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Niagara Falls Water Board has too much unused cash, state audit says

NIAGARA FALLS – The Niagara Falls Water Board borrowed money for a major project when it could have paid cash, a state audit contends.

But the board’s executive director, Paul J. Drof, said the money found in the board’s debt service fund – $6.3 million as of the end of 2015 – was earmarked for a major sewer-repair project and denied the state’s contention that it could have been used to pay for a water and sewer rate reduction.

The Water Board has been depositing more money in its debt service fund than it needs to pay back the borrowings that the Niagara Falls Water Authority makes on its behalf, the State Comptroller’s Office report said.

“While we recognize that this excess cash provides additional security for bondholders and allows for cash flow, the excess not needed for cash flow could be used to fund capital projects or repairs, or used to reduce the water and sewer rent rates charged to ratepayers,” the audit said.

In April 2013, the Water Board asked the Water Authority to borrow $10 million for improvements to the water and sewer system, but at the time, the board had $33.7 million available in various accounts. The board carried out two projects that cost $2.2 million, the state report said.

Drof said the Water Board always has “a rolling five-year plan” for repairs and improvements to the system.

“We needed to borrow the $10 million to meet our obligations. We are currently expending that money,” Drof said. The board is committed to the third phase of repairs to the wastewater-treatment plant, which will cost about $6 million and began in December, and to the replacement of residential water meters, which cost about $3 million and was completed by the end of 2015, he said.

The Comptroller’s Office also said the Water Board’s finances were entangled with those of the Water Authority, whose primary purpose is to sell bonds to provide money for the board.

Both entities were created in 2002 by the State Legislature, which, in effect, took Niagara Falls’ water and sewer systems out of the control of the regular city government.

A majority of the members of the Water Board and the Water Authority are appointed in Albany.

The audit said that the Water Board and the Water Authority should have separate accounts but that their money was all mixed together in the 2014 financial statements.

Drof said the Water Board’s 2015 independent audit began the process of separating the money.

The debt service account contains $3.3 million that was deposited there when the Water Board began, and the state audit couldn’t account for where it came from.

Drof, who joined the Water Board in 2010, said that checking with previous employees made it apparent that the money came from Occidental Chemical Corp. as part of a settlement for chemical contamination from the company’s S-Area landfill.