New Hartford’s spending has climbed steadily since 2005 even as revenues have
been stagnant, leading the town to patch gaping holes with reserve funds, an O-D
review finds.
The town’s failure to address the situation led a Wall
Street agency in February to complain of “structurally imbalanced budgets” as it
lowered New Hartford’s credit rating a notch. That means the town’s borrowing
costs could increase.
“Moody’s expects the town’s financial position will
continue to decline based on the use of structurally imbalanced budgets and the
aggressive budgeting of economically sensitive revenue streams,” Moody’s said in
a written report obtained by the O-D this past week.
The town’s finances
have hit a rough patch:
* The main general fund balance, or rainy-day
fund, plummeted more than 90 percent between 2005 and 2008, records
show.
* And the town’s total reserves dropped 55 percent during that
same period. And of the $2.4 million remaining, $1.5 million can only be used to
address sewer issues.
* In one example of the budgetary problems, a key
Highway Department savings account went from $845,000 to a negative $33,000 last
year alone.
Increased spending was one culprit: The town’s spending in
the main general fund went up 25 percent from 2005 through 2008 even as revenue
sources remained steady, the O-D found.
While the town also has separate
funds for highways, sewers and other items, the general fund is the largest
discretionary account in New Hartford’s budget.
Defense and
concerns
One professor of government, Gerald Benjamin of SUNY
New Paltz, said if New Hartford officials had been properly tracking their
finances, they would have seen some red flags.
“Every decision can’t be
to cover something from the fund balance,” he said, using a term for rainy-day
accounts. “If revenues are overestimated or expenses are underestimated, the
answer needs to be management.”
But some Town Board members said they
are looking to strike a balance between spending and saving.
Republican
Councilwoman Christine Krupa said the state simply tells towns to have “a
reasonable amount” in their fund balances.
“The New Hartford Town Board
will begin the process of determining its ‘reasonable amount’ with next
Tuesday's meeting,” she wrote in an e-mail. “While having a seemingly low fund
balance may not be desirable since there exists a possibility of running out of
cash before the next inflow of revenue, having a high fund balance can also be
undesirable in the sense that the taxpayers are being overtaxed or under
serviced.”
Republican Councilman David Reynolds agreed.
“We want
to maintain services and keep taxes as low as possible, only accruing an
appropriate fund balance,” he said.
But Democratic Councilman Rich
Woodland Jr. said it is time to take a long look at the way town finances are
handled.
“I’m looking to restore some stability to our funds, and
restore public confidence,” he said. “How we do that is look at future budgets,
which need to be based on more conservative assumptions.”
Town
Supervisor Earle Reed has said he “dropped the ball” in overseeing New
Hartford’s spending and reserve fund levels.
Reed said last week he
worked hard not to raise taxes, and that was a reason for digging into the fund
balance.
“That’s been one of our concerns,” he said. “We have been very
modest with our tax increases.”
Under Reed’s leadership, property taxes
have risen each year by 2 to 4 percent. In the 2006 budget, the last created
under then-Supervisor Ralph Humphreys’ term, taxes went up 5 percent.
Humphreys said he did not vote for that year’s budget, however. In 2004,
under Humphreys, taxes went down by almost 5 percent, figures show.
The
town’s financial struggles promise to become an issue in the races for town
supervisor and two Town Board seats in November.
Democrat William Morris,
owner of the New Hartford Shopping Center, has entered the supervisor’s race
promising to restore “fiscal sanity” to the town.
He has been endorsed by
the Democratic Party. Republicans have endorsed former town comptroller Patrick
Tyksinski, who promotes his experiences managing public
finances.
Tracking the finances
The town has
taken some action since the 2008 year-end figures were revealed. Former Utica
budget Director Heather Mowat has been hired as a financial advisor, and the
town has put a freeze on all unnecessary spending.
And not all Wall
Street firms are frowning at the town’s budget issues. Moody’s rival Standard
& Poor’s held New Hartford’s bond rating steady in its February review.
The fund balance is within acceptable levels, S&P
determined.
“We felt that would still be a sufficient level of reserve,”
analyst Robin Prunty said. “Clearly, the level of reserve is something we look
at. I think it’s a factor in why the town’s rating is A, and not something
higher.”
