12 Apr 2011

Non-profit profits at water utilties

Some people forget that cash is not the only way to "take profits" from a business. That leads them to the false conclusion that the people who own/run non-profits cannot find a way to help themselves while claiming to help others.

NB: By "help themselves," I mean taking more than their wages might indicate.

How do they help themselves? There are the obvious ways:
  • Getting reimbursed on a per diem- instead of cost basis for travel;
  • Hiring extra workers to reduce their own workload;
  • Getting paid more than market wage, with the approval of a friendly board of directors;
  • Consuming more perks (nice office, car, extra vacation, etc.);
  • and so on...
I'm not going to begrudge them these forms of income, but I'd prefer that everyone look at the whole picture.

(I first started thinking about these issues after reading a history of the National Geographic Society, one of the wealthiest non-profits in the world. My recent visit to the "non-profit" World Bank did nothing to dispel my thought that these social servants can have a pretty good life. Churches? Let's not go there.)

Right, so that's just a starting point to set up this more interesting angle:

I can't remember who gave me this idea, and I may have it wrong, but here's how it works:
  1. A utility (private or public) claims it needs $200 million to improve infrastructure.
  2. A bond issue is approved, backed by future revenue (rate increases) or property taxes.
  3. The bond brings $200 million to the utility, which then raises rates to cover repayment.
  4. The work is done for $150 million.
  5. The extra $50 million goes to perks, bonuses (under budget!), etc.
Does this make sense? I'm not sure that financial or operating audits would catch this process, since it takes several years and involves moving money back and forth between accounts, budgets and divisions.

You're comments (and examples!) welcome!