While the city’s audit came out clean, the City Council may be taking a look at how the city operates its water fund.

The water fund is an enterprise fund, which means it is meant to be run more like a business with a focus on whether or not the fund is turning a profit, said Matt Mayer, certified public accountant and assurance partner with BerganKDV. Mayer performed the city’s audit.

On the surface, the fund looks as though it is doing well, Mayer said: operating revenues continued to grow yearly with rate adjustments. However, the fund is also relied on for at least $250,000 to break even on the city’s debt services and close to $700,000 yearly transferred to the general fund, Mayer said.

“You do ask a lot of it,” he said of the water fund.

The payment and transfer take an operating income that is about $1.2 million a year and drop profits close to zero for the fund.

“There’s just not a lot left there,” Mayer said.

The city follows a fund balance policy for its general fund, which the City Council set at 45 percent of next year’s budget in place at the end of the fiscal year.

Finance Director Kristi Brutlag confirmed the city does not have a similar policy in place for the water fund. Mayer estimated the amount left in the water fund represented 20 percent of the next year’s budget.

“So you are cutting it very close from a financial health standpoint in your water fund,” Mayer said.

He suggested the council consider a fund balance target not only for its water fund, but also its sewer fund. For this fund, a fund balance policy would be instituted to address a significantly different financial position: about $10 million in funding reserves, Mayer reported. He encouraged the City Council to consider setting aside a reasonable amount for operations and then consider incorporating future capital needs from the sewer fund into the city’s capital improvement plan.

The solid waste fund is at about 50 percent of the next year’s spending, Mayer reported.

Fifth Ward Councilor Robert Rasmussen said the city has several potentially costly water fund infrastructure projects coming up.

“We’re going to have to talk about our funding options and how we want to go forward with that,” he said.

He said the council members will also need to look into a fund balance policy for its enterprise funds, as a policy can prevent any of the funds from dipping too low.

The general fund fared well, exceeding its 45% fund balance goal by 3% even after a bottom-line deficit this year. The deficit came after the finance team became aware of a close to $700,000 gain this year thanks to taxes coming in better than expected and spending coming in lower. A $1.2 million transfer out of the general fund still left it with a healthy balance, Mayer said.

Mayer said the audit also turned up a clean opinion on the audit, meaning the city’s budget reportings were true and accurate, no significant deficiencies or weaknesses in internal control of safeguarding city assets and ensuring accurate financial reporting and no issues with legal compliance with the state.

Compared to other cities the size of Albert Lea — though comparing city to city, despite similar size, can still be like comparing apples to oranges, Mayer said — Albert Lea residents paid more than double in franchise fees but approximately $100 less in property taxes per capita in 2017 and 2018. The reason for lower property taxes has something to do with the city’s intergovernmental revenues, such as local government aid (LGA) funding. Compared to cities of a similar size, Albert Lea received almost $200 in 2017 — and over $250 in 2018 — more in intergovernmental revenues.

The down side to this, Mayer said, is Albert Lea may need to pay a significant amount of attention at the state legislature to be sure its funding is protected.

In expenditures, the city notably outspent others of its same size in public safety and parks and recreation, Mayer said. However, public safety spending can be affected by several factors, including whether cities contract with the local sheriff for their police forces or whether they operate a volunteer or full-time fire staff.

First Ward Councilor Rich Murray said it was good to see the city lower than most in property taxes thanks to a large chunk of LGA funding. Additionally, higher-than-average expenditures for parks and recreation and public safety was also pleasing to the councilor.

“I think this is pretty positive when you look at the fact that we’re spending money on public safety and park and rec is where we outperform other cities,” Murray said. “That’s where the citizens want to spend the money so I think that’s good to see.”

Look to the Tribune for more City Council coverage later this week.