Budget Disaster Straight Ahead!

Caution!!  Do not try this “two pie charts method” of accounting anywhere in the real world–you’ll get laughed at (at best) or maybe even arrested.  Can you imagine a business owner giving his accountant two pie charts and telling him that they represent his income and expenses for a $37-million operation?
Ted has been asking for better budgeting analyses for years and last Tuesday’s City Council meeting was more of the same.  I guess it’s easy to have such a lackadaisical attitude when you’re spending other peoples money.

 

Subject:	Budget Disaster Straight Ahead
Date:	Thu, 20 Aug 2015 14:50:25 -0400
From:	Ted Noftall <Ted@tednoftall.com>
To:	Hank Springer <poimages@outlook.com>
CC:	Jake Johansson <mjohansson@port-orange.org>, ‘Fenwick, Robin’ <rfenwick@port-orange.org>, Bob Ford <rford37@cfl.rr.com>, don@amlsfl.com, Drew Bastian <db2070@cfl.rr.com>, Mayor Green <agreen@port-orange.org>, Scott Stiltner <sjstiltner@cfl.rr.com>

 
Good afternoon Hank and Pat,
The  FY 2016  Operating,  Utilities,  and  Capital budgets  presented by  interim  Manager Harden  and his Finance staff  are a confused mishmash of understated  revenue and  overstated expenses that will produce increased  surpluses by over taxing City residents.
This is more than puzzling as Council signaled just several weeks ago that it wanted to reduce un-warranted high reserve balances ( 48%  in the General Fund )    resulting from  past practices of understated  revenue and overstated  expenses  –  down to the 30% level,
AND the Manager  true to past practices turned right around  and proceeded  to  understate projected property  tax revenue,  AND  overstate  projected  expenses yet again.
Council  should be focusing  how much below roll back they should be moving not how much above.
Operating Budget
The 6.91% millage increase in the proposed Operating Budget  for FY 2016,  recommends $ 1,079,000 in new spending,   in a total spending package of  $33,465,169,   that is up  $3,389,840,   or 11% over last year’s actual spending.
An 11% increase in budgeted spending sustained  by a 6.91% millage  increase in the most insidious of all taxes,  that can strip a person from a property he had paid off over a lifetime ,   is  as un-conscionable  as it is un-sustainable.
Those  intent on  supporting this spending spree are attempting to grow  government faster than the City itself.   New property growth in Port Orange  totaled $ 50.4 million this past year and that equates to just over $300,000 in new property tax revenue.
As responsible citizens we are expected to  live within our means in our respective households.  We should hold our  City government to no less of a standard.   Those on Council who believe otherwise, and in particular Don Burnett who likes to profess his concern about the struggling economy right before he votes to raise taxes and fees,   had best get ready for a spirited  debate now and into the 2016 elections.
Port Orange has amassed obscenely high reserve balances ( 48%  in the General Fund ) by understating budgeted revenues and by overstating budgeted expenditures year in and year out.
This year alone they have understated property tax revenue by   $ 949,605  (  Line 18 on the   DR-420 discloses that  the total taxes to be levied under the proposed millage  will be $ 11,894,362   vs   The  budget that was presented on slide 14 that provides for only  $10,944,757 )
Likewise the Manager  has  presented a police budget that is up a whopping $1.4 million  or 12.85 % over last year.  This amount will never be spent,  and if such increases were ever spent in a sustained fashion they  would bankrupt the City.
Capital Budget
 The nicely packaged  proposed  round number Capital Budget expenditures with scant exception  are  devoid of demonstrable  analysis.
Many project the same annual expenditure till the columns run out at the end of the page.     Many more will never be spent in total  and  certainly not in the next fiscal  year.
Some more  are straight up place holders that  will never be spent at all  and will be added to a list of  other unspent reserves totaling  in the millions  whose main  purpose would appear to be ensure fees and taxes  will never fall to the level actually required to operate the City adequately.
Utilities Budget
The Manager  did not  seen fit to not present detailed budget summaries  for the Utilities Funds.   All that has been presented  are  2 pie charts    and   200 pages of difficult to understand computer generated detail.   That is not acceptable.
The revenue and expenses of the utilities funds  ( Water & Sewer,  Solid waste,  Storm Water Utility, Golf Course )  are found  on Page 36 of the Comprehensive Annual Financial Report  ( CAFR )
In  FY 2014  these 4 Proprietary funds  reported revenues in excess of $37.4 million dollars    These funds are larger than the Government funds  which includes the General  fund.
The General Fund also had its difficult to understand computer generated detail,  BUT in addition  30 pages of budget summaries and analysis were presented in support of that fund.
These 4 Utility funds are problematic at best.   Recent activist questioning  has prompted the Manager to concede that the City’s internal controls are so lax they  fail  to track expenditures by project and that the latest consultant’s  musings on the dismal revenue improvement  following the multi-million dollars spent on  meter replacement  was largely conjecture.
Several made-as-instructed studies  of the  W&S have  recommended tepid rate increases that appear designed to gage how many more  increases rate payers will likely  tolerate.
This is the  fund  that has   invested $ 50 million dollars in an augmented reclaimed sprinkler system that services less than half the City  at less than optimal performance,  and is to the point where it probably makes as much financial sense to abandon the reclaimed meters as to continue metering reclaimed usage.
It is also the fund that is unable to advise if it is making money, breaking even,  or losing money on contracts it has outside City limits that require major capital investment  because it does not track revenue and expenses on a contract basis.
The storm water utility fund is an embarrassment.  It has collected $ 35 million in storm water abatement fees from property owners over the past 10 years.   With a 1 to 1 or 2 to 1  match  that means that upwards of $70 million to $ 100 million dollars were  available to be spent on drainage improvements in the City over that  period.   Did that happen ??  Perhaps it did,    or perhaps it  didn’t       We don’t know  because as the Manager conceded the City does not track expenditures by project.
What we do know is that flooding in the City is getting worse,    AND projects that were targeted to mitigate flooding such as the Dunlawton Avenue Drainage Improvements Project   were surreptitiously co-opted to provide even more capacity for the non-performing Augmented Reclaimed Sprinkler System.
No one has assessed  or at least no one will disclose the true financial condition  of the Golf Course.   Payroll  expense controls are lax,    and  considerable golf course expenses never make it to the Golf Course financials as they are paid off-the-books  through the Golf Course Fund.   Next year’s   post-renovation  Golf Course budget is projecting  operating losses such that  any loan  repayment is not feasible,  meaning that  we are unlikely to ever again see  any future loan payments.      No analysis has  ever been provided explaining what happened  to the  $ 2 dollar per round R&R surcharge and the latest proposal is to  eliminate it all together when in fact it should be strengthened   as a 20 year sinking fund for future renovations.
The Utility funds  are a financial  mess and they are  a mess because of incompetent financial record keeping.      That decades old incompetence  did not happen by chance.  Rather it  was tolerated and even encouraged  by those who felt projects of dubious value that they favored would be more easily advanced  in an obfuscated environment of incomplete financial reporting,   than in one that was transparent and comprehensive.
The proposed budgets on which massive property tax and utility fee increases are based deserve far more inquiry and analysis than what they have received to date.     I hope the Manager’s   thoughtless attempt to paper over the whole Utility Funds mess with  2 pie charts will be the impetus for a thorough budget review in the time remaining.
 
Ted Noftall
Candidate for Mayor
City of Port Orange -2016

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