To properly explain this big question, I’ll try and fill you in on the backstory as concisely as I can. But be prepared, there’s a lot of ingredients to digest in this spicy sauce of an issue that has been simmering for some time now.
As with most financial issues the City of Amsterdam faces, the story begins many years ago in 2011 with the ill-fated migration to a new accounting software system. No one fully understood how to use the system and there was not consistent leadership in the controller’s office (with all due respect to Ronald Wierzbicki who passed away after one year in office). As a result, a lot of transactions weren’t properly categorized and reconciled.
The city collects all the property taxes in the city, including city taxes, city user fees, Montgomery County tax and Greater Amsterdam School District tax. For the county and the school district, the city simply forwards the tax money to them when they are collected.
In order to make sure the right amounts are transferred from the city to the county, the two governments are supposed to reconcile what the county says it is owed with what the city says it should owe on a regular basis. It’s kind of like the process most of us are familiar with of reconciling our checkbook or banking software with the bank’s statement. That way, if there is a discrepancy, the issue can be taken care of right away. Because of the accounting system problems, that reconciliation process was not being done for some time.
After Matt Agresta was elected to the controller’s office in 2014, things began to improve and become organized. The reconciliations became routine again. However, it came to light that during the years of turmoil, a discrepancy developed between what the county claimed the city owed them and what the city claimed it owed them.
Back in 2016, the city’s audit report for the 2013-2014 fiscal year was finally completed. In it was a $1.5 million downward adjustment made to the city’s general fund balance. The audit report for that year explains the adjustment as “primarily the results of misstatements found in the tax receivable, accounts receivable, and due to other governments accounts in the prior period.”
I interviewed Controller Agresta soon after the report came out and asked him for more details about the adjustment. What he said was that the majority, over a million, of the adjustment was a precautionary measure, recommended by the auditors, to take into account the county’s position on the discrepancy. If the county’s position was proven correct, the city would have to pay that money out. The thinking was it was better to take it out of the fund balance now rather than later.
And that decision seems like it would reasonable. Given the city’s problems, I think it was far more probable that the county’s number was correct.
Agresta didn’t specify the exact amount of the discrepancy, but I was OK with that given it was a dispute of a legal nature which had yet to be resolved. I recently reviewed the audio recording of the interview to make sure I reported it right at the time, and I believe I did.
As the city continued to catch up with its audit reports, it became clear that sizable deficits existed in several funds, the largest being in the general fund. In 2019, the city’s financial advisors Municipal Solutions recommended the city seek approval from New York State to pursue deficit financing. Basically the idea would be to borrow as much as $8.3 million to bring all the negative fund balances back to zero.
The city received approval from the state in February 2020 and the city passed a resolution to pursue deficit financing shortly after. So far, according to Mayor Michael Cinquanti, the city has not been able to find buyers for the bonds, due in part to disruptions in the financial markets due to the COVID-19 pandemic. However, the mayor’s proposed 2020-2021 budget plans for the increase in debt service needed to support an additional $7.7 million in borrowing, which would cover the most recent calculation of the total of all funds with deficits as of the 2018-2019 fiscal year.
At the same time, both Agresta and Cinquanti have said they have been working with county officials to come to an agreement on the discrepancy. Agresta had mentioned during several of his reports to the common council over the past year that progress was being made in figuring out the discrepancy. While there were many factors in the issue, Agresta said that one major issue was that the city had not been properly passing on funds to the county collected as part of payment agreements, which are agreements designed to help residents who are behind on their taxes to pay their past due amounts in installments in order to avoid foreclosure. Agresta said the issue had been fixed and at one point said the discrepancy had been narrowed down to a “negligible” amount. It was then that I asked Agresta what the final result was. Did the city actually owe what the county claimed? And given the general fund balance had been adjusted to reflect the county’s position, would it be adjusted again? He said he would get back to me.
Earlier this year Cinquanti told me that an agreement was close but didn’t want to quote the details yet given it had not been finalized and approved by either the county legislature or the city council.
This past week on June 16, a lot more details came out in a committee meeting of the Montgomery County Legislature. You can view the meeting on Youtube, the topic comes up at about the 34 minute mark.
Legislator Michael Pepe, whose district covers part of the city, summarized the situation, and I’ll try to summarize his summary.
He said that Legislator Bob Purtell, whose district also includes parts of the city, had taken the lead in working with the city to come to an agreement. What was settled on was that the city owed the county $1.2 million. The next step was to come up with a payment plan for the city that might span anywhere from 10 to 40 years.
However, Pepe said that during recent discussions, Agresta mentioned that the $7.7 million deficit financing plan included the amount that was owed to the county.
And to me, that makes sense, given what Agresta had previously stated about the reason for the adjustment to the fund balance. Since the adjustment contributed to the deficit, and the purpose of the financing is to make up for the deficit, then why shouldn’t the amount of the discrepancy be considered as part of the financing?
Pepe said that he was then contacted by Mayor Cinquanti, who told him that after consulting with Municipal Solutions and Controller Agresta, that the $1.2 million was not included in the deficit financing. Cinquanti said the same thing to me when I interviewed him in regard to the new budget this past week.
Naturally, I sought comment directly from Agresta as his name was being thrown around in the third person. I emailed him to clarify the change in position about the repayment amount on Wednesday. He replied Friday saying he did not understand the question. I emailed him right back, restating the question as clearly as I could, and I have not heard back yet.
So during the committee meeting, the legislators debated as to whether or not to send a resolution authorizing a payment plan for a final vote at the next regular meeting on June 23. Pepe said he was in favor of a payment plan for the city only as a last resort. He said the county would be facing it’s own financial problems as a result of loss of sales tax revenue due to the COVID-19 pandemic, and that there was no reason to wait on getting repaid if the city received its deficit financing.
County Treasurer Shawn Bowerman adamantly agreed with Pepe, characterizing the situation as the city being “caught” mis-using funds that belonged to the county for the city’s general fund operations and said from a fiscal standpoint, getting paid the entire amount at one time would be better for the county as a whole.
Pepe said that he requested documentation from Cinquanti verifying that the deficit financing funds couldn’t be used to repay the county. He said he would vote yes on the resolution only if he saw such documentation. As of June 16, he said he had not yet received that documentation.
In the end, the committee voted 6-3 to send a resolution up for a vote at the next regular meeting which would authorize a 20-year repayment plan with a 1% interest rate. Pepe, Joe Isabel, who also represents parts of the city, and Robert Headwell, Jr. voted no.
So where does that leave us? Fuzzy as usual, and I’d very much like to find out more. The city budget must be finalized by the end of the month, and it would certainly help to know what we can or can’t do before the council votes on it.
Why? Because if everyone is correct in what they are saying, and the adjustment did have to do with the tax dispute, but there are some other conditions that prevent us from borrowing for that specific issue, then we should still proceed with the payment plan, but the city should absolutely re-adjust the general fund balance up by $1.2 million and reduce the amount we borrow to $6.5 million. Paying 1% over 20 years on $1.2 million to the county is far better for the city than paying as much as 6% or more on the same amount. The debt service amounts in the budget could be reduced and that could either reduce the tax rate or put more into contingency for what will be a very uncertain fiscal year.
Hopefully, we’ll receive more information in the coming week. I’ll keep you updated!.
