City fund balance misconceptions need to be cleared up


This is another “I wish I didn’t have to write this” type of article, but when the mainstream media doesn’t do its homework, especially when it comes to the city’s financial problems, I feel I have to share what I know so people are properly informed.

My issue is with an op-ed piece titled Fiscal warning was ignored by prior officials, written by Dan Weaver and published by the Amsterdam Recorder on November 10, 2017, that I only just read a couple days ago.

The articles says that former alderman Dave Dybas is owed an apology because of his assertion back in 2015 that while the latest annual update document for fiscal year 2012-2013 showed a positive general fund balance, the city actually had a negative 8 million fund balance across all funds, which somehow predicted the current deficit reported in the latest 2015-2016 audit that was released in October of this year.

Referring back to a 2015 meeting of former Alderwoman Diane Hatzenbuhler’s “ad hoc” advisory committee, of which Dybas was a part of, Weaver wrote in his recent article:

…Before, during and after the meeting, Dybas insisted the city had a negative fund balance which totaled in the millions.

The administration at that time rolled their eyes behind their rose colored eyeglasses and sneered at Dybas. The administration’s sycophants said Dybas spoke in apocalyptic tones during the meeting. Indeed, he did, but was he wrong for doing so? Not according to the latest audit of the city’s fund balances which concluded that Amsterdam’s general fund balance deficit is $3.87 million while the total deficit for all fund balances is $5.16 million…”

First, there’s no arguing that the 2015-2016 negative general fund balance is a serious problem. But at the time Dybas was citing reports that had just come out on the 2012-2013 fiscal year, which showed a positive general fund balance. I don’t recall anyone thinking the city’s finances were wonderful, and maybe Dybas had an intuitive sense that things were worse than they seemed, but there’s simply nothing in that report which predicted the 2015-2016 deficit problem.

It’s actually very easy to show why Dybas was wrong in his insistence that adding up all the fund balances gave us any type of meaningful indication of the city’s overall financial health.

Here’s the end of year fund balances for 2012-13 according to the AUD submitted to the state:

  • General Fund $612,305
  • Special Grant $358,419
  • Special Revenue $42,555
  • Sanitation $1,029,082
  • Water Fund $1,053,247
  • Sewer Fund $1,142,946
  • Golf Course -$26,205
  • Transportation Fund -$347,344
  • Capital Projects -$11,560,253

If you add those up, you do indeed get -$7,695,248.

So, if this number is a valid indicator of the city’s financial health, let’s look at the same end of year fund balances for 2015-2016 according to the latest audit and see how we’re doing:

  • General Fund -$3,872,413
  • Special Grant $131,954
  • Special Revenue -$46,687
  • Sanitation $824,366
  • Water Fund $1,497,482
  • Sewer Fund $581,302
  • Golf Course -$481,153
  • Transportation Fund -$761,019
  • Capital Projects $2,101,770

Adding that up gives us -$24,398.

Wow! So even though we have negative $3.8 million general fund, according to Dybas’ methodology, we’re only in the hole 24k! That’s a huge improvement, isn’t it?

The answer is no. It was not correct to do then, and it’s not correct to do now. Adding up all the balances does not give you a useful number.

The reason is that the capital projects fund balance, unlike any other fund, accounts for short term debt (ie bond anticipation notices or BANs) for projects such as road maintenance, new equipment, infrastructure work, or building repairs. That balance is updated every year to reflect either the debt being paid or transferred to long-term bonds, which is recorded elsewhere.

The balance reflects the difference between the amount of cash in the fund (assets), and the short term debt owed (liabilities). That amount is usually going to be negative, but as we can see, can run positive sometimes. It all depends on when various projects are paid for and the amount of short term debt being carried in any given year.

We can’t use money in the capital projects fund to help the general fund, which is what supports our fire, police, recreation, and public works departments among others. We can’t use it for operations in any other department from any other fund either, such as sewer, sanitation, or water. So whether the fund is positive or negative does not really affect operations of the various city departments.

Now there is an issue raised by city officials that cash from the capital projects fund appears to have been used for general fund expenditures sometime in the past. That’s a whole other problem that I’ll try to address when I understand the situation better.

Additionally, Weaver’s statement that “total deficit for all fund balances is $5.16 million” is also shown here to be incorrect. As the above list shows, his number reflects the total amount only for the four funds that are negative, disregarding the other positive fund balances.

Weaver goes on to add the incorrect total fund balance number to the city’s short term debt of $7,647,000 and the total long term debt of $21,753,477 to present the city’s “total debt” as $34,561,749. As stated before, short term debt is already reflected in the capital projects balance. While I still maintain (for the reasons already stated) that adding all those figures together doesn’t give us any useful value, his figure uses very inconsistent selection of numbers, essentially counting assets and liabilities for four funds, disregarding assets and liabilities for four other funds, counting only liabilities for the capital projects fund, and adding the city’s long-term debt. If you really want to accurately calculate the grand total of all fund balances, short term debt, and long term debt, as it seems was Weaver’s intent, the number actually comes out to $21,729,079.

That’s a pretty big collection of errors, which I believe should warrant the paper running a correction on.

Please understand, I don’t mean any disrespect to either Weaver or Dybas by this article. I credit Dybas for bringing the issue of the city’s lack of proper financial reporting to the forefront of the council and public’s attention during his term as alderman from 2012-2013. During his term, he vocally abstained on principle on any resolution related to the city’s finances in order to call attention to the issue. I believe his dogged insistence is what got the ball rolling with hiring outside firms to straighten things out. He was right to point out the problem, and city officials did respond.

But I believe very strongly that accurate reporting on the city’s finances is absolutely essential for any concerned resident to properly understand the issue. The Recorder’s mis-characterization of the city’s financial issues in the past was one of the reasons I started the Compass, and I will continue to point out errors when I see them because it’s essential for the community to understand the problem accurately.

The truth is that until only recently, elected officials did not have accurate financial reporting with which to base decisions on. To point the finger and blame anyone in particular is unfair and unfounded. The situation was not apocalyptic then, and it’s not apocalyptic now either. Mayor Michael Villa is right to focus the city’s attention on fixing the problem rather than dwell on past fault-finding and nursing old grudges. That’s what good leadership looks like.

The story as to how the city ended up with such a large general fund deficit in 2015-2016 is one that I am finding includes many different factors which I am still in the process of trying to understand fully before I report on it. But now that we have three years of actual audited data to look at, we can start to dig in and actually look for what is causing the problem.

For instance, I’m currently trying to understand why several budgeted transfers from the general fund to the transportation fund, and several budgeted transfers from the water fund to the general fund are not reflected in recent city audits. There are also several “corrections” that auditors made to the various fund balances which I believe require further explanation. I’m talking with city officials, and hopefully will be able to talk directly to the city’s auditing firm soon. Stay tuned!

Tim Becker

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