City of Braham receives audit report and wastewater project update

Some good and some not-so-good news came to Braham council during its May 7 meeting, both under the topic of finance.

Mostly positive feedback was given by Greg Burkhardt with Burkhardt and Burkhardt, who presented the city of Braham’s 2023 audit report.

“I certainly was not expecting this drastic of a change after one year,” Mayor Nate George said in response.

Although there is good news, Burkhardt started with the items of concern. According to the audit, the city has too many accounting responsibilities for the amount of employees they have.

“The best thing you can do there is be aware, ask questions,” Burkhardt said.

There were also two non-compliance issues that were found in the audit. One being the city having investments that are rated below the minimum risk rating required by the state auditor. Before moving on, Burkhardt confirmed this is actively being corrected by City Administrator Tyler Treichel.

The other is the city’s broker has not given acknowledgment, officially, that it will only invest city money in products that meet the criteria by the state auditor. Burkhardt said the city can simply reach out to the broker at the beginning of the year, before any transactions are made, to get confirmation of acknowledgment.

There were two challenges that came before them as well: liquor store inventory and utility billing, which Burkhardt, again, mentioned the city is working on fixing already.

On the bright side for the city, the report shows its cash and investment balance increased significantly in 2023.

The general fund is becoming healthy, according to Burkhardt, as the city is at 19% of its budgeted expenditures. Although, the city’s personal policy and goal is to be between 20% to 25%.

Despite having an increased percentage, the audit firm recommends the city sits significantly higher at 75% of its budgeted expenditures.

“It’s good to have a plan in place, maybe in five years, you’ll be in a position where you’ll have 75% in your fund balance again,” Burkhardt said.

Council Member Seth Zeltinger asked how long it would take — if the city can stay disciplined like they have — to get to the 75% mark, which is roughly $1 million in the fund balance.

Burkhardt said if the levy stays flat or just sees inflationary-type increases, it may not be very long before the city sees a healthy increase in the fund balance.

“You make those tough decisions, you want to see them come through in spades, and they absolutely did,” he said. “Continue your involvement in the financials of the city, as it can fall away very fast.”

The audit shows that the city’s cash reserves are also in a good place.

“You’re actually back to the point you were — at this stage — in 2020,” Burkhardt said. “Very nice rebound.”

He explained that the city has 125 days of cash reserves, or days of reserves. This stands for the amount of days the city could operate under average conditions. Auditors would like to see the city have roughly six months, about 180 days, worth of reserves. Burkhardt added though, that the city is better than where it was in 2021, where there were only 88 days of reserves.

The city’s current fund balance is at $330,000, to which Burkhardt said, “That’s fabulous.”

With last year’s budget set at $1.9 million, Burkhardt said they came in with a $10,131 difference.

“You guys were able to come in within a half percent of your budget of $1.9 million. I don’t think that happens on accident,” Burkhardt said. “I think that shows that your department heads are following the plan that’s laid out in front of them.”

Zeltinger took a moment to thank the department heads for working hard and following their budgets to stay on the mark for 2023. George later agreed with a comment, saying how the department heads played a huge part in the budget.

“I don’t want it to be lost ... how much of a change in direction we’re seeing here. It’s huge,” George said. “A lot of hard decisions we’ve had to make in the last year and tax levies that we’ve had to discuss, play into what we see here today.”

Overall, the city received a clean report.

“You guys have done a fabulous job,” Burkhardt said.

Waste water project

Council faced the decision to take out a temporary loan for financing the waste water project that was first brought to council at its last meeting.

“Through the Minnesota Management Budget Office, which holds the money, they are saying that all components that have been asked for need to be certified by the funding agencies, by the health department and MPCA (Minnesota Pollution Control Agency),” said Johnathan Pauna with Moore Engineering.

Unfortunately, not much has changed since that meeting.

“It’s the same news. It’s all related to the language that was with the special appropriation dollars,” Pauna said.

Pauna said the hangup was due to the well project that was listed along with the street and waste water treatment project, meaning they all collectively needed to be certified. But the well certification is not taking place just yet.

Pauna said his company spoke with Sen. Mark Koran’s office who — as of the day of the meeting — will take the well piece out of the special appropriations language. This should allow the waste water project to be certified and the state can then release the awarded funds to the city.

“That’ll clear a lot of things up as far as the appropriation dollars,” Pauna said.

Although this is included as part of the legislative session, so the city will not know until the middle or end of May.

Funds for the project are needed sooner than this as Moore Engineering informed council that the $10 million in state dollars awarded to the city for the wastewater project will not be reimbursed in time to pay for the construction.

That’s where the temporary loan comes into play, but with some downfalls.

For a two-year loan for $2 million, there is $28,000 in closing costs and a 5% interest rate.

This amount is for the total costs of the project through August of this year.

Pauna said the loan can be paid back in full at any time, meaning once the special appropriation dollars come from the state, the city can pay off the loan right away. In addition, the city will only be charged for the amount of interest accumulated over that amount of time.

Despite paying less in interest, the city is still losing money over closing costs.

“Is it my understanding that if everything gets passed and PFA (Public Facilities Authority) moves quickly, we could possibly have the money by next month?” Council Member Nicole Peltz asked.

Pauna said he doubts it would be that quick, but Zeltinger confirmed the loan funds would be available by then, and Pauna agreed they could get the $2 million within 45 days.

Peltz went on to ask about how much the city could lose with taking this loan out.

“Worst-case scenario, we went forward with this loan and we got the PFA — by some miracle — funding by next month, we mainly are paying closing costs? That’s the risk that we’re taking?” she asked.

Pauna agreed.

“This is not the city’s fault. This is not Moore Engineering’s fault. Our expectation — in light of that — is that the city is not going to continue to be penalized for something that’s not our fault,” George said.

Council unanimously approved to move forward with applying for the temporary loan.