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Hatzenbuhler’s ad-hoc: rehashing known problems while offering no real solutions

At one point, during Saturday’s “ad-hoc” finance committee meeting, David Dybas stretched out his hands as wide as he could to illustrate just how big and insurmountable he thinks the city’s financial problems are. At another point, an audience member asked what the “next step” was. Dybas’ solution? Hire more consultants to figure out the “mess.” At what cost to the city? Dybas didn’t really know, but threw out a figure of $1 million.

It was the first time Fourth Ward Alderwoman Diane Hatzenbuhler’s controversial “ad-hoc” finance committee has convened in public, but it was former alderman and county supervisor Dybas who spoke in an animated and emphatic voice for the majority of the meeting. The other two advisers to Hatzenbuhler are former mayor Mario Villa and former city assessor and county supervisor Michael Chiara, who was not present. The committee is not officially recognized by the Common Council, thus it’s “ad-hoc” moniker.  Approximately 10 people were in the audience including mayoral candidate Michael Villa. No other elected officials, besides Hatzenbuhler, were present.

The main subject of the meeting, as initially advertised by Hatzenbuhler, centered around the impact of city properties that are delinquent on their tax payments. Dybas pointed out that unpaid taxes can inflate the city’s accounts receivable balance. Taxes that are owed to the city, but remain unpaid, are still counted as assets until they are taken off the tax roles through the foreclosure process. Past controllers, for various reasons, have not run the foreclosure process in approximately five years, so those unpaid taxes have added up. Those unpaid taxes also factor into calculating the city’s fund balance. If the general fund balance includes assets with no actual cash backing, that balance could indicate a better financial picture that what really is.

However, when reached for comment today, Controller Matt Agresta said the city already expects and deals with the issue of unpaid taxes in its budget using a standard process called an “overlay.” Basically, the city budgets with the expectation that a certain percentage of taxes will remain uncollected, and the overall tax levy is adjusted upward to compensate. This practice helps reduce the effect of unpaid taxes, strengthening the city’s actual cash position in relation to the reported fund balance.

The long-term solution, accounting-wise, to the problem of unpaid taxes is to run the foreclosure process every year. That way, the expected revenues from delinquent properties are not counted as an asset year after year. Agresta has already taken on the enormous foreclosure process and has made more progress than any of his recent predecessors. According to Agresta, the critical step of sending out certified letters to all lien-holders of the delinquent properties and publishing the properties in the newspapers was completed just over a week ago. Agresta said today he was optimistic that the letters would spur many owners to catch up with their payments and generate additional revenue on top of the approximately $650,000 in back taxes collected already since the delinquent properties were announced earlier this year. After this foreclosure process is complete, Agresta said he intends to continue to run the foreclosure process every year afterward, as long as he is in office.

It’s worth noting that Dybas passed out a seven page document on which he showed how he estimated the city’s delinquent taxes, including city, county, school district, utility fees, and interest and penalties, from 2009 to 2013 to be approximately $7 million.

I’m not sure why Dybas felt he needed to do all this work, because Controller Matt Agresta already calculated the city’s total delinquent taxes and fees to be approximately $13 million on approximately 600 delinquent properties. The figure was widely reported in the media and is certainly no secret. Dybas’ figure comes out low, because according to his sheet, he only figured on 200-350 delinquent properties, and by his own admission, did not factor in the extra user fees for multi-unit buildings.

According to Agresta, out of that $13 million total, approximately $4.2 million is interest and penalties, which is not booked as anticipated revenue. Under NY State law, the city has to remit taxes owed to the Greater Amsterdam School District, whether the taxes have been paid or not, however that is not the case for the county. So according to Agresta, only the city taxes (which includes re-levied user fees)  which amount to $5.1 million, and the school district taxes, which amount to $1.9 million, actually affect the city’s cash position relative to its fund balance.

So in the end, the overlay mitigates the impact of unpaid city and school taxes on a year-to-year basis, while the foreclosure process, which is already underway, will straighten out the problem long-term. The situation is difficult, but its by no means terminal. But from listening to Dybas, you would think we were heading toward the apocalypse.

Unfortunately that apocalyptic tone carried through with the rest of the issues he covered. He repeated the claim he made earlier in the year that the city’s assets were in the negative, because according to the 2012-2013 Annual Update Document, the city’s debt exceeded the reported total fund balances by approximately $10 million. I covered the subject before as to why this statement doesn’t really mean much, but suffice to say that as long as the city carries debt, adding the city’s fund balances and subtracting the debt is almost always going to be negative as long as the city borrows funds for capital projects. Dybas has yet to include the city’s fixed assets (buildings, equipment, etc) that the 2012-2013 AUD reports to be worth approximately $50 million in his calculations. By adding this figure to the equation, the city’s total assets are positive by approximately $40 million. Certainly, the less debt the better, but the very fact that the city has debt is nothing to panic over. The city maintains an A- with a stable outlook rating by Standard and Poor and there’s a good reason for that.

Dybas also brought up the fact that previous audits of the city’s books by an independent auditor have either not been completed yet or were incomplete. Again, this is a known issue. The city hired an accounting firm two years ago to help straighten out problems with the city’s books, due in large part to the transition from using Montgomery County’s computer system for accounting, to the city’s own KVS accounting system in 2011. That work has been ongoing, but has resulted in the successful re-filing of previous year’s AUD’s through 2012-2013. The submission of the most recent 2013-2014 AUD is nearly complete, according to Agresta. While the AUD’s are not the same as a third-party audit, they still mark significant progress as they require the city’s books to be adequately reconciled such that the controller can sign his name to it.

The Amsterdam Common Council, not the controller, is responsible for initiating the audit, and has only budgeted for one audit to be completed this year. That audit is currently in progress for the 2012-13 fiscal year. Agresta says that only minimal audits have been done on previous year’s books, enough to make sure that federal funding to the city is not interrupted. Agresta has recommended the council concentrate on auditing the most current years, but said he would cooperate with any audits the council wants to undertake.

As the meeting dragged on, the discussion went downhill in my opinion. Members veered into the realm of unfounded accusations that receipts for Recreation Department, including those for the Spring Fling, Farmer’s Market, and Community Arts Center were not properly documented. Committee members also took aim at the rest of the council members who were not present, with Mario Villa suggesting that they were out golfing.

While a robust discussion of the city’s finances is always a good thing, it’s hard for me to see how this particular meeting accomplished anything positive. The tone of those at the meeting seemed similar to the fearful atmosphere that existed during election time back in 2013. Fortunately, I think the public is more skeptical and informed now, as some of the most dire fears of the time, that the city was on the verge of bankruptcy, and that there were $1.2 million in missing funds, proved to be unfounded. I also give credit to Agresta, who has taken alot of his time since taking office to explain the complex issues surrounding the city’s finances with myself and other reporters, resulting in a much more informed coverage than ever before.

Hopefully, this election season will also see a much more informed discussion on the city’s finances by the candidates. I also hope the conversation will also include ideas to meet the very real challenges that Amsterdam, as well as most Upstate NY cities face each year which is to raise enough revenues to meet its expenses and fix its aging infrastructure. How do we build the city’s economy? How do we attract more businesses to move to the city? Are there opportunities to leverage our existing city fire, water, sewer and sanitation services to bring in additional revenue? These are issues, along with the city’s accounting challenges, that I hope to see addressed by candidates in the coming months.

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About Tim Becker

Tim Becker is the owner of Anthem Websites Inc. which publishes The Compass. He serves as both editor and a writer.
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