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What Amsterdam residents need to know about the city’s “negative fund balance”

The recent public release of the City of Amsterdam’s Annual Update Document (AUD) for the fiscal year 2012-2013 has brought some much needed clarity to the overall picture of the city’s financial condition. While the city’s reporting is still not completely up-to-date, it’s still a big step forward. One of the important things the AUD does for us is to give us some accurate numbers as to the city’s various fund balances. Knowing our city’s fund balances is important in order to make good financial decisions for the city, in the same way that knowing our checkbook balance is important in order to make good decisions in our own personal finances.

The city has several different funds that are used for different purposes. Going through the document, we can see most of the city’s fund balances were positive. At the end of 2013, our General Fund balance was $612,305, which was up from $393,649 at the end of 2012. The city’s Sanitation Fund balance was $1,029,082, the Water Fund balance was $1,053,247, and the Sewer Fund balance was $1,142,946. A few of the city’s funds were negative, however. The Golf Course fund was negative $26,205, and the Transportation Fund was negative $347,344. These balances are problematic. However the fund balance in the AUD that may cause a person the most concern is the Capital Projects fund, which is negative $11,560,253.

So what gives here? Is the city short millions of dollars? Are we spending money we don’t have? The answer requires just a little bit of understanding of the Capital Projects fund and how it is different from the rest of the funds. I’m grateful for the time that Controller Matt Agresta has spent to help me understand the situation so that I can pass along that understanding to the public.

It’s no secret that the city has borrowed money at various points in time over the years in order to fund large projects such repairs to our sewer system, water system, streets, as well as for major pieces of equipment and vehicles for our Department of Public works, police and fire departments. While most of the other funds, such as the water, sewer and general funds, have various taxes and fees for revenue, the Capital Projects fund primarily uses borrowed money to pay for expenditures.

Simply put, borrowed funds are not revenue. Therefore, unlike other funds, the Capital Projects fund does not have revenues to balance out it’s expenditures. That’s why the balance is negative. It will almost always be negative as long as we borrow money for capital projects. Does a negative balance mean the city is spending money it doesn’t have? Absolutely not. We’re simply spending borrowed money that we are paying back in regular installments just like you or I would make payments on a car or home loan.

When the city borrows money, the lender deposits a big check in the city’s checking account. Along with some grants and state aid, that’s the money we use to fund our big repair projects and equipment purchases. According to the AUD, the city’s debt in the Capital Projects fund at the end of 2013 was $21,676,728*. Out of that borrowed amount, $10,954,676 in cash was still left in the fund which hadn’t been spent yet. Subtract those numbers, and that’s how you get the negative $11,560,253 fund balance figure.

Why do I bring this up? Because last Thursday as I was on the air with John Becker on WCSS discussing the AUD, I got a call from David Dybas, former alderman and part of the three person “ad-hoc” committee which includes former mayor Mario Villa and former assessor and county supervisor Michael Chiara, who are all advising Alderwoman Diane Hatzenbuhler on these matters.

“There’s a negative fund balance,” said Dybas during the on-air conversation about capital projects and the AUD, “All your funds added together have a negative fund balance of 8 million [dollars]. So you have no fund balance. You have fund balance but it’s minus not positive.”

I told him I was skeptical and turns out I had good reason to be. Taking a closer look, you can indeed add up all the fund balances listed in the AUD, including Capital Projects, and get a negative $7.6 million number. But given what I’ve just explained, it’s obvious that number is essentially meaningless because of the inclusion of the Capital Projects fund which is fundamentally different from the rest. Take out that fund, and you get a positive $3.9 million figure.

In my opinion, for a public figure such as Dybas to state we have a negative overall fund balance without any other context or explanation could potentially convey the wrong idea to anyone who doesn’t understand how the Capital Fund works. While I’m sure Dybas has the best of intentions, I don’t think it’s hard to imagine that a person could very easily get the impression from such a statement that there is missing money or the city is spending money it doesn’t have while there is currently no evidence to suggest that. It’s like saying I have $1,000 in my bank account, and $5,000 left to pay on my car loan, and therefore my fund balance is negative $4,000. The figure by itself does not indicate my financial health. As long as I can make the payments on that loan and still maintain enough funds in my checkbook to pay my other bills, then I’m in good shape. Essentially, the city is no different.

