Payment for city software contract stirs controversy

The city is buying the software to computerize services such as code enforcement for the building department.

But city attorney Dennis Wheeler says the city violated code by failing to keep enough money on hand, and designated, to pay for the entire contract as the city closed out the 2008 budget year and moved into the 2009 budget.

In November of 2008, just before former Mayor Mark Begich left office to become a U.S. senator and then-acting Mayor Matt Claman took over, the city released for other uses funds not needed for 2008 payments on the new software. The software was being paid for in installments over multiple years.

The November 2008 document releasing the funds is a purchase order that says $700,000 in money encumbered for software in 2008 should be released.

The same document says funds would be added back into the software project in January 2009 to cover the balance of the contract.

About $115,000 of the total was properly canceled, city officials say, because it covered a software maintenance agreement to be taken up at the end of the software installation project.

However, January came and went without the balance needed to finish the project -- about $589,000 -- being encumbered.

An encumbered expense is one for which specific funds are obligated, and set aside.

In mid-2009, the building department found about half the money it needed to a pay off the software company. That left a balance of about $265,000 as an overdue bill, which carried over until 2010, said Greg Jones, city director of community planning and development.

Wheeler said the $589,000 should have been encumbered in early 2009 around the same time as 2008 budget money was unencumbered. He cited a municipal code provision requiring certification that money is available to pay for any contract. The code says, "The sum so certified shall not thereafter be considered unencumbered until the municipality is discharged from the contract, agreement or obligation."

Frederick Kaltenbach, the deputy city purchasing officer who signed the order that released the 2008 money, said the process of releasing money from one budget and adding it the next one is routine. Most of the re-encumbering takes place in January and February, but not all of it, he said.

"I did six or seven of them today, releasing 2009 money and putting 2010 funds in there," he said Friday.

But in the case of the software contract, the building department couldn't come up with a source of funds, and so Kaltenbach said the encumbering process didn't happen in a timely way.

"They should have taken steps at that point to come to us and say 'We got a problem,' " Kaltenbach said. Nobody did, as far as he knows. He said his department should have pushed harder too.

Claman said he doesn't remember hearing anything about it when he was acting mayor, and the mechanism for unencumbering and re-encumbering is not a type of policy decision a mayor would make.

Mike Abbott, the city manager whose tenure continued from the Begich administration through Claman's time in office, said he hadn't heard about the issue until the past few days. "I wouldn't necessarily be aware of the year-end, year-beginning process you just described. It would have happened between building services and the finance office," Abbott said.

The original idea was that the software contract would be paid for through the fees the building department collects for building permits and other services.

But the building department's revenues took a dive during the recession, and the once-flush fund went into the red by the end of 2008. A building department spreadsheet shows the value of new construction in Anchorage dropped still lower in 2009.

City building official Ron Thompson said a city decision over the past few years to draw on the building fund to pay for appraising the value of construction in progress for tax purposes also helped deplete it.

Abbott said the 2009 budget counted on another bad year for building services revenues, but not as bad as it was.

If the 2009 revenue expectations had proven out, the building department would have had enough money to cover the software project, Abbott said.

Thompson said he recognized last spring that the department didn't have enough money to pay the rest of the money due for the software, and he began trying to get a loan through a deal the city has with a private lender.

The proposed loan went back and forth through city bureaucracy for the rest of 2009, including the period after Dan Sullivan became mayor in July.

The payoff was finally approved by the Anchorage Assembly in two votes, one in January and one last week. The Assembly appropriated enough money to take care of the debt.

Assembly member Debbie Ossiander said she became angry when she heard at an Assembly work session a week and a half ago that the software money had been unencumbered in 2008.

"My understanding is that you're not allowed to unencumber funds that the Assembly has approved," she said.

At last week's Assembly meeting, she asked if the software transactions would be included in an audit the Assembly has ordered of some other financial dealings at the end of the Begich administration.

But the audit is limited, and won't cover it, she was told.

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Find Rosemary Shinohara online at adn.com/contact/rshinohara or call her at 257-4340.