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NASSAU COUNTY---The City of Glen Cove will have an accumulated deficit of nearly $10 million by the end of 2006 that, without significant action by Mayor Ralph Suozzi and the City Council, will grow to $28 million by the end of 2009, according to an audit released Monday by New York State Comptroller Alan G. Hevesi. The City's operating budget was $35.2 million in 2005.
The audit, which covered the period of January 2005 through August 2006, noted that the primary causes of the deficits were overspending of budgeted items and unrealistic estimates of revenues and spending over many years.
"After five years of deficits, the City continues to experience severe cash shortages that stem directly from the consistent failure over time to take action needed to monitor spending and address recurring deficits," Hevesi said. "The longer Glen Cove officials wait to tell taxpayers how they will address the growing deficits and to strengthen their financial management, the worse the City's financial problems will become."
Findings include:
Unrealistic projections. For example, in 2005 the City budgeted $6.2 million for water and sewer revenues even though actual revenues for the previous year were only $5 million. Actual revenues collected in 2005 were $5.4 million, or $800,000 less than budgeted. In fact, overestimation of revenues has been a problem in many of the funds over time, and our recent annual budget reviews recommended that City officials estimate revenues more conservatively for all of the operating funds.
Use of subsequent years' taxes to pay for current expenses. To make up for an annual shortfall in revenues, officials used an average of 27 percent of the taxes collected for the subsequent year's budget to fund its current year operations from 2001 to 2005.
Use of borrowing to pay for current expenses. The City issued $3.5 million in debt to provide cash for operations in 2005. In addition, at December 31, 2005 the operating funds also owed the capital projects fund $4.4 million.
Negative cash flow. The City routinely does not have cash available to pay all of its bills as they come due. As a result vendor checks are held until cash is available to pay them. For example, on June 1 the City had over $4 million of bills that were due but that the City did not have the cash to pay. Auditors estimated that as of the end of 2006 the City will be short over $9 million in cash needed to pay bills.
For the 2006 budget, auditors found that all of the City's various funds had budgeting problems.
--General Fund. The City's 2006 adopted budget contains approximately $1.4 million in General Fund revenues that probably will not be realized in 2006 and also fails to provide approximately $700,000 of appropriations needed to finance current operations.
--Water and Sewer Fund--Auditors project $1.3 million in budgeted water and sewer fund revenues that will not be available to fund current expenditures, primarily due to overestimation of revenues.
Recreation Fund. Auditors project an operating deficit in the recreation fund of approximately $600,000 primarily due to overestimation of golf fees.
--Debt Service Fund. Auditors project an operating deficit in the debt service fund of approximately $356,000 in 2006 primarily due to the unlikelihood of revenue from the CDA/IDA being collected.
The City's multiyear financial plan proposes potential strategies averaging approximately $9 million annually to eliminate the budget shortfalls in the general and sewer funds in future years by, among other actions, increasing property taxes by ten percent in 2007 and by three percent annually thereafter, charging fees for residential garbage collection and doubling court fines. Auditors found that the plan is flawed because the City's estimates for the operations were overstated, and did not include all operating funds.
The audit noted that factors contributing to the fiscal stress include the Council's failure to properly budget and monitor appropriations and revenues. For example, there is no indication that the City prepared monthly cash flow projections during 2005, and that audited financial statements have not usually been issued timely after the end of the fiscal year, meaning that City officials were not fully aware of the condition of City finances until well into the succeeding fiscal year. Auditors also noted that the lack of formal procedures and oversight over the procurement process, where the purchase of goods and services is mostly controlled by the various department heads rather than a centralized purchasing agent, means that spending limits are not strictly monitored and enforced.
Auditors recommended that City officials:
Take action to reduce the 2006 operating deficits and adopt a 2007 budget that is conservatively estimated and ensures that recurring revenues are sufficient to fund recurring spending.
The City Controller should provide financial information to Council members timely so that they may properly assess proposed budgets and monitor the status of current budgeted revenues and appropriations.
Formal procedures should be implemented to monitor the procurement process and prevent spending from exceeding available appropriations.
The City Controller should submit cash flow projections showing actual and projected monthly receipts and spending and cash balances for the current period and the next 12 months.
The Council should require its independent public accountant to issue the audited financial statements within six months after the close of the City's fiscal year.
The Council should consider establishing a reserve for compensated absences to provide funding for unexpected employee termination payments.
Click here for a copy of the audit. 10-16-06
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© 2006 North
Country Gazette
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