[RP TownTalk] Executive Order/Town's Financial Position

Wed Apr 27 03:56:03 UTC 2016

All -

In light of the news disclosed by the Mayor about the town's financial situation, I have respectfully asked for the Charter Amendment legislation that requires a vote next week or times out to be pulled off the agenda and reconsidered for a future Council.

I am hopeful that the request will be honored rather than taking a hasty vote that adds increased expenditures and costs to the town when the town is potentially in financial trouble.  I think an entirely more important question for the Council to consider in the near term is understanding our current financial situation vs. resolving a question the legislation is asking us to consider; who should be responsible for the complete supervision over financial administration of government, the Mayor as our current Charter provides for, or a newly hired more expensive Town Manager and/or CFO as the Amendment in question provides for.

I am hopeful the Mayor and Council will see fit that the time and place for the consideration of this legislation is next year vs. in the middle of an Executive Order.

Section 404(d) Powers and Duties delineates that "the mayor shall have complete supervision over the financial administration of the town government...He shall supervise the disbursements of all monies and have control over the expenditures to assure that budget appropriations are not exceeded."

Section 302 Specific Powers delineates that "the Council shall have, in addition, the power to pass ordinances not contrary to the Constitution and laws of the state of Maryland for the specific purposes provided in but not limited to the following subsections of this section:

-          Appropriations.  To appropriate municipal monies for any purpose within the powers of the Council

What this means is that we currently have a system of checks and balances between the Mayor and Council.  The Mayor drafts and presents a budget to Council.  Council has the ultimate authority to modify or change the draft as it determines and once passed the Mayor has the authority to ensure that the expenses budgeted by Council are not exceeded - i.e. if a budget has Economic Development money of 150k the mayor is responsible to ensure that only disbursements up to 150k are spent (unless otherwise amended by Council).

Maryland state law requires that municipalities have balanced budgets - i.e. that expenditures (appropriations) do not exceed revenues.  Every budget accounts for anticipated revenues since it is nearly impossible to know precisely what your revenues are until you are at the end of a fiscal year.  Sound government financial management dictates that you leave a substantial buffer to account for any revenue shocks (that routinely happen).

The Executive Order provided the following in an email sent by the Mayor last week, April 18th:
"I am hereby ordering the following:

1) The total number of positions in each department is frozen at the existing filled level.
2) All Departments and Budget categories of spending that are not deemed necessary to the safety and health of residents and employees will require preauthorization by the mayor.
*  Each department will, in league with the mayor,  produce a plan and process to promptly review spending requests no later than April 26
*  Each department will identify currently encumbered funds that may not or clearly do not fit the criteria of "safety and health" necessary and deliver this information to the mayor no later than April 29. "
The premise of the Executive Order was outlined in my previous post - the decision in 2010 by GSA to execute on their lease purchase option of the USDA building (effective Feb 2015).

I have asked for Council to be provided, but yet to receive, current draft YTD financial reports.  We only have the final 2/29 prorated budget reports and draft 3/31 statements that were produced for the 4/4 Legislative meeting.  They can be found here:
-3/31 Draft vs. Prorated Budget https://www.dropbox.com/sh/inrbh8tw0kdwdqb/AACcpjHZfykYKuZmRB0PeU16a/DRAFT%20Budget%20vs%20Actual%203-31-16.pdf?dl=0

-3/31 Income/Expense
https://www.dropbox.com/sh/inrbh8tw0kdwdqb/AAAdlogvGqQke3Q7dhA6_An7a/DRAFT%20Income%20Statement%203-31-16.pdf?dl=0

The assessable base reports for FY16/17 can be found at the links below

FY16: https://www.dropbox.com/s/c8j5mc1b60stxp8/FY16_Assessment.pdf?dl=0
FY17: https://www.dropbox.com/s/s0io4qd1xbbzp7b/FY17_Assessment.pdf?dl=0

I have asked for the Current YTD because they give a more complete picture than looking a month back.  Things change month to month.  It is impossible to know on what basis the Executive Order was issued without knowing our exact financial picture as of today.  Quickbooks our accounting software can produce the draft reports for any date range easily and quickly.

Single line items do not tell the entire picture.  In the case of the GSA purchase, as the assessable tax base reports indicate, the removal of the building from the tax rolls was mitigated against the increase of assessments of residential houses.  The actual aggregate impact based on the information provided is at most the following:
FY16: (631,126,200 * .654)/100 = $4,127,565.35 in potential taxes
FY17: (607,313,413 *.654)/100 = $3,971,829.72 in potential taxes

That equates to a decrease of $155,735 net tax revenue or roughtly $13k/month.

An instructive example was the adopted FY14 budget.  We adopted anticipated revenues of $3,624, 548 and as of the adoption of the FY15 budget the projected final budget number for FY14 was $3,412,352 - a difference of over $212k.  This decrease of tax revenue was offset with lower than anticipated expenditures in other areas and we ran a surplus for the year.

In looking at the assessable base, the report was dated 1/7/2016.  The Mayor reported last night he was aware of the variance in real estate taxes at least as early as February.  This was not reported on prior to 10:30PM at last night's meeting.  At first glance this might be alarming, but I have to assume that the rationale for not bringing it to Council's attention was that although one assessment was down, others were up so the overall impact was not seen as substantial.  There are things like this that happen every year so I am not sure what has changed between Jan/Feb when the issue was known and the issuance of the Executive Order.

I do notice in the Budget vs. Actuals that the revenue was being balanced by $552,055 in the Misc Revenue section as the line item 'Bond Proceeds.'  YTD $0 revenue has been realized.  Another line item in the same section is 'Appropriated Surplus' (money rolled over from the previous year) which has been realized in the amount of $912,118.  This equates to a structural budget deficit of almost $1.5mil

If there is a real budget crisis there should be a emergency public hearing held whose sole item is what is required by our Charter - a Council Ordinance to amend the Budget.   It is entirely reasonable for the Mayor to raise the red flag about potential budget issues, it is not reasonable for Council to ignore its responsibility to amend the budget in lieu of the Executive Order effectively amending the budget.  It makes sense for the Mayor to control expenditures in the short term until an emergency budget hearing meeting to amend the budget can be had.

With $550k anticipated to be spent this Fiscal Year in the Capital Budget for the Town Hall expansion, and another anticipated $4,136,681 to be spent in FY17 (starting July 1, 2016), it is time to take a step back and ask if it large capital projects make financial sense.

The solution to budget problems should be a policy choice as amended by the full Council.

Respectfully,

Jonathan

Councilman, Ward 1
Chair, Economic Development
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