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April 24, 2014

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North Las Vegas mayor says city deceitfully played games with finances

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Steve Marcus

North Las Vegas Mayor John Lee stands in his office at City Hall on Tuesday, Nov. 12, 2013.

Financially beleaguered North Las Vegas is in even greater trouble than previously acknowledged, the result of “games” being played in how the city balances it books, according to Mayor John Lee.

At issue, Lee says, is how the city’s municipal water and wastewater accounts have been dangerously depleted over the years of tens of millions of dollars to pay for other municipal bills, including for public safety and parks.

The matter will be aired tonight when the City Council holds a special meeting at 6 p.m., Lee said.

In a commentary published today in the Sun, Lee wrote that “North Las Vegas has not been honest with its citizens.”

“Over the past few weeks, we have uncovered significant problems with past financial representations and accounting practices engaged in by the city,” he wrote. “These misguided financial practices included hiding the facts from policymakers, concealing rates in financial models, taxing without properly informing ratepayers and dishonestly representing our financial condition.”

City Councilman Isaac Barron said there was no indication of criminal wrongdoing.

He likened the situation to people "who store money away in a cookie jar and find that when they want to dip into the cookie jar, the funds aren’t there. As I understand it, that’s what happened to us.

“We started doing some financial audits, and we started noticing that some things, well, weren’t adding up,” Barron said. “We found out that perhaps there was some creative accounting going on in the past.

“We definitely want to actually let people know what the actual financial issues are and then put out a good plan to address them.”

In his commentary, Lee was more stark: “More than $200 million has been looted from the utility fund, depleting it to unsafe and catastrophic levels concealed from the public.”

Last year, city officials transferred $32 million in water and sewer money to other accounts to balance the city budget. The state Legislature passed a law in 2011 ordering cities to stop this practice by 2021 because customers who pay a surcharge for water and sewer services have a reasonable expectation that their money is being used for the upkeep of water and sewer services, not other city expenses.

To that point, Lee said he plans to deliver a seven-year financial forecast to the council that will show how current spending trends, based on dipping into the water and sewage accounts, aren’t sustainable.

North Las Vegas has to come up with a plan to cover that $32 million before 2021 either by cutting spending, increasing fees and taxes or a combination of both, said Marvin Leavitt, chairman of the state’s Committee on Local Government Finance.

But Lee said he’s not ready to propose solutions.

Instead, he said the special council meeting is about leveling with the people.

“We have a flat tire, and we’re just trying to figure out how to get the tire out of the trunk and get rolling again,” he said.

Lee was elected mayor last year on his promise of untangling the city’s finances, and he hired a new cohort of top-level city staffers, including a finance director, city attorney, city manager and chief of staff.

New finance director Darren Adair discovered many of the accounting practices that will be discussed at the meeting today.

Lee’s new understanding of the city finances have also led him to diverge from his predecessor’s path, and he now repudiates the former mayor’s marquee proposal to fix North Las Vegas’ financial woes.

Last year, then-Mayor Shari Buck lobbied the Legislature for the ability to transfer even more money out of the city’s water and sewer funds.

Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, sponsored the bill and helped shepherd it to passage.

“During the past legislative session, our city misrepresented its financial condition and spent hundreds of thousands of dollars lobbying to pass legislation in order to keep up the illusion of this disastrous financial shell game,” Lee wrote in his commentary.

The water and sewer funds had about $75 million in reserves at the end of the past fiscal year, June 30, 2013.

But city officials say that much of that money is slated for spending and debt payment.

Financial experts have long known that North Las Vegas has money problems.

The credit ratings agency Fitch downgraded North Las Vegas last year based on problems that still exist today: pending lawsuits, declining revenues, lots of debt, and the water and sewer money transfers.

While not new, the council meeting tonight may be the first time city officials have owned up to the problem.

But Lee is not ready to talk about solutions yet.

“I’ve got things changing,” Lee said. “There is not a set of blueprints I have that’ll say from A-to-B to solve these problems. But I have a lot of tools for repair.”

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