Montgomery County's response to a critical audit on budgeting practices pushes responsibility for corrective action onto the new form of government that will be seated in January.
Treasurer Shawn Bowerman said he wrote the response when contacted by the comptroller's office, which warned the audit would be printed without a response from the county if one wasn't received by Monday.
Bowerman said he forwarded what he wrote to Board Chairman and Root Supervisor John Thayer, who OK'd and signed it before it was returned to the comptroller's office.
"I took it upon myself to write a response, and sent it to John," he said. "None of the supervisors seemed to be interested in it, so it was published without input from the board."
In a report released Friday, auditors determined the Board of Supervisors hasn't adopted realistic budgets that are structurally balanced the past three years.
The Finance Committee's Sept. 17 meeting agenda included a scheduled discussion on the draft audit. Committee Chairman and St. Johnsville Supervisor Dominick Stagliano anticipated it would have been brief to give the supervisors a chance to respond, as the board was responsible for preparing two documents at the end of the audit process: a written response, and a corrective action plan.
The discussion never took place, however. The meeting was adjourned for a lack of a quorum. Amsterdam 5th Ward Supervisor Michael Chiara, Florida Supervisor William Strevy, and Amsterdam town Supervisor Thomas DiMezza left, though they attended the evening's prior meetings.
DiMezza and Strevy said they had to leave for personal obligations, while a response has never been offered by Chiara.
Nothing was mentioned about the audit at subsequent supervisors' meetings the rest of September, except for criticism toward the reporter who covered the meeting.
The audit says the board relies on appropriating fund balance, a non-recurring revenue, to finance recurring expenditures. The audit is based on the period of Jan. 1, 2010 and May 31, 2013.
In the past four years, the board used a range of $1.9 million to $7.9 million of fund balance to finance annual operations. County officials reportedly told the comptroller's office it was to minimize real property taxes, which the comptroller's office deemed a "laudable" effort.
"However, if the county continues this practice, it may deplete fund balance entirely, and be forced to increase revenues, such as real property taxes, or decrease appropriations, which could reduce services," the report says. "Appropriating fund balance without a plan is not prudent financial management, and leaves the board without a clear picture of long-term repercussions."
Thayer said Friday the state's view of fund balance use is different than his.
"They were looking at years when we had an extremely high fund balance. They wanted more of a plan, and I understand that. But it did reduce taxes. Unfortunately, it drew the fund balance further down than I would have liked," Thayer said.
The audit says the county incurred operating deficits in the last two of three years, however.
"The county's declining financial condition is the result of poor budgeting and financial management practices, and the board's failure to develop and use long-term financial plans," the audit says.
To address this, the state says the board should establish written policies and procedures governing the budget process.
The county's response said the board will pursue that by reviewing the resolution that pertains to fund balance, and adjust it to establish the amount of fund balance the county should maintain.
"If these are not completed by the end of the year, the county executive will be advised" of the state's recommendations, the county's response reads.
In three months, the county's government will change from a 15-member Board of Supervisors to a nine-member legislature with an elected executive. The officials will be elected in November, and the executive will serve as budget officer.
A similar response was detailed in the county's response to calls for the development of multi-year financial plans: "[It] will be an undertaking of the county executive and the legislature when the new form of government takes over next year."
The response pledges to adopt budgets that include revenues and expenditures that are realistically estimated, but "this tends to be difficult with differing personalities and political pressures."
Cash flow issues
The audit criticizes cash flow issues created by the operating deficits. At a minimum, the comptroller's office says a county should have enough residual cash on hand at any time to pay its bills, and meet payroll over a 30- to 60-day period.
Montgomery County, however, had less than 30 days of average expenditures in average cash at the beginning of 2011, 2012 and 2013, the report says.
Cash declined by more than 50 percent from $14.5 million on Jan. 1, 2010 -- more than twice the average monthly expenditures that year -- to $6.3 million as of Jan. 1, 2013. That's $369,000 less than the average monthly expenditures.
Such a deficit is planned this year, officials told the comptroller's office.
"The board did not consider the cash position of the general fund when they appropriated fund balance in the last four budgets," the draft says. "During the budget process, the treasurer did not provide the board with cash flow reports, and the board did not request this information."
Bowerman said he will work on developing a monthly cash flow report that can be reviewed and understood by the county board.
Not enough emergency funds
In 2010 and 2011, the county's budgets included $200,000 in contingency accounts, and $150,000 for 2012 and 2013. Contingency accounts are a cushion or safety net for unexpected events, or when budget estimates prove unfavorable.
The amounts budgeted represent 0.25 percent of total spending in 2010 and 2011, and less than 0.2 percent of total spending in 2012 and 2013, "leaving the county with limited flexibility in the event of unforeseen circumstances," the audit says, later identifying it as an "insufficient safeguard."
The Recorder published a story recently that said the county's $150,000 contingency account for unplanned expenses was emptied by June in spending authorized by the Board of Supervisors.
That doubled to $300,000 by August.
Bowerman said in August the supervisors have budgeted $150,000 in its contingency account for the past several years, but it was much more in years past.
"If you go back to 2004, they budgeted $800,000 in the contingency account," Bowerman said in that interview. "But if you look at the past few years, contingency is the first line they jump on to cut, because it's a place to trim without cutting people or services."
Bowerman said because of the lesser budgeted amount, the supervisors have tended to empty the contingency account before the end of the year.
"There should be more in that account," he said. "They've burned through it pretty regularly."
The comptroller's office also pointed out all four of the county's collective bargaining agreements have expired, but the 2013 budget doesn't include provisions for potential increased costs associated with settling new contracts.
"By underfunding the contingency appropriation, the county's ability to pay any liabilities which may arise from contract negotiations in 2013 will be limited," the draft audit reads.
The comptroller's office also warned of the county's self-insured health insurance plan. The county decreased health insurance appropriations in the 2013 budget by nearly $1 million because claims have tended to cost less than premium equivalents.
The office reportedly found the budgeted amounts to be "reasonable," but added health insurance claims can be "volatile," and officials should be prepared to make adjustments.
"Decreased cash balances and the lack of an adequate contingency appropriation restricts the county's ability to react to external influences such as economic downturns and emergencies," the audit draft says.
The report then notes parts of the county were significantly flooded after the comptroller's office field work.
"The county will incur costs as a result of this, and it is not clear how much, if any, of those costs will be reimbursed by emergency management agencies and/or insurance," the report says.