Folks, don’t forget we are in an election year. Two years ago, before the last city elections, we had people believing the city was missing $1.2 million and was headed for bankruptcy, thanks in no small part to the way the issues were covered in the local media. It turns out neither of those things were true. In my opinion, the over-exaggerated portrayal of the city’s financial problems had a real impact on the outcome of the last elections. Let’s not get fooled again this year.

* This sentence has been edited to attribute the $21 million debt figure to the Capital Projects fund, not the city’s total debt as originally stated.

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About Tim Becker

Tim Becker is the owner of AnthemWebsites.com LLC which publishes The Compass. He serves as both editor and a writer.

6 Responses to What Amsterdam residents need to know about the city’s “negative fund balance”

  1. Pingback: City of Amsterdam Financials: Don’t be a Tool | Flippin' Amsterdam NY

  2. Dan Weaver says:

    Another positive point is that Amsterdam’s debt in 2012 was over 27 million dollars according to the state comptroller’s website, which means the city retired 6 million dollars worth of debt from 2012 to 2013.

    On the other hand, the 2013-2014 AUD is not finished. Do we know if the debt load has gone down more or if it has gone up? We also need to compare the debt load with our ability to pay down the debt. I don’t know what the answer is, but if you buy a Cadillac but only have money to finance a Toyota, you are going to be in trouble.

    Furthermore, it is interesting to compare Amsterdam’s debt load to that of other city’s. Gloversville, for example, with only 3,000 less people, has a debt of a little over 4 million dollars. Plattsburgh, on the other hand, with only 1600 more people, has a debt of nearly 32 million dollars. Amsterdam’s debt load falls in the middle if you compare it with other cities of the same or nearly the same size. Again, this data is no good with looking at the various cities’ revenues, or ability to pay off their debt. Saratoga’s debt is much higher than Amsterdam’s, but it also has the ability to handle a larger debt load.

    Without the 2013-2014 AUD and without some method of determining Amsterdam’s ability to pay off its debt, I would say that I don’t feel as positive about the 2012-2013 AUD as you do, although its completion alone is a good sign that the city is getting a handle on its finances.. On the other hand, I don’t feel as negative as the naysayers and Ann Thane haters.

    I listened to Dybas the other day, and I would agree that his presentation of the facts was misleading.

    • Tim Becker says:

      There may be a difference between the “Total Debt Outstanding” figure on NY State’s site, which is $27 million for 2012 as you quoted and the “Total Notes Payable” figure on the AUD in the Capital Projects fund. That figure shows $20 million at end of 2012 and $21 Million at end of 2013. Maybe there is additional debt not included in the Capital Projects fund? I’m sure there’s a good explanation, just have to ask more questions.

      Matt Agresta has given the total debt figure for the end of FY 2014 and what it will be at the end of FY 2015 based on reports from the lenders. Those figures were approx $24 million and $21 million respectively. Ideally, however, we would have our own accounting of our debt in order to make sure it matches up with what the lenders say.

  3. PatQ says:

    What is the city’s debt service, it’s ability to raise revenue with current tax caps, stagnant population, shrinking business base, and what will those pressures do to the cost of borrowing and the bond rating? Long term debt and short term debt are indeed different, but they both need to be repaid. And while you are of the opinion a negative net worth (liabilities > assets), is fine, when on a balance sheet it’s a cause for concern. One other point, in your personal example, the car secures the car loan and offsets the liability. What assets offset the liabilities of the city? None. I sense a control board in the city’s future unless there is some fiscal stewardship moving forward. Review GASB 54 for more information on fund balance reporting. Cheers!

    • Tim Becker says:

      The city’s debt service, I believe, shouldn’t be hard to find, it is in the budget. I’d like to double check before I quote a number though. Your remaining questions are good ones to which I would like answers to as well. I’ve yet to hear a systematic, comprehensive way of evaluating all those factors from any city official.

      The AUD reports $50,077,411 in city assets including buildings, improvements, machinery and equipment and infrastructure.

      Ah, the control board idea. Dybas is on record as a proponent of that as well. Sometimes I get the impression that’s the *goal* here 😉

      I’d be glad to hear your thoughts and for you to expand on your reference to the accounting practice you listed as it pertains to this topic. Thanks!

  4. Pingback: The Negative Fund Balance No One Talks About | Flippin' Amsterdam NY