Council hears that building‑department reserves and a golf‑course loan complicate state audit compliance, staff to revise fees

Council members and city staff spent the largest portion of a budget workshop considering the building department’s finances and how auditors calculate allowable reserves.

City staff said the building department has built significant reserves over recent years but that state rules limit how much can be carried forward. “We’ve been hit in the audit three straight years for having too much money in reserves in the building department,” the staff member presenting the item said, and staff indicated they must show reductions to comply.

Wayne, a building‑department official, told the council the department brings in slightly more than $1 million annually while the proposed budget spends about $1.6 million, in part because the audit requires the city to reduce fees and spend down reserves. Wayne said the state now wants fees to be based on services provided rather than project valuation, so staff must recalculate charges using ICC guidance for new construction and a service‑based approach for other permits.

Council members pressed protocol for the projections. Wayne explained the inspection and permit forecasts are conservative and based on the most recent six months of activity; he said revenue could rise if local developments move from permitting to construction.

A central point of debate was whether the auditor’s calculation includes an outstanding loan — a receivable from the city’s golf course — in the building fund balance, which would make reserves look larger than the cash available. One council member said the audit report shows an ending fund balance of about $2.8 million and asked whether that figure includes the golf‑course receivable. Finance staff and the auditor’s worksheet were cited in response; an auditor‑facing worksheet shown to the council combined the receivable and cash balances in the printed audit figure.

That accounting treatment matters because the statute limits carryover to the average operating budget over prior years. Staff said that if the audit calculation includes the loan receivable, the department appears over the allowed threshold even though cash on hand is lower. Council members discussed mechanical and bookkeeping options — transferring the receivable out of the building fund, recognizing cash in another fund, or leaving the accounting as‑is and arguing positions with the auditors — and noted the tradeoffs. "You can't pay personnel with an IOU," one council member said when stressing the practical cash‑flow risk.

Staff recommended returning to the council within months with a revised schedule of charges and an ordinance change if needed, both to demonstrate to auditors that fees have been reduced where required and to ensure the building fund can meet payroll and operations in cash terms. "You'll see about a $350,000 under‑budget at the end of this fiscal year," a staff presenter added, noting some carryover will help reduce the shortfall.

The council did not take formal action at the workshop but directed staff to produce a revised fee schedule and additional analysis of options for addressing the apparent reserve excess, including the impacts of any bookkeeping changes on audit reporting and on cash available to operate the department.

Next steps: staff will prepare a new fee schedule, revise related ordinances as needed, and return to the council with a clear breakdown of how the auditor computed the fund balance and options to reconcile the bookkeeping treatment with cash‑flow needs.