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For years, conventional wisdom in Tower had it that the city’s ambulance service was highly profitable. For years, at least on paper, it appeared that the service was regularly generating surpluses of $100,000 a year. The Timberjay’s own reporters had even accepted this conventional wisdom for a time.
While the service was, perhaps, marginally more profitable in the past than it is today, past profits were significantly overstated due to vastly different accounting methods.
Those apparent profits have vanished over the past three years in part due to the full implementation of a very costly paid on-call system established by the prior ambulance director. Yet, perhaps the biggest factor behind the suddenly disappearing profits is improved accounting of the ambulance service’s true costs and revenues. Profits of the service appear to have declined significantly since the city established the ambulance service as an enterprise fund. That change came along with the implementation of business accounting rules and it is the accounting changes, more than actual operational costs or revenues, that have put the ambulance service into the red.
Here are a few examples:
Prior to the changes implemented three years ago, the city did not calculate the cost of depreciation on its ambulances. Depreciation is a very real business expense, but the city apparently wasn’t required to track it before the transition to an enterprise fund. Depreciation alone now adds almost $70,000 to the expense side of the ambulance service’s financial ledger. In the past, that amount was zero, which made the service’s margins appear much larger than they actually were.
The ambulance service no longer counts contributions from area townships and the city for ambulance replacement as operating revenue, as it did in the past. This past practice has long struck this newspaper as inappropriate because the contributions from the townships were dedicated exclusively toward the purchase of new ambulances or certain expensive types of equipment.
In other words, these were capital funds, not operating revenue, and they should never have been included in calculating the ambulance service’s operating margins in the past. Doing so inappropriately added $35,000-$40,000 annually to the ambulance service’s operating revenue, padding the apparent profits by an equal amount.
Currently, the ambulance service is required by the Ambulance Commission to pay $1.66 for every mile they drive the ambulance for a transfer. The rationale for this was never entirely clear, although the charge comes quite close to the actual depreciation cost for every mile the ambulance is driven. Which means the ambulance service is essentially doubling up on its depreciation, since it is already calculating depreciation for all miles driven, including for transfers. By forcing the service to then pay a portion of that expense in actual cash, it effectively doubles the depreciation expense for transfer miles. This charge added about $18,000 to the ambulance service’s operating expenses in 2022, even as it bolstered the service’s ambulance replacement fund, which is a separate capital account.
In prior years, before the ambulance service was treated as an enterprise fund, the ambulance service commonly showed a $100,000 operating margin. Yet, had the true revenues and expenses been properly accounted for, that margin would have been whittled down to a modest loss. Had the service been required to pay for transfer miles driven, the service would have shown a loss of close to $25,000.
Which certainly helps to explain where all the missing surplus dollars went. They never actually existed in any significant amount. The city’s accountants may show a large fund balance, but that’s only because they were using complicated and often inexplicable government accounting rules, not the business accounting rules with which most of us are familiar. In the sense that most of us think of profit, the ambulance service has been marginally so at best, for years.
What the ambulance service generated in the past was cash flow, largely because one of its major expenses— depreciation— was a balance sheet expense that did not reflect an outflow of cash— until it became time to replace an ambulance again.
So, before anyone thinks to criticize the ambulance service’s apparent lack of profitability these days, we should all keep in mind that the notion of past profitability is a figment of dubious accounting. What we have today are numbers that provide far more transparency and accuracy, which is a vast improvement over the fictions of the past.
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