ELLY GRIMM
• Leader & Times
Citizens could soon be seeing some changes to their water bill after some discussions by the Liberal City Commission at a special meeting Thursday afternoon.
City Manager Scarlette Diseker led the discussion with the commission.
“I have actually wanted to have this meeting for a long time, so I want to thank the commission for being able to set aside time for us to address this,” Diseker said. “I want to give a summary of where we’ve been, where we are, and where we’re going as far as the Wastewater Treatment Plant is concerned. At the beginning of 2024, the Finance Department completed a full reconciliation of Fund 301 ‘Construction in Progress.’ At that time, it became apparent to me that the expenses for the Wastewater Plant had exceeded the revenues (loan advances) by quite a bit. We began to work with KDHE to piece together historical information on the financial planning of this project and through several conversations, it was determined a loan amendment of some type would need to be considered in order to correct the negative cash balance in 2025. If there is not the option of a loan advance or a solid cash transfer into Fund 301 for the Wastewater Plant, we would be in violation of Cash Basis Law. The goal for this gathering is to go over some past work, educate everyone about where we’ve been and where we’re going, and give some options of how these issues could be corrected. I’ve also had meetings with Pete Earles of Earles Engineering since he’s been with this project since the beginning, so he has some good information I needed to know in all my research.”
Diseker then gave some history of the project.
“As a lot of you are aware, the initial planning for the Wastewater Treatment Plant began in 2005, so it’s been a long time coming to get where we are now,” Diseker said. “Early on, we were working back and forth with National Beef, and those conversations were going on for somewhere between 10 to 12 years, and the end decision was to not have a shared plant, and then the City moved forward with the necessary financial documents. The engineering and administration loan is from 2017 and set for $4.2 million, and the construction loan is from 2018 and was set for $39 million.”
Diseker then talked about some of the associated expenses.
“I want everyone to understand how that Fund 301 ‘Construction in Progress’ works and why this needs to be addressed, because it took me a solid year of correcting the books downstairs for me to fully understand,” Diseker said. “I had to go through some audits that weren’t exactly pretty and talk to several different accountants and other financial professionals in order to figure out what was needed in order to correct this. This is a fund that shares many projects, including the MAAM rebrand, the baseball fields project, and other improvements throughout the city, among many others. All of those projects share a cash balance and if you’re not coding things correctly or reconciling things on a quarterly basis, you have no idea where each project actually stands. These projects do not have their own funds, they all share one cash balance. The most recent report is the cleanest as things have ever been, and there are multiple projects that are currently zeroed out because they’re pretty much completed at this point. This report was not this clean before I started looking at everything, and it hadn’t been done for multiple years. The reason we’ve been able to get by with this is because our Capital Project Improvement Fund is not subject to Cash Basis Law, so as long as you have loan advances coming in or planned transfers coming in, you won’t have an audit violation. You cannot run funds in the negative, that is absolutely not allowed. The Wastewater Treatment Plant fund can’t run in the negative, or the general fund, but the Capital Improvement Fund can as long as there are plans for how those projects are to be funded. There is currently a deficit of $1,634,734.29, and that is for the Wastewater Treatment Plant.”
Diseker added there was a lot of work done to help get everything the way it needs to be.
“When I finally got everything reconciled for projects and balanced back to the cash that was in there, that’s when I realized we had an issue,” Diseker said. “I called KDHE to get a better understanding of this note, because even though I can read disclosures and loan paperwork thanks to my time in banking, I needed some help to understand some of those other details. When I got in contact with them, it was evident to me we don’t have a lot left on our loan to advance on, not nearly enough to cover that $1,634,734.29. If we don’t do anything about this in 2025, I would have a Cash Basis Law violation since there’s no plan to cover it. The loan would be the plan to cover it if I had an amendment with enough money, or if we get cash flow somehow. The Wastewater Treatment Plant Life To Date expenses is $42,512,251.19, and the Life To Date Revenue (loan advances) is $40,877,516.90, which is how that $1,634,734.29 came. We got here because we were coding invoices but not reconciling the funds, so now that everything’s reconciled, we know exactly where we are, but we have to have a plan when we get out of 2025.”
Diseker added there have been many conversations that have taken place regarding the situation.
“I have talked with some of the commissioners, and Mayor Jose Lara has talked with KDHE about loan forgiveness,” Diseker said. “He also visited with KDHE with me when some of this started coming to light a couple weeks ago. We applied for loan forgiveness right off the bat, but that comes at the application level process, and that forgiveness is based on affordability, i.e. population size vs. cost, and location/centralization of the plants. We did apply for that, but we ultimately didn’t qualify and were denied. I think something else that happened is there were several things that were coded to that 301 fund that shouldn’t have been, but that will no longer be an issue since we plan to go over those things much more frequently to make sure everything is the way it’s supposed to be. A few examples of that are a sewer interceptor for USD 480, which was $3,025,143.19, a Vac truck for $445,000, and a bill to Cann for ditch clearing and grading for $221,646, which actually should have been funded from the 1-cent sales tax. With the sewer interceptor, there’s not really a lot we can do with that – I think we can have some conversations with the USD 480 administration, but since it was way back in 2015, there’s not much we can do.”
Diseker said it will be at a future commission meeting when there will be a request to move some funds to help offset the $1,634,734.29 deficit in the 301 fund.
“I sat down with everyone in order to figure out all of those final numbers, and with the Force Main, we have a remaining obligation of $831,087.09, and with the Wastewater Treatment Plant, we have a remaining obligation of $160,025 since there are pieces that aren’t 100 percent finished,” Diseker said. “Added to that existing negative total I’m dealing with, the remaining amount due would be $2,625,846.38, but if we can subtract the vac truck and ditch cleaning, that remaining balance would be $1,959,200.38. There haven’t really been any issues as far as contractors or construction or any of that, which is really good.”
Diseker then went into more detail about how a loan amendment would work.
“We only have $158K left in available credit to advance upon, and we know this would be a potential $1.5 to $2 million amendment request, which would increase debt service by around $143,000 annually, including interest,” Diseker said. “We would have to go through an underwriting process again, during which we must be able to show ability to repay debt. One proposal would be for a $10 monthly fee in addition to percentage increase already approved, and this would generate more than $800,000 annually. If we do this through term of note, we can pass underwriting and repay without concern. It would also set us up for future sewer projects, of which we are currently not prepared to deal with in a catastrophic situation, which would not be good since we’ve got sewer lines multiple decades old that either currently need work or are in the plans to be worked on. We have enough money to pay the loan, as it is, and pay our staff and expenses, but I watch this fund every day, and something needs to be done.”
Diseker also talked about another potential proposal.
“If the request is more than $1.5 million, the rate can be the existing or current percent, whichever one is higher,” Diseker said. “If we stay at $1.5 million, we can keep the existing rate, 2.11 percent, and cash flow at $500,000. The sewer rates effective as of April 1, 2024 are $23.94 for the first 3,000 gallons and $8.46 per 1,000 gallons following that, and the proposed sewer rates effective as of April 1, 2025 is $29.93 for the first 3,000 gallons and $10.58 per 1,000 gallons following. The proposed sewer rates effective as of April 1, 2026 and each April thereafter would be increased by 3 percent. Professionally, my recommendation would be to add the $10 monthly fee and generate more than $800,000 annually through the loan term, which ends in 2037. If the commission chooses to go that route, this could be discontinued at any time, depending on where we are financially.”
After more discussion and questions from the commission regarding numbers and other details, Diseker concluded her presentation on the matter, which will come back before the commission at a future meeting.
