The comprehensive financial condition audit of the City of Glen Cove's financial situation executed by the New York State Comptroller's office has been released, and according to the audit, the future of the city's financial condition will depend on a good deal of change.
The audit, requested by Mayor Ralph V. Suozzi literally minutes after taking office ("I dropped the request in the mailbox on Jan. 1, right after midnight," he has often said.), has been in the works for months, and while the state auditors began by working on an internal operations audit, by mid-July, said Mayor Suozzi, he found the city running out of money, and asked for help from the state representatives, who suspended the operational audit to commence a financial conditions audit. A financial operations audit pertains to examination of the way funds are used in recurring activities of a municipality whereas a conditions audit indicates the factual evidence of a financial situation, with the objective of alleviating existing problematic conditions.
The just-released audit states, "We (state auditors) interviewed appropriate city officials, verified selected cash flow revenue and expenditure items for the 2006 fiscal year, and reviewed financial records and transactions for the period January 1, 2005 through August 31, 2006, to address the following question: Have city officials taken adequate action to address recurring deficits in the general, water and sewer, and recreation funds and monitor revenues and expenditures?"
The summarized conclusion stated, "City officials have not taken appropriate action to address recurring deficits in the general, water and sewer, and recreation funds and monitor revenues and expenditures. As a result, the city has continued to experience annual operating deficits and it is now in severe fiscal stress. The city is currently experiencing severe cash shortages and will likely end 2006 with an accumulated deficit of almost $10 million."
The document continued, "With the exception of 2004, the city has experienced recurring operating deficits in its general, water and sewer, and recreation funds each year from 2001 through 2005. By the end of 2005, the city's operating funds had a combined accumulated deficit of almost $5 million. The operating deficits in the general fund mainly resulted from a failure to control expenditures. The water and sewer and recreation fund deficits resulted from over-estimating revenues and unrealistic expenditure estimates." In 2001, County Executive Thomas R. Suozzi was mayor of the City of Glen Cove, followed by two-term mayor Mary Ann Holzkamp.
The document went on to say that the state, in past routine budget audits, has cautioned the council on the imprudence of over-estimating revenues in adopted budgets, but city officials have maintained a practice of consistently budgeting revenues that are considerably higher than actual revenues received in prior years. "In recent budget review letters, we recommended that city officials estimate revenues more conservatively for all of the operating funds," the report continued, adding "To make up for the annual shortfall in revenues, city officials have been using the portion of the subsequent year's tax levy collected in December of each year to pay for current expenses."
The auditors found that "from 2001 through 2005, the city has annually used an average of 27 percent of the taxes collected for the subsequent year's budget to fund its current year operations." Mayor Suozzi, who stated that he presented his budget for 2007 to the city council prior to the release of the audit, has asked for a 27.81 percent tax increase for the coming year.
According to the state audit, "The city's fiscal problems will not improve in the next several years unless the mayor and the council take decisive action to address the situation. During 2006, the city prepared a multiyear financial plan for 2007 through 2009. The plan illustrates that if revenue and expenditures continue to increase based on prior years' trends and if action is not taken to structurally balance future city budgets, the general and water and sewer funds will sustain annual operating deficits from 2007 through 2009 aggregating $16.3 million. The city's plan does not address how it would eliminate projected fund deficits in the recreation, debt service and internal service funds at December 31, 2006. When these other city funds are considered, the city's potential accumulated fund deficit could approach almost $28 million by the end of 2009.
"Very poor budgeting practices have contributed to the city's $5 million accumulated fund deficit in 2005 and the projected combined operating deficit of $4 million at December 31, 2006. In addition, the unavailability of financial information that is critical to the council's ability to assess financial condition and budget trends, such as cash flow projections, monthly budget reports and timely issued audited financial statements have severely hampered the city officials' ability to timely identify their severe financial problems and to take corrective action. Spending limits have not been strictly monitored and enforced."
