In the lengthy procession of more than 30 executive firings and resignations that cast a shadow on City Hall during Anchorage Mayor Dave Bronson’s tenure, Sharon Lechner’s doesn’t fit.
“I’m a pretty uninterest – an uninteresting person,” she said with a stumble and a laugh at her confirmation hearing as the director of the Office of Management and Budget.
“That’s exactly how we like our books,” Assembly Chair Chris Constant quipped.
Lechner, a certified public accountant who served as the city’s chief financial officer under former mayors Mark Begich and Matt Claman, would come to learn that Anchorage’s books are very interesting – in bad ways.
A few months after the hearing, she delivered a conservative accountant’s version of a mic drop. She told the mayor in May she was quitting because the Anchorage Assembly rejected budget revisions to address various accounting problems.
Since taking the job in November, Lechner had flagged a litany of problems in the city’s accounting systems that she said could threaten the city’s credit and saddle taxpayers with expenses they shouldn’t be responsible for. She even told a public commission that the city has significant “off-balance sheet liabilities,” not unlike the former energy giant Enron that imploded spectacularly in 2001 amid revelations of accounting fraud and corruption.
“Before the implosion occurred, a whistleblower communicated to the highest levels that debt was being understated and earnings overstated,” she told the Anchorage Budget Advisory Commission in May. “Enron was one of the first companies to bring the concept of off-balance sheet liabilities to the public's attention.”
She and the city’s independent auditors both say there’s no evidence of fraud in the city’s books. Her point was about risk and failure to heed warnings.
“You can get financial statements and think things are OK,” she said. “But if there are other aspects of risk that are not reflected on your financial statements, and someone shares them with you and communicates them to you, it's worthwhile to consider listening.”
Lechner works extremely long hours, but made time for an interview at a sleepy City Hall when most of her coworkers were enjoying the Juneteenth holiday.
“I don’t have holidays,” she said. “We absolutely have to get this out because my last day is June 30.”
By “this” she meant the city’s Annual Comprehensive Financial Report for the 2022 calendar year.
Going back to at least 2001, the report’s never been this late. The 2023 report is also overdue under the city charter and code. Grants from the state to the city are potentially at risk because of these overdue reports.
These reports are typically hundreds of pages long, filled with dry financial statements, lengthy notes on those statements, and, ideally, an independent auditor’s opinion that the city’s bookkeeping fairly and accurately reflects its finances, in line with professional accounting standards.
A clean opinion is the goal Lechner’s working toward with the auditors. Nothing good comes from a bad audit opinion.
“So for instance, the rating agencies that rate you for bonds will view you with suspicion,” she said. “And you could be penalized with a downgrade in your bond ratings, which would equate to higher interest rates when you sell bonds on the market.”
And that means bigger tax burdens for major city projects.
Lechner has a long list of reasons why the annual report is so late, including staffing levels that haven’t kept pace with the city’s bookkeeping demands and extraordinary turnover in the controller’s division normally responsible for bookkeeping and audits. There’s also a history of siloed, idiosyncratic accounting decisions that have rippled out into systemic inconsistencies, errors and unintegrated systems. It all makes timely, big picture financial reporting at the city nearly impossible.
“We'll never have perfect books,” Lechner said. “We’re too big and too complex. But I do think that it would behoove our community for the Assembly to have more information available to it, right? I mean, what's wrong with having timely, accurate information?”
One of the biggest problems Lechner found is related to a major software purchase the city made in 2011. Explaining how this went under the radar gets technical, but basically, Lechner says there were errors around how the expense was allocated to various city departments.
“The impact is that we thought our fund balance situation was here, but in reality, from our perspective, it was $27 million worse than we thought,” she said.
Multiple issues tie back to the privatization of the city-owned Municipal Light & Power utility in 2020. Lechner said that transaction is still incomplete in the city’s accounting, but must be closed out in the 2023 financial statements to satisfy the auditors.
ML&P employees were part of the state’s Public Employee Retirement System, also known as PERS. There’s a wrinkle in state law that says the city has to keep paying into PERS as if many of those positions still exist, for as long as the state’s retirement system is underfunded.
“And in the United States, there are only five states’ PERS programs that are fully funded, and ours is definitely not one of them,” Lechner said.
In the books, that ongoing expense falls on the general fund – city taxpayers. But Lechner said under the terms of the voter-approved utility deal, the income the city gets from the utility’s sale should pay for those retirement expenses directly.
Other accounting failures related to the city’s workers’ compensation fund have obscured what Lechner said is now an exponentially growing deficit, on the order of $33 million. The city hasn’t been putting enough in to cover its employees’ claims for years.
That’s an issue in and of itself. But Lechner said if the books on the utility deal are closed before the deficit is addressed, taxpayers may end up on the hook for the utility’s portion of the deficit.
Lechner has found more issues, big and small, that she fears will surprise policymakers, like time bombs when the accounting is straightened out. She’s outlined them and recommendations in budget advisory commission meetings, and in a transition plan bound for incoming Mayor Suzanne LaFrance, who takes over July 1.
And she’s tried to warn the Assembly members, giving them handouts and her cell phone number. None called, she said.
“The Assembly needs more information, because what they're focusing on is fund balance in a vacuum,” Lechner said. “And it's kind of like a horse with blinders on. Because they're not looking at what's coming on the right, and they're not looking at what's coming on the left. And what they're missing are these ‘time bombs’ that – through no fault of their own, how would they know this, right? – and then all of a sudden, something happens.”
Meg Zaletel, who co-chairs the Anchorage Assembly’s Budget and Finance Committee, said the body needs time to digest and discuss how to deal with the issues.
“That is why we have now made them a standing item on the Budget and Finance Committee,” she said.
She said the Assembly can’t make big changes quickly.
“We don't doubt the seriousness or even the urgency of doing so,” Zaletel said. “We just don't think this was the last opportunity.”
After Lechner explained accounting issues to a layperson for an hour, she needed to prepare for her next conference call with the independent auditors.
“I’ve probably bored you to tears,” she said with a laugh. “There's probably no story here, I think.”
She plans to work through this final weekend between mayoral administrations to get the audit done.