Each year, prior to the end of the fiscal year on December 31, the town board passes a resolution to transfer monies from accounts with balances to accounts with a negative balance to bring all the accounts to 0. There are some restrictions on certain accounts that cannot be used to offset others, but in view of trying to simplify this explanation, I will skip that part. Here is the town law allowing the town board to make the transfers:
New York State Consolidated Laws - Town
ARTICLE 8 - FINANCES
S 113. Transfers from general purpose funds to other funds. Notwithstanding any other provision of law, the town board may, by resolution, authorize the transfer of surplus moneys, contingent appropriations, and unexpended balances(1) from the fund maintained for general town purposes and comprised of moneys which, if raised by taxes, would be raised by taxes levied on property in the entire area of the town, to any of the funds or accounts authorized by section one hundred forty-one of the highway law and comprised of moneys which, if raised by taxes, would be raised by taxes levied on property in the entire area of the town; and,
(2) from the fund maintained for general town purposes and comprised of moneys which, if raised by taxes, would be raised by taxes levied solely on property in the area of the town outside of villages, to any of the funds or accounts authorized by section one hundred forty-one of the highway law which are comprised of moneys which, if raised by taxes, would be raised by taxes levied solely on property in such area.
In the past, the year-end transfers have been mainly under $20,000 each and there are not usually many transfers that need to be done. However, in looking over the transfers that were approved at the December 31, 2006 town board meeting, after year 1 of the new administration, we have some concerns.
The 2005 budget transfers under the previous administration were pretty much mundane--there were about 2 1/2 pages of transfers that totaled about $170,000. The 2006 budget transfers, on the other hand, are 6 pages that total approximately $550,000. The alarming part is that some of these transfers took money out of employee benefit accounts, such as Hospital, Medical Insurance. Another thing that we found strange is that none of the account names appeared in the budget transfers listed in the December 28, 2006 town board minutes—the only thing listed for the transfers were account numbers, amount of increase, and amount of decrease. Previously, budget transfers listed exactly what account by name was being increased and decreased. This year, we have to look through the budget to try to find out the names of accounts that had been increased and decreased or transfers between accounts. A few of the accounts we couldn't find and you will see a ? in the account name space. By the way, for clarification, the accounts increased are the ones that had a negative balance and the ones in the decrease column are the ones where the money was transferred from. We suppose that we shouldn’t find it odd that the specific account names were not readily available in the town board minutes because this administration seems to prefer keeping residents “in the dark”.
There are only a couple of ways that we can think of where there would be substantial monies left over in employee benefit accounts at year-end. The first would be if the 2006 budget was “padded”. However, keep in mind that the 2006 budget would have been prepared by the previous administration. We also attended the 2006 budget workshops and we know that great care was taken to trim as much “fat” as possible off the 2006 budget to keep the tax rate about $2.00 per thousand. We asked a previous board member if he thought he would have over-estimated the amount of monies needed in the Employee Health/Medical Insurance account. He said he doubted it very much. So how could these transfers have taken place if there were not left-over monies in these accounts?
The second way is if the monies due to be paid for the employee benefits could be paid after January 1, 2007 when the 2007 budget took over and the town was soon to have the 2007 town tax money in their hands. If that is the case and this money was used to balance out other accounts in 2006, in reality that still means that when January 1, 2007 rolled around, Mr. Reed still needed to replenish the Employee benefit accounts with money to pay the employee benefit bills because the 2007 tax monies are already allocated for other items in the 2007 budget. It is sort of a “rob Peter to pay Paul” scenario. You hope at the end of the budget year, you once again have enough accounts with money in them that you can transfer to offset the negatives.
So why would the town say in their letter to Standard & Poor's that they are going to deposit $2 million in surplus into the Reserve Fund. There is only one reason--to “keep up appearances” until they can hopefully get to the point where they do not need to transfer large sums of money between accounts to offset year end balances and can instead add those unrestricted monies to the reserve? Remember, Mr. Reed told Standard & Poor's the $2 million is "surplus"; we are the ones making the assumption that it is $2 million of bond money.
It is important to keep in mind that Reserve Funds are made up of restricted and unrestricted funds. Bond money and the arbitrage money on the bonds are restricted money until the bond principle and interest has been paid in full. The town can only use unrestricted reserve funds to offset negative balances at year-end or to keep the tax rate down at budget time.
Our sources told us that currently most of the money in the Reserve Fund is restricted, meaning that the funds are “earmarked” for certain projects and not available for use for other than the intended purpose.
When a town board continues to take unrestricted money out of its Reserve Fund without replacing it year after year, the “usable” fund balance dwindles and that can become a problem because it leaves no money for emergencies. In order to replace unrestricted funds in the Reserve Fund Balance, the town board will have to carefully budget money and pay close attention to expenditures so as to not spend the entire year's budget by mid-July thus creating shortfalls at year-end.
