What factors led to Amsterdam’s negative general fund balance for fiscal year 2016?


City of Amsterdam officials met Tuesday night with representatives of EFPR Group, the accounting firm responsible for the last three audits of the city’s finances. During the meeting, council members, the controller, the mayor, and the auditors discussed the state of the city’s finances as reflected by the most recent audit of the 2015-2016 fiscal year. Although the completion of the audit and the filing of the city’s annual update document (AUD) for the 2015-2016 fiscal year is a milestone for the city, marking the first time in many years that the city is not delinquent on its required state reporting, the negative fund balances in several funds including a negative $3.8 million balance in the general fund was the dominant concern during the meeting.

The general fund is where city residents’ property taxes go to support several major city departments including police, fire, public works, and recreation. The fund balance is the difference between assets and liabilities within the fund and is generally viewed as one indicator of the financial health of a fund and the department or departments associated with it. The fund balance does not necessarily indicate how much actual cash the city has in the fund, but a negative balance can indicate a potential cash flow problem.

The fund balance is re-calculated each year. If revenues in the fund exceed expenses for the year, then the surplus is added to the fund balance. If expenses exceed revenues, then the deficit is subtracted from the balance. Transfers in and out of the general fund to other funds such as transportation, the golf course, and water department are also added or subtracted to arrive at the final end-of-year fund balance.

The following table shows the date each audit report was released and what the report stated as the end-of-year fund balance.

Fiscal year Date audit released Reported end-of-year fund balance
2013-2014 August 2016 825,634
2014-2015 May 2017 -121,854
2015-2016 October 2017 -3,872,413


As you can see the fund balance dropped remarkably over the course of the last three fiscal years that were audited. The annual update documents for 2011-2012 and 2012-13, although un-audited, showed positive fund balances. So what happened? The answer involves several factors.

Revenues under-budget, expenses over budget

Each year, city officials have to project the city’s revenues and expenses to come up with an operating budget. Budgets are projections, and sometimes those projections are off. As the table below shows, expenses outstripped revenues by quite a lot in 2014-2015 and 2015-2016.

You may notice that the deficit in 2014-2015 should have lowered the end-of-year fund balance to a level less than what was published. As it turns out, the revenues published for that year were overstated due to an error (the chart shows the corrected amount), and that will be explained further on in this article.

Unfortunately, without current and accurate reporting as to actual revenues and expenses, city officials have lacked the information necessary to adjust the budget accordingly in recent years.

Budgeted transfers not completed

Besides tax revenue and other fees, city officials have for years relied on proceeds from the city’s water fund to help balance the general fund expenses. In previous years, the city has budgeted transfers ranging anywhere from $200,000 to $1 million. However in 2014-2015, a $575,000 transfer specified in the budget did not show up in the auditors’ statement. In 2015-2016, a $990,000 budgeted transfer was also not listed by the auditors. The lack of these transfers reduced the general fund balance by $1,565,000.

At the meeting, Matthew DuBois of EFPR Group confirmed that those transfers did not take place.

“You need to make a small adjustment to how you’re doing it in your budget,” said DuBois in regards to the problem.

Referring to the 2015-2016 fiscal year, DuBois said, “Part of your appropriations is [an approximately] million dollar transfer to the general fund. Per our discussions with the [Office of NY State Comptroller] there is a law on the books that states the water fund may give fund balance to the general fund. Now in order to do that, the transfer cannot be based on user fees. It has to be based on past profit, which would be your appropriated fund balance.”

Alderman Jim Martuscello asked, “So what we did is we didn’t have the right language?”

“Yes,” said DuBois.

While this conversation suggests that the lack of transfers was a result of incorrect documentation, it’s worth pointing out that had the budgeted transfer taken place, the general fund balance would have been over $1.5 million higher, but the current water fund balance of $1,497,482 would have been reduced to negative $67,518.

In addition to water fund transfers, the general fund was also supposed to transfer out a total of $330,371 in 2014-2015 and 2015-2016 to the transportation fund. A budgeted transfer in of $10,000 from the golf course fund in 2014-2015, and a transfer out of $78,000 to the golf course in 2015-2016 were also not completed.

One might say that these transfers amount to six of one and half-dozen of another, but given the fact the fund balance numbers impact our perception of the performance of the various departments associated with them, I believe its important to understand how the lack of transfers impacted the numbers that have been widely reported on in the local media. Had all transfers in 2014-2015 and 2015-2016 taken place we would be looking at smaller deficits in the general, transportation, and golf funds, and a negative fund balance in the water fund instead of a positive one.

Correction of errors, county tax discrepancy

One of the jobs of an auditing firm is to spot and correct errors. In the 2013-2014 audit report, which was the first time in several years that a full audit had been completed, every fund balance except the special revenue fund was reduced due to corrections for errors. While the errors aren’t the cause of the fund balance deficit, they effectively masked the correct amounts until they were discovered.

In that year, the general fund was reduced by $1,539,337 due to correction of errors. According to Controller Matt Agresta, that figure also included an amount to correct for a discrepancy between what the city and Montgomery County claim that the city owes the county in collected taxes. The correction includes an amount that reflects the county’s position.

The exact amount of the discrepancy is not indicated in the audit report and EFPR was not willing to give a specific number. City officials were reluctant to specify the exact amount citing ongoing negotiations. Agresta put the amount at approximately $1.1 million but stressed that the final number has yet to be determined. Agresta said that the majority of the discrepancy is due to the county not receiving its share of payment agreements between the city and property owners with delinquent taxes.  He is currently working on uncovering whether the city actually collected or not on the agreements in question, as the city only has to pay the county its share of the proceeds if the agreement was actually paid.

In regards to the situation with the dispute with county, DuBois remarked, “Each year it gets smaller, between what the city says and what the county says.”

Another large correction was made in the 2015-2016 audit report which lowered the fund balance by $1,685,733. This was caused by school tax receivables that were booked to the wrong year. DuBois said at the meeting that the effect of the error was an inflation of the 2014-2015 real property tax revenue line in that year’s report. (The figure in the first chart of this article reflects the corrected revenue amount, not the amount published in the 2014-2015 report).

EFPR Group is already at work auditing the 2016-2017 fiscal year, and Agresta hopes to have the AUD for that year filed before the February 28, 2018 deadline, which would mark the first time in several years that the city has filed on-time.

Municipal finances are certainly complex, and there are certainly more questions yet to be asked about the state of the city’s finances, but hopefully this gives you an understanding of how the general fund balance went negative so quickly. Besides the issue of tax revenues and expenses, I believe that the water fund’s performance needs to be looked at as well, because as we can see, proceeds from that department are crucial to balance our budget. Stay tuned!

(Featured photo (c) Can Stock Photo / AndreyPopov)

Tim Becker

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