The New York State Comptroller has issued a detailed report of Amsterdam’s 2020-21 city budget, finding it has likely underestimated expenses and overestimated revenues by at least hundreds of thousands of dollars, and contains other errors and poor budgeting practices.
“Based on the results of our review, we found that certain significant revenue and expenditure projections in the 2020-21 adopted budget are not reasonable and other matters that require city officials’ attention,” wrote state Deputy Comptroller Elliott Auerbach in his review.
The comptroller’s examination of the city budget is one of the requirements of Amsterdam’s deficit finance legislation. The measure, passed by the state in 2019, allowed the city to borrow up to $8.3 million to pay off the city’s accumulated budget deficits built up over approximately the last 10 years.
On June 25, the city issued bond anticipation notes totaling $7.7 million to “liquidate” the deficit, which it must now repay over a period of 10 years, although the city plans to refinance the borrowed money annually. During that time the comptroller’s office will require the city to submit quarterly financial reports, as well as the city’s annual budget prior to its adoption.
However, the city’s 2020-21 budget process was delayed, in part due to the coronavirus and by the length of time it took to secure the deficit finance borrowing to determine the annual debt service cost. The city did not submit its budget to the comptroller prior to its adoption, but the report by Auerbach released Sept. 25 offers a detailed critique of the adopted budget.
The comptroller’s office broke down the $7.7 million borrowed into the deficit owed to each of the city’s funds:
• General fund — $5.1 million;
• Transportation fund — $1.3 million;
• Sewer fund — $512,675;
• Recreation fund — $763,844.
Mayor Michael Cinquanti praised the comptroller’s efforts to help the city improve its budget process.
“I wasn’t pleased with some of the content that they found, but I think the results of them doing it and showing it to us as an independent third party is going to have a dramatic impact on our ability to fix these things,” he said.
Deputy Mayor James Martuscello, who represents the 5th Ward and acts as the budget officer for the council, summarized the comptroller’s findings by saying the city was “short on a lot of items, and we’re trying to save the taxpayers money by not raising taxes, and that hurt us.”
Martuscello said he also believes the comptroller’s report shows the state wants the city to engage in more incremental increases of fees on an annual basis instead of leaving them flat for years and then passing larger increases to catch up. He said the report will be used to improve the budget process.
“When we do the budget next year, I’m going to have [comptroller’s report] right next to me, so we have a chance to address every issue that they brought up,” Martuscello said.
Debt spending and risk revenue projections
The comptroller’s report found the city’s $35.3 million 2020-21 adopted budget, which broke the state tax cap by increasing the city’s total property tax levy by $213,484 (bringing it to $6.1 million) and raised the city’s property tax rate per thousand dollars of assessed value by 4.18 percent, 73 cents to $18.10, is still millions of dollars short of a balanced budget, making it reliant on debt spending, water fund transfers and aid from the state and federal government that may not materialize.
The report shows the city is using $2.1 million of “fund balance” to balance the budget, as well as $1.3 million from the water fund and $1.2 million in pandemic aid from the federal government, which has not yet been passed by congress.
Mayor Michael Cinquanti said the city has had no cash “fund balance” reserves; the $2.1 million in fund balance spending referenced is being taken from the $7.7 million the city borrowed for its deficit financing. He said many of the cities in the state have been forced to put projected pandemic aid in their budgets, as a means of pressuring the federal government to provide the aid.
“I think Amsterdam was the first city in New York state to do this, but I think every city in the state is doing it because our budget year ended in June, we were the first to go in, but everybody is doing it,” he said. “The comptroller understands it completely. Is it the smartest thing in the world to do? No. But have we ever had a pandemic before? No. So that’s the situation.”
Cinquanti has indicated the city may have to look at mid-year layoffs or furloughs, if the federal government doesn’t provide the aid to bail out New York state and its local governments.
The $1.2 million in budgeted pandemic aid is meant to cover expected shortfalls in state aid and sales tax, but Auerbach’s report indicates the city may not have been conservative enough in its projected cuts to state aid.