The audit addressed the necessity of the city council to receive regular and timely budgetary information. "Prior to May 31, 2006," stated the auditors, "council members did not request and were not provided with periodic budget reports. One of the council's primary responsibilities is to ensure that city expenditures do not exceed the budget. In addition, if revenue shortfalls occur during the year, it is the responsibility of the city controller to recommend and the council to adopt budget amendments that will either reduce spending or provide additional revenues so that there are sufficient resources to finance expenditures.
"The council does not receive cash flow projections and the controller's bi-weekly reports do not reflect the true cash position of the city."
Upon receipt of the audit, Mayor Suozzi sent a letter to the Office of the State Comptroller complementing it on the "thorough analysis, review and documentation of the financial condition of the City of Glen Cove," adding that the findings "not only confirm the severity of the city's worsening financial condition" but also "validate the spirit and direction with which I am preparing my 2007 Operating Budget." He told the state that his proposed 27.81 percent tax increase will "bring an additional $5 million of much needed revenue which will offset the rising contractual obligation and annual growth of other operating expenses."
Among its recommendations, the state comptroller's office suggested that city officials immediately take what actions they can to reduce the 2006 operating deficits in the general, water and sewer, recreation, and debt service funds and adopt a 2007 budget that is conservatively estimated and ensures that recurring revenues are sufficient to fund recurring expenditures. It recommends that the city controller provide financial information to council members in a timely manner, so that they may properly assess proposed budgets and monitor the status of current budgeted revenues and appropriations. In addition to providing monthly reports of bank cash balances to the council, the auditors strongly advise that the city controller submit cash flow projections showing actual and projected monthly receipts and disbursements and cash balances for the current period and the next 12 months. Auditors stated that the city 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 and consider establishing a reserve for compensated absences to provide funding for unexpected employee termination payments.
Speaking with this reporter, the mayor stated that the audit elevates fiscal discussions beyond political discourse and bases it in real numbers, which do not lie. "In order to avoid what the audit says could happen, I intend to take charge and with this year's budget, try to rectify some of our problems and make up additional revenue to close the gap" between revenue and expenditures. A large part of the problem, said the mayor, is the fact that taxes have not been raised in nine of the past 12 years, which he finds "illogical," albeit popular, adding, "I'm not casting blame. This is the road we're on and we will do what we can do from here."
The mayor stated he is working on a number of options, including deficit financing, the possible sale of some city assets and the raising of building fees and fines in the city, all of which are lower than neighboring municipalities. He said the city can also save money by not replacing city workers who resign or retire, if the city can work efficiently without someone in the position. "I need to do things that are legal and sustainable," he said, "but there are things I can't control. The city often needs new equipment, or equipment needs new parts. There is also downtime when equipment is being repaired." In addition, the city has no control over weather-related situations, including an inordinate number of snowstorms, which require hours of overtime on the part of the Department of Public Works.
Speaking pragmatically, Mayor Suozzi stated that he is "trying to get us out of a mess without pointing fingers. I will get together with the council and my administrators and look at opportunities. I will do nothing to hurt the city structurally, functionally or financially." The mayor believes that the city can work to improve the city's Moody's rating, which, at this point, forces the city to pay a higher rate when borrowing money. The mayor insisted a new road needs to be taken because, quoting Einstein, he said, "The definition of insanity is doing the same thing over and over again and expecting different results." He said that with the information from the state audit, he intends to "work to identify what is right and what is wrong, strengthen what is weak, and fix what is broken in the city."
"I intend to keep in close contact with the state auditors," said Mayor Suozzi. "They know what works and what doesn't...they have done this statewide. We should follow their system. I am very grateful on the part of the citizens of Glen Cove that the auditors came in, took our problem seriously, and followed through."
Now that the financial condition audit is completed, the state auditors will return to working on the city's financial operations audit, which the mayor said he hopes will be finished by December.
City Councilman Mike Norman, a CPA who has been a member of the city council for 12 years and is the council's unofficial financial go-to man, was not available for comment at press time.
For the full audit report, visit http://www.osc.state.ny.us/localgov/audits/2006/cities/glencove.pdf.