Publisher’s note: The following report from My Edmonds News correspondent “Citizen Harry” Gatjens focuses on details surrounding last Tuesday night’s discussion regarding the proposed Edmonds City Council mid-year budget adjustment. Gatjens, an accountant, is familiar with city budget issues due to his work on the 2010 Citizens Levy Committee.
The Edmonds City Council’s consideration of a proposed mid-year budget amendment led to some very heated discussion, with Councilmembers Michael Plunkett and Diane Buckshnis squaring off against Mayor Mike Cooper and City Finance Director Lorenzo Hines.
Two separate issues created the stir, but in both cases, the conflict was over lack of clarity rather than actual disputes.
The first issue is the proposed mid-year budget adjustment itself. This adjustment is made mid-year to reflect changes in policy and estimates, plus changes from year-end 2009 to bring the beginning balances into balance with the actual position. Since the City of Edmonds budget is done on a two-year basis, the 2010 beginning budget balances reflected assumptions, made late in 2008, as to what they actually would be. After completion of year 2009 accounting, those beginning balances need to be amended to the actual amounts. This is really a housekeeping issue.
Also, adjustments need to be made for anticipated changes in actuals for 2010. For example, the amount collected for the Transportation Benefit District was originally estimated to be $700,000, but it is now estimated to be $580,000. So this amount needs to be amended in the budget. Again, a housekeeping issue.
Why amend the budget? Why not keep it as is and show variances like we do in our business?
Unlike a budget in private industry, a governmental budget is an actual legal authority for the city to make expenditures and collect money. Nothing can be spent or collected without being included in the budget. The ability to spend money comes from appropriations in the budget. Without a proper appropriation, money cannot be spent or collected. Hence budget adjustments must be made periodically to reflect reality.
The second issue, the heated one, came from a lack of consistency in what the budget showed versus what appears in the Comprehensive Annual Financial Report (CAFR). The CAFR shows a beginning general fund balance of slightly over $6 million.The budget shows a beginning balance of slightly over $2.1 million. What’s the difference?
In the Comprehensive Annual Financial Report, the beginning balance includes the $2,167,156 in the budget, plus $1,927,600 in the City’s reserve emergency fund, plus $1,971,650 in “remaining reserve fund balance.” Obviously, $1,971,650 in “remaining reserve fund balance” creates an issue. What is that?
It appears that this is an issue that has been brewing for over a year now: The Council feels it has never had a good understanding of what this remaining reserve fund balance is, and the Finance Department feels that it has provided reports that show what it is.
Both are correct. If councilmembers don’t understand what this reserve balance is, they can’t move forward. And while the Finance Department may have shown a report showing the difference, it obviously wasn’t clear to the Council.
After a meeting with members from the Levy Committee, the Finance Department provided additional detail of what comprised “remaining reserve fund balance.” Problem solved? Well, not really. The additional detail included $6,814,700 in “due from other governmental units” and $5,913,311 in “deferred revenue.” What are these? A question was sent to the Finance Department asking for more clarification. Unfortunately, the additional detail had not been provided before Tuesday’s council meeting.
There really was never any concern about misappropriation of funds or financial errors, but given the fact that both of these amounts are equal to one-fifth of the annual budget, the council needed to have a comfort level in understanding what they were approving. Combined with another approximately $1 million in non-current receivables, this made up the “missing” $2,000,000.
The conversation got quite heated as the Mayor and Mr. Hines repeatedly stated that they had answered this question to everyone’s satisfaction and several councilmembers said no, they had not. Finally, Councilmember D.J. Wilson stepped in and said that since he still didn’t understand the amounts, whatever explanation had been given didn’t give him confidence in the numbers. He wasn’t laying blame, but merely pointing out that no matter how clear the message seemed to those giving it, it still wasn’t getting through to the recipients. There was a breakdown of communication.
Accusations of stating mistruths were flung back and forth, and nothing was getting resolved. Finally, Mayor Cooper invited the councilmembers to come back and have another meeting with himself and Mr. Hines so they could go over the explanation again.
At this point, Ms. Buckshnis asked Mr. Hines to reply directly to the question that the levy committee had posed regarding “deferred revenue” and “due from other governmental units.” Mr. Hines explained that these amounts primarily had to do with bond payments for the Edmonds Center for the Arts. Payments go through the City — a little every six months as the bonds are paid down. As they are long-term bonds, both the receivable and the payments for the entire term of the bonds need to be reflected on the books. However, they are classified as “long term” and hence not part of working capital.
Mayor Cooper then asked that anyone with issues they wanted addressed in the budget amendment to bring them up right then, so they could be incorporated into the budget amendment that still needed to be passed.
The discussion ended with a commitment for councilmembers to meet with the Mayor and Finance Director to go over the $2 million difference and then to reconsider the budget amendment at the next meeting.
Now, here is the real unfortunate part. Mr. Hines’ answer to the levy committee question, above, does indeed clear up the issue about the “missing $2 million.” The $2 million is made up of the $1 million in non-current receivables plus the difference between the “due from other governmental units” and “deferred revenue” related to the bonds for the Center for the Arts.
Had this question been answered when originally asked, that entire issue would have been resolved and all of the rancor and mistrust at the meeting could have been eliminated. An enormous amount of time and energy could have been saved and the council could have quickly moved ahead with the amendment.
Lack of clarity in communications proved to be a real disservice to the process. That is why the council is striving for more clear presentation of financial information so that the everyday citizen can understand it.