office did review annual financial reports drawn up by private entities.

White says his office owes it to taxpayers to take the city’s complex audited reports and break down the information in a way the public can better understand.

“We’re always going to do that, because I got a ton of requests from people saying, ‘Hey, can you explain what these audits mean, and explain to us whether Jackson’s in good financial shape?’” he said. “If the criticism is, well, you know, your analysis doesn’t show anything that the taxpayers already didn’t know... then why are so many taxpayers asking for this analysis?”

The report focuses on the city audits from fiscal year 2003 to 2021, the latest comprehensive annual financial report available.

It does not take into consideration the roughly $800 million in federal allocations coming to the city as a result of the 2022 water crisis. It also does not take into account billing department changes that could take place under the third-party administrator.

In November 2022, a U.S. District Court Judge placed the city’s water system and water billing system under the control of a federal receiver.

Later that same year, Congress approved hundreds of millions of dollars in funding to help shore up the city’s water system.

The findings, rather, point to Jackson’s financial concerns through fiscal year 2021, the latest Comprehensive Annual Financial Reports for the city.

According to the document, the city’s water and sewer revenues during that time decreased approximately 23 percent, going from $42.9 million in 2003 to just $33 million being collected in 2021. Meanwhile, the amount of bills deemed uncollectible has grown from $3 million to nearly $94 million.

“When you dig into the numbers, when you actually look at the situation, what you see is that water bills are not being collected, or at least not enough water bills are being collected to really fully maintain the city’s water system,” White said. “There are tons of water bills that the city never really expects to collect. that’s how they’re classifying them in the accounting language.”

“At the end of the day, those are the kind of numbers that I think are important for the taxpayers to know about.”

White says it’s important for the city and the third-party administrator to figure out why those funds are not coming in and fix the problem.

“If stepped in and started managing the water department and saying, ‘well, let’s figure out why the water bills aren’t being collected, and let’s form a crew to go out and collect the water bills, that would mean me being the mayor of Jackson, which I’m not,” he said.

While collections are down, expenses have gone in the opposite direction, increasing from $35,690,527 in 2003 to $60,782,000 in 2021.

“This means revenue collections have not kept pace with the city’s cost of providing water and sewer services,” the audit says. “Since 2018, the fund has operated with an annual net loss.”

Jackson’s overall debt also is up, including its water and sewer debt, with all existing municipal debt increasing from $244.3 million in 2003 to $429.6 million in 2021, increasing the average debt by more than $1,500 per citizen.

Approximately $290 million of the latter amount is related to water and sewer. As part of his financial plan, Interim Third-Party Manager Ted Henifin says he wants to pay off the indebtedness using a portion of the federal allocation.

The report also looks at the city’s average daily water consumption, which has increased 245 percent since 2003, as well as the number of customers reportedly added to the city’s system.

In 2003, 517 new connections were added, while more than 4,200 were put online in 2021.

“This happened despite a population decline of 18 percent during the same period,” the audit stated. “If the information reported is accurate, the increase in water connections and consumption paired with declining operating revenue indicates free water and sewer service is provided to some customers.”

As for the water usage, that went up likely due to the city’s degrading infrastructure. A 2013 report from Neel-Schaffer showed more than a quarter of the water produced at its treatment plants went unaccounted for, an amount that has increased significantly since then.

Henifin recently told WLBT that average daily usage had decreased by about 4 million gallons a day since the start of the year thanks to improvements being made to the system.

White’s report says the city has been able to mask its problems, thanks in large part to the Siemens settlement.

Siemens Industry USA was brought on to overhaul Jackson’s water billing system back in 2013.

The roughly $91 million contract included replacing all of the city’s existing water meters with new electronic ones, installing new software in the billing office and installing a network of repeaters and communicators to allow those meters to communicate with billing.

The improvements were touted by former Mayor Harvey Johnson Jr., who said it would be “revenue neutral,” and pay for itself over time with savings.

However, the system never worked, the city’s collections fell off and the city, under Mayor Chokwe Antar Lumumba, filed suit against the company and its subcontractors.

In early 2020, the mayor announced the city had settled the suit for $89.8 million.

Millions more were transferred from the general fund to keep the city’s water and sanitation divisions going.

In 2021, for instance, findings show approximately $1.2 million in general fund money was transferred to the water and sewer division, while another $3.857 million was transferred to the city’s sanitation account.

“Water and sanitation funds are considered, in accounting terms, ‘business-type activities,’” the report states. “Generally, these kinds of funds should operate like a business. They should turn a profit for reinvestment... but in Jackson, the water and sewer fund and the sanitation fund cannot operate without infusions of cash from the general fund.”

“The department’s one-time infusion of cash from the Siemen’s settlement has allowed the department to operate without other sufficient cash flow in fiscal year 2020 and 2021,” the report states. “That infusion of cash masks a larger problem: insufficient bill collections... Until this situation is rectified, the financial condition of the water department – and therefore the city – cannot improve.”

Article updated from earlier version to include comments from White.

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