As I near the 1/2 way mark of my term, I offer a few observations.
Running a village involves spending money and earning money.
It is easier, and a lot more fun, to spend money than to analyze income streams, compute returns on investments, and estimate break-even times. These two trends, spending and earning, should be inseparable partners but unfortunately, they sometimes drift apart or divorce completely.
In general, the village spends money either on one-off efforts, such as skateparks and new water filtration plants, or on recurring services, such as police protection and sewer services. The one-time expenses associated with building a new plant or buying a front-loader normally have a specific price tag and well-defined list of contributors, with the village and potential state, federal, county or private agencies paying pre-determined shares of the total. Usually these one-off arrangements work as planned, with the village mostly better off with some new infrastructure at a relatively minor cost to the village tax-payers. (Tho projects may introduce longer-term debt payments on loans.)
In contrast to one-off projects, the village’s recurring expenses, the larger share of the total expenses by far, are paid for in a very different manner, and with, unfortunately, little oversight.
Recurring expenses are paid for by village residents in one of two ways: either via property and sales taxes, or via user-fees (sometimes referred to as rents puzzlingly). The State of NY narrowly defines which municipal expenses are paid for by property and sales taxes and which expenses are paid for by user-fees. Road maintenance and underground water and sewer pipe maintenance and police and zoning enforcement as well as clerical services, among others, are paid for by property and sales taxes. All expenses paid for by property and sales taxes are grouped into a so-called General Fund.
Services funded by user-fees include water, sewer and trash services. Each of these departments maintains their own fund; the Water Fund, Sewer Fund and Trash Fund, independent of the General Fund. (The village of Potsdam also maintains a Hydroelectric Fund, but this beast is so out-of-whack that I will not discuss it further now.)
While funds are funded from different sources, all funds are subject to the same ground rule: Determine the cost of keeping a fund operational for a year and divide that cost amongst all tax payers or users to determine a tax rate or a user fee. Running a fund at a deficit is discouraged as that creates debt and therefore unnecessary additional expense for the tax payers. Running a fund at a profit is also disallowed: municipalities may not set rates or fees so as to reap a profit. In short, both the general fund and the specialized funds should operate responsibly, covering their costs with the minimum cost burden to residents and users.
This sensible algorithm seems easy to implement. Examine the total expense of each fund in previous years; extrapolate wage, goods and service cost increases and forecast next year’s total expense. For example, our treasurer reports that our general fund requires roughly $6 million annually. The county reports that our municipality will likely receive around $3 million in sales tax revenue during the next year. Our assessor reports that the total assessed value of all taxable property in the village adds to $200 million. So our village tax rate is set so that $6 million in operating expenses = $3 million in sales taxes + property tax rate per thousand dollars times $200 million total assessed value divided by 1000. (That gives a tax rate of $15 per thousand dollars).
Similar calculations determine the user fees for the specialized funds. Let’s say the water department head reports to the treasurer that his/her department/fund needs $1.6 million to operate next year. The water-meter reader reports to the clerk the water usage at each meter throughout the year, and the village clerk sums all those usages to report a total, village-wide water-usage of 120 millions of gallons. One might then simply compute a user-cost per thousand gallons of water by dividing the $1.6 million in costs by 120 million in usage divided by a thousand gallons (giving a water rate fee of $13.33 per thousand gallons in this example). In fact, the village abandoned this fee structure for a more complex one including the infamous “equivalent dwelling units” or EDUs, but that is the subject of earlier and future entries.
So how, where and why can this protocol go awry? This is the subject of the next blog post
Local Government Matters 