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Report on alleged utilities overcharge in Meriden remains under wraps

Report on alleged utilities overcharge in Meriden remains under wraps

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MERIDEN — The city has yet to release copies of a 2017 report that concluded Meriden overcharged the water and sewer divisions’ enterprise funds in past years for administrative services provided by the city.

City Manager Tim Coon and Finance Director Michael Lupkas initially said in an interview last week that the external study is still considered a “draft,” and is therefore exempt from open records laws, because the city hasn’t yet finished reviewing and responding to the study.

“It’s still a draft, so we're not going to release it at this point, but I fully expect it to be released in the future,” Coon said during the interview Tuesday. He indicated it would be about a month before the study would be released.

But in a subsequent email to the Record-Journal sent around 5 p.m. Friday, Coon said he “fully expects” to release the study next week. Coon sent the email after speaking with Associate City Attorney Kathleen Foster, who is processing the Record-Journal’s request for the document under the state Freedom of Information Act.

The 2017 study recently garnered attention after former city manager Guy Scaife referenced it in an amendment to his federal lawsuit against the city contesting his 2017 termination. The amended lawsuit states that Scaife discovered the alleged overcharges as city manager in early 2017, upon which he pushed for the outside study to determine accurate overhead costs.

Meeting minutes indicate that the Public Utilities Commission voted in May 2017 to pay outside firm, Wright-Pierce Engineering, $37,000 to compile the study because utilities officials agreed with Scaife that the water and sewer divisions were being overcharged for services provided by the city.

In December 2017, Wright-Pierce submitted a draft of the report to Scaife, who claims in the amended lawsuit that it showed the city annually overcharged water and sewer “in excess of $871,000.”

The water and sewer divisions are treated as enterprise funds separate from the city’s overall general fund. The utility divisions, however, rely on services provided by various city departments — the human resources and law departments, for example — and pay the city an “overhead allocation cost” each year for those services. 

A representative from Wright-Pierce presented the “forensic evaluation” to the PUC during a January 2018 meeting, according to minutes taken at the meeting.

Any documents and information presented to the commission at the meeting would no longer qualify for the “draft” exemption in the state’s open records laws, according to Tom Hennick, public education officer for the state Freedom of Information Commission.

“Once it’s released to a public board at a public meeting, they may want to change it, but it becomes a public record that should be released,” Hennick said.

‘Significant concerns’

Coon said the city has “significant concerns” with the report, “finding inaccuracies and assumptions that the city does not agree with.” Specifically, the city contends the report doesn’t take into account all of the departments that provide services to water and sewer, including the fire, police, health, tax assessment, and emergency communications departments. The city also questions the accuracy of some of the numbers used by the consultant to measure how much the divisions rely on various departments. 

“The city has been in discussion with the consultant and (the Water and Sewer divisions) to address these issues,” Coon said in a statement sent to the Record-Journal. 

Public utilities officials first reached out to city administration to discuss the report and its ramifications in early 2018, according to PUC meeting minutes, but a resolution had to be put on hold, Coon said.

“Non-agreement by city administration and (issues associated with the 2018 budget referendum) put the resolution to these issues on hold, and as such the report remains as a draft,” Coon’s statement read. 

The city plans to continue discussions on the report’s findings with the utility divisions in the coming months to reach a resolution, Coon said, at which point the administration would make a presentation to the City Council and recommend action.  

The council met this past week in executive session to discuss Scaife’s lawsuit. During the closed-door meeting, the council instructed Coon to release a statement explaining the history of the PUC issue and where things currently stand.

According to the statement and powerpoint presentation Coon sent to the Record-Journal, the city began increasing its overhead charge to the utility divisions in 2003 under the leadership of former city manager Roger Kemp. The city at the time realized the divisions were only being charged for services provided by the tax collection and engineering departments.

Expanded overhead

“The overhead allocation increased from $780,800 in 2003 to $1,698,000 in 2004,” Coon’s statement read.  “As near as can be determined, this was because the City moved to more fully assess the Water and Sewer Divisions’ use of City services. We cannot find any supporting documentation that definitively indicates this was the reason for the increase, but we believe that is the case.” 

Lawrence Kendzior, city manager from 2005 to 2016  “continued with this expanded overhead assessment and directed (Lupkas)” to annually increase the overhead charge by 3 percent. 

The city came to the 3 percent figure based on the assumption that salaries for union employees historically increase about 2 percent each year and that employee health benefits increase on average 5 percent annually, “which on an actual dollar basis, exceeds a 3 percent increase year over year,” Coon’s statement read. 

From the fiscal year 2004 to fiscal year 2018, the overhead allocation charges rose incrementally from just under $1.7 million to just under $2.1 million. Based on the findings in the Wright-Pierce study, Coon said the city lowered the overhead charge from $2.095 million in fiscal year 2018 to $1.7 million for fiscal year 2019 and the current 2020 fiscal year. 

The city is using the $1.7 million charge essentially as a placeholder until it completes its review of the outside study and reaches a resolution with the utility divisions. Coon said the city’s decision to reduce the charge based on the report “does not imply that (the Finance Department) agrees with a reduction to $1.7 million.

The roughly $750,000 in annual overcharges Scaife alleged in his lawsuit represents an additional annual cost to the average water and sewer customer of $29.28, according to estimates provided by Coon.

However, if the city reduced the overhead charge by $750,000, it would have to replace that revenue by raising the mill rate and collecting an additional $750,000 in taxes. In that case, the average residential homeowner in the city would pay an additional $27.14 in taxes annually, according to Coon.
Twitter: @MatthewZabierek

David Lohman, Meriden's director of public utilities, walks a bridge spanning the dam over Broad Brook Reservoir in Cheshire November 18, 2009. File photo.