Judging by the 2007 year-end transfers and the signed contracts thus far (Highway Department contracts expired on Dec. 21, 2006 and a new one still has to be agreed upon and signed according to the Town Clerk’s office) that will not be the case with this administration’s budget any time soon unless they raise property taxes.
In our opinion, unless spending habits change, their only recourse to meet expenses and still have unrestricted money to replenish the Reserve Fund at year-end IS to raise property taxes and that would be in addition to the cost of the bonds if the vote is favorable to the town. Remember the quote from yesterday’s blog taken directly out of the NYS Handbook:
The good thing is that anyone asking for information regarding the amount of money the Town of New Hartford has in reserves, like Standard & Poor’s, would only see a total dollar amount in Reserves unless they specifically asked for a break-down of Restricted vs. Unrestricted Reserve Funds. By the way, we have specifically asked for the break-down of Restricted vs. Unrestricted monies in the Reserve Fund by filing a Freedom of Information request. We will report as soon as we find out.
If you notice in the Standard & Poor’s letter it never mentioned whether the town had restricted or unrestricted reserve funds—they merely mentioned that the Town of New Hartford was “adding an additional surplus (which is a new definition of bond money) of approximately $2 million by year-end, bringing the total fund balance to roughly $5 million, which would be a 79% increase from the prior year’s ending fund balance”. Makes no sense, but they don’t seem to care whether the reserves can be used or not, they just care that the money is there. Residents on the other hand who will eventually see increased tax rates due to overspending are probably not so forgiving.
We feel that residents have a right to know the plans for their tax dollars. Supervisor Reed said in his interview with the Observer Dispatch regarding the town bonding plan on October 24 2006 that the town board will be able to make money by investing the bond money, but realistically how much money can they make on $2 million for a couple of years, best case? It just doesn’t make sense and any money they make in arbitrage on these bonds has to be rolled into the restricted bond money so they can only use it to pay off the bond principal anyway. In actuality, over the long run it will probably cost us more to bond for piddling amounts like $45,000, $92,000 and $150,000 over a number of years then they will be able to recoup with arbitrage. Then there's the cost of the pay and benefits for the comptroller/CFO. And how will they explain to residents why there is nothing to show for the bond money?
To play devil's advocate, there may be a perfectly good reason for the amount of year-end transfers and the accounts that are used to offset them, but given the fact that we know for a fact that Supervisor Reed misrepresented the town to Standard & Poor's, and obviously is not being upfront with residents (the taxpayers) it is difficult to believe that a perfectly good reason does exist and it gives the appearance that something is afoul.
So in our opinion the question is, do you want to bond for money that will be put into the Reserve Fund in order to give the appearance that all is well in the Town of New Hartford until such a time as the town “leaders” can find a way to build up the reserve funds with unrestricted money? All those in favor, say “AYE”!
The 2005 budget transfers under the previous administration were pretty much mundane--there were about 2 1/2 pages of transfers that totaled about $170,000. The 2006 budget transfers, on the other hand, are 6 pages that total approximately $550,000. The alarming part is that some of these transfers took money out of employee benefit accounts, such as Hospital, Medical Insurance. Another thing that we found strange is that none of the account names appeared in the budget transfers listed in the December 28, 2006 town board minutes—the only thing listed for the transfers were account numbers, amount of increase, and amount of decrease. Previously, budget transfers listed exactly what account by name was being increased and decreased. This year, we have to look through the budget to try to find out the names of accounts that had been increased and decreased or transfers between accounts. A few of the accounts we couldn't find and you will see a ? in the account name space. By the way, for clarification, the accounts increased are the ones that had a negative balance and the ones in the decrease column are the ones where the money was transferred from. We suppose that we shouldn’t find it odd that the specific account names were not readily available in the town board minutes because this administration seems to prefer keeping residents “in the dark”.
There are only a couple of ways that we can think of where there would be substantial monies left over in employee benefit accounts at year-end. The first would be if the 2006 budget was “padded”. However, keep in mind that the 2006 budget would have been prepared by the previous administration. We also attended the 2006 budget workshops and we know that great care was taken to trim as much “fat” as possible off the 2006 budget to keep the tax rate about $2.00 per thousand. We asked a previous board member if he thought he would have over-estimated the amount of monies needed in the Employee Health/Medical Insurance account. He said he doubted it very much. So how could these transfers have taken place if there were not left-over monies in these accounts?
The second way is if the monies due to be paid for the employee benefits could be paid after January 1, 2007 when the 2007 budget took over and the town was soon to have the 2007 town tax money in their hands. If that is the case and this money was used to balance out other accounts in 2006, in reality that still means that when January 1, 2007 rolled around, Mr. Reed still needed to replenish the Employee benefit accounts with money to pay the employee benefit bills because the 2007 tax monies are already allocated for other items in the 2007 budget. It is sort of a “rob Peter to pay Paul” scenario. You hope at the end of the budget year, you once again have enough accounts with money in them that you can transfer to offset the negatives.
