City disputes audit's debt repayment figures
The city has no comprehensive strategy to manage its debt and in less than two years will have to spend more than one-fifth of its operating budget on loan payments, according to a city auditor's report released yesterday.
Responsibility for the debt is fragmented because two separate departments oversee borrowing, the report said. And brokers who secure the loans for the city are in a conflict of interest because they have clients who also lend money, according to the report.
City budget chief Mary Pat Waterhouse said the report is way off target because the Office of the City Auditor doesn't understand the intricacies of how the city borrows money.
Auditor Les Tanaka said he and his six staff members have a combined 60 years in the performance auditing profession. But he concedes his office does not have expertise in bond sales so the report recommends that the city hire a consultant to evaluate how it manages its debt.
Waterhouse said the city is managing its debt just fine and loan payments will be less than 20 percent of the budget in every year of Mayor Mufi Hannemann's six-year financial plan.
"I think we're in a very good position right now," she said. "Overall, we have very low interest rates right now."
In Hannemann's proposed $1.49 billion operating budget for the fiscal year starting July 1, $258 million, or 17 percent, is set aside for paying off debt.
The city sells bonds to finance construction projects and repays the money through user fees or city property tax collections.
Even though the city Department of Environmental Services and the Department of Budget and Fiscal Services each sell their own bonds, Waterhouse said she works closely with DES officials on its bonds. And she said the city charter puts the responsibility of managing the city's debt on her shoulders.
City Treasury Chief Edlyn Taniguchi disagreed with the report's accusation about brokers' conflict of interest. The people the city hires to sell its bonds do not also help investors buy bonds, Taniguchi said.
The auditor also said information about the city's debt is not readily available to the public in an understandable form. Waterhouse countered that the information -- such as how the debt is managed and how the city plans to pay it off -- is already available in the budget and six-year plan the administration submits to the City Council.
The report does not make any finding that the city wasted money. On the contrary, Tanaka said, the report compliments the current administration for slowing the rate of spending, staying within city debt limits, and maintaining favorable interest rates for its bonds.
But he said he was surprised with the city's strong response because he felt the report's findings were mild.