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City finances healthy overall; $1M ARPA-tied grant and water fund shortfall flagged
Summary
Auditor gave the city an unqualified opinion on the 2024 financials, but staff warned a $1 million ARPA grant likely will be returned because of matching and timeline constraints, and the water fund faces a cash deficit when restricted impact fees and an unusable grant are excluded.
Willards external auditor told the council the city received an unqualified opinion on its 2024 financial statements, but council finance staff warned of several near-term concerns during a midyear financial briefing.
Chuck Palmer of Christianson, Palmer & Ambrose told the council the audit carries an unqualified (clean) opinion and highlighted pages that compare 2023 to 2024 results. "This is an unqualified opinion," Palmer said, adding the report shows a healthy balance sheet.
City finance staff summarized midyear (six-month) results and flagged three items for council attention:
- A $1 million grant, funded through ARPA and structured as a matching grant, is unlikely to be spent within the program timeline and will likely be returned. Finance staff said project cost increases and the grants matching requirement make meeting the timeline and funding targets infeasible.
- When restricted impact fees and the unusable $1 million grant are excluded, the water fund shows a negative cash balance. The finance presentation said the water fund currently has restricted impact-fee balances but could experience an operational cash shortfall if impact fees are spent down.
- The sewer fund produced positive net cash in the period (finance noted roughly $150,000 generated by operations), but the utility fund overall used more cash than it received and requires monitoring. Council discussed prior sewer-rate changes intended to build a reserve for a large balloon payment due under the sewer debt schedule; staff said the planned loan payment for the coming year is $287,000 and noted the debt structure includes a larger payment in later years (audit materials show the final maturity in 2045 and escalating payments).
Staff recommended several next steps: separate restricted grant and impact-fee revenue in reporting so restricted balances are clearly visible; monitor water operations closely and consider budget or rate actions in the coming budget cycle; and continue the practice of reserving sewer fee revenue to cover scheduled debt service. Finance said it will prepare budget amendment language for capital projects (police vehicles arrived over budget) and planned transfers between funds as part of the regular budget process.
Direct quotes and attributions in this article come from the auditors and finance staff presentations during the Jan. 23 meeting.
