Earlier this year, the independent auditing firm of Banks, Finley, White & Company completed an audit of the financial statements of the Birmingham Water Works and Sewer Board for the fiscal years that ended on December 31, 2011 and December 31, 2010. Weld has obtained a copy of the audit and conducted a preliminary review of its contents.
Weld’s initial review of the audit identified several items that raise potentially troubling questions about the financial health of the BWWB, which serves more than 600,000 customers in Jefferson, Shelby, Blount, St. Clair and Walker counties. An in-depth investigation of these concerns will be completed over the next several weeks.
Among the key concerns identified in Weld’s preliminary review:
- During 2011, the water system’s expenses increased at a greater rate than its revenues. Revenues increased by 5.8 percent, due primarily to a 3.9 percent rate increase that went into effect on January 1, 2011. Meanwhile, operating expenses grew by 6.4 percent, an increase the audit attributed primarily to higher costs of employee pensions and other retiree benefits.
- While revenues totaled $157.2 million in 2011, that figure fell short of projected revenue by more than $2 million, due primarily to lower than expected water consumption.
- At the end of 2011, the BWWB was carrying $906 million in debt a figure that Weld has learned is expected to surpass $1 billion by the spring of 2013—and the board does not have a formal plan in place for reducing its debt.
- The system’s interest expense on outstanding debt was $42.2 million, an amount that exceeded its operating profit of $41.7 million.
In examining these and other concerns—including executive salary increases, the cost of legal services, payments to board members, and whether the type and range of professional skills represented on the board is adequate to the demands of running the largest water utility in Alabama—Weld also will look at a number of key operational issues. Of particular interest is the apparent lack of emphasis on finding alternatives to continued rate increases to produce additional revenue for the system.