How it happened
In 2005, the town
brought in more money than it spent, but in the three years following, year-end
cash flow figures went the other way, town records show.
By 2006, four
of eight key cost centers ended the year in the red. The total difference
between expenditures and revenues that year, Reed’s first at the helm, was
nearly $1 million.
That was just the beginning.
The general whole
town budget — which includes items ranging from parks and recreation to the town
clerk’s office – would spend more than it takes in every year subsequently.
In 2006, spending in the general fund alone outstripped revenues by
about $953,000.
The following year, things looked marginally better,
with a deficit of only about $651,000, but then in 2008, the difference between
revenues and expenditures was more than $1 million.
The problem? While
key revenues grew by $376,000 from 2005 to 2008, key expenses grew by
$1,607,953, or four times faster.
No heed appears to have been paid to
this trend as the town dipped ever deeper into its reserves, budgets
show.
In 2008, costs driving up spending included:
* $71,000 as
compensation for back overtime pay for bookkeeper Carole Fairbrother. She had no
comment for this story.
& $122,000 for outside accountant Frank
Basile, who was charged with overseeing town finance issues. Basile did not
return repeated telephone calls.
& Legal expenses for the town
increased by more than $41,000 between 2007 and 2008.
Outside
factors
Some of the factors driving up costs are outside the
control of town officials.
Starting in 2006, the town began having to
contribute money to the state retirement system. That year, the town passed
$416,070 to the system.
In the following years, those numbers were in the
mid-$300,000 range, but the cost certainly didn’t go away, adding to the cost of
employee benefits.
In 2005, employee benefits cost New Hartford $857,125,
but in 2008, that cost had soared to $1,668,752.
The number of town
employees has remained relatively steady. There are currently 87 employees,
compared to 89 in 2003, town figures show.
Additionally, Mowat pointed to
2008’s higher fuel costs, which impacted not only gasoline and heating but
asphalt used in paving.
Highway Department
The
town highway department has also seen its share of budgetary problems recently,
records show. It operates out of two accounts, one of which showed expenses
outpacing revenues by $882,000.
The 2008 budget for that account was
about $3.5 million, and $845,000 had to be taken out of the highway fund balance
to make up the difference.
Asked what happened, former Highway
Superintendent Roger Cleveland, who left the post in fall 2008, said he could
not remember.
“Honestly, nothing specific comes to mind,” he said.
“Whatever was done had to be done within the framework of the budget, and if we
needed something additional, it had to have Town Board approval.”
Present
Highway Superintendent Rick Sherman said he didn’t know what happened, because
he didn’t take office until December 2008.
Mowat said it’s possible
money that appears to be accumulating in accounts earmarked for the sewers
should have been transferred to the highway account.
The sewer account
is the only area where money has been accruing. In 2006, the sewer’s fund
balance stood at about $685,000, and at the end of 2008 that number was $1.5
million.
The bigger picture
Both Moodys and Standard
& Poor’s noted New Hartford’s strong tax base as a bright spot in the town’s
financial outlook.
The town has “good overall income levels, coupled with
a very high per capita retail sales figure,” Standard & Poor’s report
states.
Still, better budgeting needs to be done, Moody’s said.
The Moody’s report cites the town’s reliance on sales tax revenues, an
unpredictable source of funds, particularly in a tough economic climate.
Mowat pointed out that other municipalities have also overestimated
their sales tax revenues in recent years. And, she said, 2009 figures for the
first quarter have come in slightly above 2008 amounts for the same
period.
General Fund
Revenues and expenditures
from New Hartford's general whole town budget
account:
2008
Revenues: $6,948,344
Expenditures:
$8,034,708
Difference: -$1,086,364
2007
Revenues:
6,711,949
Expenditures: 7,363,382
Difference:
-$651,433
2006
Revenues: 6,460,272
Expenditures:
7,414,182
Difference: -$953,910
2005
Revenues:
$6,571,554
Expenditures: $6,426,758
Difference:
+$144,796
Sales tax
New Hartford sales tax
revenues:
2008
Budgeted: $5,500,000
Actual:
$4,945,659
2007
Budgeted: $5,500,000
Actual:
$5,017,463
2006
Budgeted: $5,150,000
Actual:
$5,005,741
2005
Budgeted: $4,697, 000
Actual:
$5,181,985