“The adopted general fund budget includes estimated revenues of $2.6 million in state funding for [aid to municipalities], which is $300,000, or approximately 10 percent less, than the State Fiscal Year 2020-21 Enacted Budget amount,” wrote Auerbach. “However, we caution city officials to be mindful that due to the continuously evolving circumstances caused by the pandemic, the Enacted State Budget generally authorizes the Executive and the State Legislature to withhold or reduce State aid as necessary at given times throughout the year should the state budget be deemed out of balance.”
Many municipalities and school districts have been crafting budgets assuming a 20 percent cut to state aid, double what Amsterdam has budgeted.
Missing capital project report
Former 4th Ward Alderman Dave Dybas spent much of his recent term on the council asking the city to comply with its charter and provide the council with an annual progress report of all of the city’s capital projects, but city Controller Matt Agresta and former Mayor Michael Villa always said it was unnecessary.
The comptroller’s report states the city has been delinquent in following its charter with respect to capital projects and should start providing the report on an annual basis.
“The charter requires the capital program report to include, for each approved capital project, the status of the project, the funding amount actually received, the amounts actually expended, the future funding required, the projected future expenditures and appropriations required, and a five-year plan of proposed capital projects,” wrote Auerbach.
Cinquanti said he’s been in discussions with Agresta since he took office about creating the annual report.
“It’s impossible to accurately put together an annual budget without accurate, up-to-date annual capital projects reports, and we’re going through an exercise now where we are getting these capital projects, the budgets for them, and we’re actually finding money that wasn’t spent on some of these projects that can be applied to, you know, get rid of the debt,” Cinquanti said.
The city’s independent auditor EFPR Group has determined one of the sources of the city’s large accumulated deficit was the practice of co-mingling tax revenues and water and sewer user fees with money borrowed for capital projects and then using the commingled account to pay for day-to-day expenses, a practice city officials now admit was illegal.
Cinquanti said one of the problems with putting together a comprehensive capital projects report has been that the files for the projects were being maintained in multiple departments of the city that have had turnover of officials.
“The information is in a lot of filing cabinets, but no one ever summarizes it. No one ever closes the file on it, in many, many cases,” he said.
Cinquanti said he has discussed with the comptroller’s office what it would take to get detailed answers on what capital projects the city borrowed money for and then misappropriated the money for day-to-day expenses.
“What the state comptroller talked to us about, was it did seem as if it was impossible for us to figure out, based on the record keeping, what those instances were, without a lot more work, the use of a forensic accountant, things like that, and again we’re working,” he said. “We went back as far as 2013, so we’ll find the answer to that question as far back as 2013, but I don’t have any intent of going before 2013.”
Agresta was elected in 2013.
Property Registration Fees
The comptroller’s report criticized the 2020-21 city budget for including estimated revenues of $75,000 for registration fees for vacant properties that the City has not previously assessed, based on an ordinance the city council has not yet passed.
The estimated revenues are to be realized by assessing owners of properties with vacant buildings a proposed registration fee of between $275 and $300 per property. “While the estimated revenues appear reasonable, the realization of these revenues is contingent upon the council’s authorization of this new fee,” reads the report. “The council did not authorize this fee prior to the adoption of the general fund budget or as of the time of our review. If the fee is not authorized, or is authorized and approved at a different amount than the proposed rate, the general fund budget should be modified accordingly.”
Cinquanti said he discussed the vacant property registration fee with each of the members of the council prior to the adoption of the budget, so he assumes they will pass the ordinance.
“I am counting on it. I have talked to the council, we have had a reading [of the proposed ordinance]. I don’t see any reason why it won’t pass,” he said. “I’ve heard no indication that they won’t, but it should be enacted, and we should have the fee in place by January, which is how I budgeted it.”
