By now, the money should be in the proverbial till. As of the end of June, the City of Amsterdam was set to borrow $7.7 million to erase deficits in several city funds, the biggest of which being the general fund. According to the resolution that authorized the borrowing, the cash should be booked to the funds with negative balances, bringing each one back to zero.
Sounds easy right? Well, according to audit reports for the last several fiscal years, and according to Municipal Solutions, the city’s financial advisors, the funds with negatives balances have all borrowed money from other funds to meet expenses over the years.
So it would seem logical that with this cash coming in, the funds which loaned money to others would then have to be paid back, right?
Only one problem. After over a year of questioning, no city official can tell me exactly how much each fund owes each other. We know the total amount each fund owes or is owed by other funds, and that’s it.
Money due to & due from other funds
(Per 2018-2019 Audit)
Due to Due from
General $4,805,031 $1,786,107
Sanitation $437,573 $662,941
Golf $957,867 0
Transportation $1,361,759 0
Water $531,949 $2,089,157
Sewer $1,872,818 $425,207
Capital Projects 0 $5,096,136
A simple example of what I mean is to take a look at the general fund. It has the largest deficit with a negative balance of $3.37 million.
That means the fund has spent $3.37 million more over the years than it has taken in. Where did the cash come from to pay the expenses? The last audit report says that the general fund owes approximately $4.8 million to other funds. It’s also owed $1.7 million from other funds.
But from which funds?
No one knows.
After nearly a year of questioning in person, by phone, by email, by Freedom of Information Law requests, former mayor Michael Villa could not tell me, current Mayor Michael Cinquanti could not tell me, Controller Matt Agresta could not tell me, the city’s auditor EFPR Group could not tell me, and no current or former council member could tell me.
The only thing I have been told by Cinquanti and Agresta is that once the deficit financing funds are available, the city will then pay off in full a $2 million tax anticipation notice, a loan the city took out last year to ensure it could meet operating expenses. That payment will come out of the general fund, which may result in the fund remaining negative, although at a much smaller deficit than before. We won’t know for sure until the annual update document or the audit report for the 2019-2020 fiscal year is available.
Beyond that, what will happen is anyone’s guess. When I asked Agresta via email for a comment as to how the money will flow through the various funds, his reply was “We are working with the Comptroller’s office to do this in an appropriate way in terms of the accounting.”
Although I have spoken with Cinquanti earlier in the year about these concerns, I have not heard back from him since I emailed him about two weeks ago.
I don’t mind telling you what I think should happen – the deficit financing cash should be transferred back to the funds that are owed, regardless of which one owes which. $2 million to the water fund and $5 million to the capital projects fund, and each “due from other funds” line should be zeroed out. Similarly, the “due to other funds” lines in the funds with deficits should be zeroed out as well.
But the water and capital projects funds have positive fund balances, why should the cash go there?
Because those figures reflect iou’s, which are counted as assets. The water fund in particular, only had $154 in cash assets at the end of the 2018-2019 fiscal year. It’s fund balance is almost entirely reflective of the iou’s from other funds.
Fund balances vs cash
(Per 2018-2019 Audit)
Fund Balance Cash
General -$3,366,566 $675,796
Sanitation $675,796 $28
Golf -$1,029,543 $3
Transportation -$1,362,034 $100
Water $2,411,901 $154
Sewer -$1,288,497 $244
Capital Projects $3,234,780 $5,096,136
Iou’s don’t pay the bills, cash does. By paying back the inter-fund loans with cash, the water fund should have the same fund balances, but the figure will more closely reflect actual cash, rather than iou’s.
The capital projects fund is a different story. It’s the only fund that reflects the liability of bond anticipation notices (BAN’s). So it’s fund balance reflects the balance of BAN’s owed by the city. However, this fund is the one that was borrowed from the most. The cash should be paid back and put toward the capital projects the way those dollars were originally intended.
Similarly, the “due to other funds” lines in each fund with a deficit should be zeroed out as well. In other words, no fund should owe any other any more.
That’s just an opinion from one armchair accountant.
I could be wrong, but then what? Well, we need to make sure our city officials give us a full accounting of how that $7.7 million is used. We need to see details and explanations.
And after that, we need to make sure the city starts documenting inter-fund loans properly. According to New York State Law, the council is supposed to approve all inter-fund loans just as it approves any other change to the budget.
A municipal corporation may temporarily advance moneys held in any fund to any other fund of the municipal corporation. Any such temporary advance shall be authorized in the same manner as prescribed by general, special or local law for making budgetary transfers between appropriations. Suitable records shall be kept of each temporary advance.
NY General Municipal Law Section 9A
In my six years of covering the city council, I’ve never seen a resolution authorizing an inter-fund transfer.
And yet, they obviously happened anyway.
This lack of accountability is one reason the deficits were able to accumulate over the years. If the public had known inter-fund loans were being made, that would have sent an alarm signal that revenues were not covering expenses. But instead, as long as city employees were paid and obligations were being met, there was not clear evidence of a problem.
City officials need to come clean on the inter-fund loan question and put procedures in place so that these loans are properly documented in the future. It’s one of the last important changes the city still needs to make in order to ensure a problem like this never happens again.
