The village administration’s financial goal? To ensure that none of the village’s budgets operate with deficits: The net revenues received each year must cover both the anticipated and surprise expenses for that year (surprise expenses are covered by so-called “contingency” lines in the budgets). And so the Treasurer, with help from the Administrator, carefully records and monitors every single payment to ensure that the board-approved budget holds.
But every budget is designed with unknowns: We make best guesses as to how much sales tax revenue we will receive this year compared to last, for example. Such guesses are likely to be off, resulting either in a reduction or an increase in anticipated revenues. Expense estimates are also likely to be off: Prices may rise significantly, for example, for chemicals like salt and sand for de-icing roads or there may be an increase or decrease in the cost of gasoline that leads to over- or under-spending certain line items. In spite of the uncertainties, department heads make conservative expense lists and the Treasurer carefully monitors and reports to the board whenever any line item begins to be overspent, requiring transfers from other line-items that are expected to be underspent. The board approves all such transfers and adjustments during the open board meetings.
In all, this strategy of operating without budget deficits has served the village well: it is now 10 years since any of our 3 main budgets (for the water, the sewer & the general funds) has been in the red: The village’s various budgets have operated with surpluses for all that time. How much surplus? Well, 10 years ago the village inadvertently eliminated its general, sewer and hydro fund balances, wiping out all its holdings in those funds. This emergency required a sudden $500,000 loan in order to pay employees. The emergency also drew the attention of the Office of the New York State Comptroller, who drafted a “how to avoid going into fiscal stress” manual for the Village of Potsdam, linked below. And today, far from being in the red, we currently hold a cumulative $7m in “the bank”, seemingly amounting to an average surplus of $700,000 per year…or is it?
Surprisingly, I have not been able to ascertain how and where most of these surplus dollars arose: the sources of the annual surpluses remain unclear in both the published, board-approved budgets as well as in the monthly budget reports. Are surpluses caused by one or more funds requesting more funding than necessary to cover their actual costs? Were there unplanned infusions of federal or state funds? Or are most of the “surpluses” actually not surpluses at all, but money already committed to pay for services or parts not yet delivered? This information might be included in annual board-approved budgets and/or in monthly budget reports, but it is not. Instead, this information has been provided to Trustees by external annual audit reports: independent CPA firms that pour over every aspect of our municipal financials in order to confirm that everything is correct. The external, independent auditors create voluminous annual Financial Statement reports that summarizes all aspects of village expenses and revenues; from health benefit costs for current and former employees and their dependents to total debt payments on current and future debts, to any red flags that indicate caution required. Unfortunately, the external audit reports have either been missing or provided too late to aid in budget preparation the last few years. This very unfortunate development provides our Treasurer’s office with a great opportunity to include these data in our in-house data reports: both in the monthly budget reports as well as in the annual board-approved budgets, to aid Trustees to develope future budgets.
Without knowing the so-called “unrestricted” amount of savings in each fund at the end of each fiscal year, the board cannot design the best budgets. Best budgets are made when Trustees see why, and by how much, revenues and expenses fluctuate every year, and adjust the tax rates accordingly. We most definitely do not want to go into the red in any fund, but neither do we have permission to operate any fund at a profit: If tax payers can pay all the bills with a 15% reduction in tax rates, then they have the right to know that, or the board needs to justify why the rates need to remain inflated. Caution dictates that we should invest every resource available to obtain the annual fund-balance numbers in-house and not wait a moment longer for external auditors to report on the annual unrestricted fund balance for each fund.
References:
Local Government Matters 