During discussions about the vacant property registration fee in September Martuscello raised some objections. He said property owners in the city will likely complain to him and other members of the council that the city is being hypocritical in requiring vacant property fees while the city owns many vacant properties through the foreclosure process. The council has planned to bring the ordinance up for a vote in November, but Martuscello said he isn’t certain it will pass.
“Am I confident? I’m not so sure,” he said. “I’m looking into it. [City legal counsel Tony Casale] gave it to me and I’m looking at it, and I’m not so sure. I have questions.”
The comptroller’s report discovered a potentially costly overestimate of sewer revenues in the 2020-21 budget.
The adopted sewer fund budget includes estimated revenues of $809,745 for metered sewer rents, which is an increase of $177,131 (28 percent) from the 2019-20 adopted budget, but the City only recorded metered sewer rents of approximately $430,000 in 2019-20 and only increased the sewer rates in 2020-21 by 2.25 percent.
“Based on this, we project that the city will realize metered sewer rent revenues of approximately $440,000 in 2020-21, resulting in a revenue shortfall of approximately $370,000, or 46 percent of the budgeted revenues,” wrote Auerbach. “This occurred because [Agresta] estimated revenues based on the 2019-20 budgeted revenues, which were overestimated by approximately $200,000, and a 28 percent change in rates, instead of using historical revenues realized by the city and the 2.25 percent change in rates. city officials should ensure future sewer fund budgets include estimated revenues for sewer rents based on historical revenues realized and accurate calculations related to any rate changes.”
However, the comptroller discovered a second error in the city’s sewer rent calculations that may partially pay for the overestimation of sewer revenues.
The 2020-21 sewer fund budget includes estimated revenues of $450,000 for sewer rents assessed to the Town of Florida, which is the same amount as the 2019-20 adopted budget, even though the City actually collected sewer rent revenues of approximately $612,000 in 2019-20, and increased the sewer rates.
“As a result, we project that sewer rents have been underestimated by approximately $175,000,” wrote Auerbach. “City officials should ensure future sewer fund budgets include estimated revenues for sewer rents based on historical revenues realized and any rate changes.”
Cinquanti said the discovered errors illustrate a problem he’s been trying to solve since taking office in January. He said he wants the city to have month-to-month “dashboard” reports that show the amount of revenues and expenses per fund and per department, allowing the city to have accurate year-to-date numbers during its budget process, instead of relying on the prior year’s budgeted figures, which can be off by significant amounts.
Cinquanti said Agresta has always told him the city’s accounting software was not capable of the kind of monthly reports he wants, but the comptroller’s office advised them to check how other cities with the same software do it.
“So Matt checked deeper into it and sure enough [Friday] we were supposed to get the end result of our software vendor actually providing us with that formatted, year-to-date, actual expense report that we hope to use going forward to do things on a monthly basis,” he said.
Health Insurance cost
During the 2020-21 budget process the city reduced its projected annual health insurance costs from $5.3 million to $4.4 million.
“[Agresta] told us that he calculated the $4.4 million estimate by using a projection provided by the city’s insurance broker of approximately $5 million in costs for the city’s self-funded plan and subtracting approximately $375,000 for anticipated contributions from employees and surviving spouses of retirees, and $183,000 for an anticipated net savings in prescription drug expenditures,” reads the comptroller’s report.
However, the comptroller said because the prescription drug savings is based on a new program, “we could not verify whether these anticipated savings will be realized.”
The city also accidentally left out $300,000 in projected expenditures for insurance premiums for medical coverage for retirees and spouses age 65 or older.
“As a result, the adopted budget underestimates health insurance appropriations by at least this amount,” reads the report. “In addition, we caution city officials that if the city incurs health insurance expenditures in 2020-21 similar to the average costs of approximately $5.3 million over the last three fiscal years, appropriations for health insurance could be underestimated by approximately $850,000.”
Cinquanti said the city’s health insurance system, which involves seven labor contracts and multiple plans is “monstrously complicated.”
He said the city will improve its projections.