So why would the town say in their letter to Standard & Poor's that they are going to deposit $2 million in surplus into the Reserve Fund. There is only one reason--to “keep up appearances” until they can hopefully get to the point where they do not need to transfer large sums of money between accounts to offset year end balances and can instead add those unrestricted monies to the reserve? Remember, Mr. Reed told Standard & Poor's the $2 million is "surplus"; we are the ones making the assumption that it is $2 million of bond money.
It is important to keep in mind that Reserve Funds are made up of restricted and unrestricted funds. Bond money and the arbitrage money on the bonds are restricted money until the bond principle and interest has been paid in full. The town can only use unrestricted reserve funds to offset negative balances at year-end or to keep the tax rate down at budget time.
Our sources told us that currently most of the money in the Reserve Fund is restricted, meaning that the funds are “earmarked” for certain projects and not available for use for other than the intended purpose.
When a town board continues to take unrestricted money out of its Reserve Fund without replacing it year after year, the “usable” fund balance dwindles and that can become a problem because it leaves no money for emergencies. In order to replace unrestricted funds in the Reserve Fund Balance, the town board will have to carefully budget money and pay close attention to expenditures so as to not spend the entire year's budget by mid-July thus creating shortfalls at year-end.
Judging by the 2007 year-end transfers and the signed contracts thus far (Highway Department contracts expired on Dec. 21, 2006 and a new one still has to be agreed upon and signed according to the Town Clerk’s office) that will not be the case with this administration’s budget any time soon unless they raise property taxes.
In our opinion, unless spending habits change, their only recourse to meet expenses and still have unrestricted money to replenish the Reserve Fund at year-end IS to raise property taxes and that would be in addition to the cost of the bonds if the vote is favorable to the town. Remember the quote from yesterday’s blog taken directly out of the NYS Handbook:
“When local government takes expenditures that have been traditionally financed from current appropriations and begin to issue debt to finance such expenditures, it may be an indication that current revenues are not keeping pace with expenditures.”As we have already stated, bond money is restricted money, it has to sit in the Reserve Fund until it is used for the purpose of the bond or until the bond from whence it came is paid off. It is actually illegal to use the bond proceeds for other than the stated purpose of the bonds. Counting on arbitrage from the bond money will not change the true financial picture of New Hartford one iota.
The good thing is that anyone asking for information regarding the amount of money the Town of New Hartford has in reserves, like Standard & Poor’s, would only see a total dollar amount in Reserves unless they specifically asked for a break-down of Restricted vs. Unrestricted Reserve Funds. By the way, we have specifically asked for the break-down of Restricted vs. Unrestricted monies in the Reserve Fund by filing a Freedom of Information request. We will report as soon as we find out.
If you notice in the Standard & Poor’s letter it never mentioned whether the town had restricted or unrestricted reserve funds—they merely mentioned that the Town of New Hartford was “adding an additional surplus (which is a new definition of bond money) of approximately $2 million by year-end, bringing the total fund balance to roughly $5 million, which would be a 79% increase from the prior year’s ending fund balance”. Makes no sense, but they don’t seem to care whether the reserves can be used or not, they just care that the money is there. Residents on the other hand who will eventually see increased tax rates due to overspending are probably not so forgiving.
We feel that residents have a right to know the plans for their tax dollars. Supervisor Reed said in his interview with the Observer Dispatch regarding the town bonding plan on October 24 2006 that the town board will be able to make money by investing the bond money, but realistically how much money can they make on $2 million for a couple of years, best case? It just doesn’t make sense and any money they make in arbitrage on these bonds has to be rolled into the restricted bond money so they can only use it to pay off the bond principal anyway. In actuality, over the long run it will probably cost us more to bond for piddling amounts like $45,000, $92,000 and $150,000 over a number of years then they will be able to recoup with arbitrage. Then there's the cost of the pay and benefits for the comptroller/CFO. And how will they explain to residents why there is nothing to show for the bond money?
To play devil's advocate, there may be a perfectly good reason for the amount of year-end transfers and the accounts that are used to offset them, but given the fact that we know for a fact that Supervisor Reed misrepresented the town to Standard & Poor's, and obviously is not being upfront with residents (the taxpayers) it is difficult to believe that a perfectly good reason does exist and it gives the appearance that something is afoul.
So in our opinion the question is, do you want to bond for money that will be put into the Reserve Fund in order to give the appearance that all is well in the Town of New Hartford until such a time as the town “leaders” can find a way to build up the reserve funds with unrestricted money? All those in favor, say “AYE”!
1 comment:
Earle Reed should change his name to:
EARLE OF GREED!
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