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.
When this issue of alleged missing money came up last year my explanation, simply put, was that a balance sheet figure was being confused with an income statement figure. The State auditor agreed, as does this very thorough analysis by Harry.
The problem may have been inadvertently caused by the finance director, Lorenzo Hines. The previous finance director, Kathleen Junglov, had no mention of Working Capital on the Current Forecast summaries. The difference between Revenue and Expenses was only referred to as Ending Balance; Lorenzo is calling it Working Capital. That’s a new definition of W.C. for me. I’m no accountant, but W.C. for me has always been the difference between current assets and current liabilities – balance sheet figures. Perhaps Lorenzo’s nomenclature on the Current Forecast summaries – income statements – is the root of the misunderstanding.
… and there will still be conspiracy theorists whispering about a missing two million dollars, especially when it serves to support a political position, come election time next year.
These are challenging times, which puts the City and Council under much higher levels of public scrutiny than in the past – and our city is somewhat infamous already for our over-scrutiny. The astute observation by Mr. Gatjens, and Councilmember Wilson, that the real problem here is a communication problem, is right on point.
I have no doubt that the City staff and Council want to do the right thing, and aren’t trying to sweep anything under the rug. But given the gravity of issues at hand, it’s takes a great deal of willpower to overcome the instinct to believe otherwise.
I encourage City and Council members to strive for absolute clarity in their communications, and to display extraordinary patience with explanations, to avoid similar confrontations and Council meeting time expended in unnecessary fireworks. We are all in this together, and there is still no clear way forward for our finances.
Apparently Mayor Cooper’s solution for unclear communications is to not communicate.
Evil conspiracy theorists are not at work here. And Mayor Cooper wants to resolve this as does the whole Council.
What would happen if a magic fairy proclaimed we had a Council/Manager form of government? Would the budget director continue to remain as unhelpful as Mr Hines? And would we better understand why cities with Council/Manager have much greater transparency than we currently enjoy?
This provides a powerful reason to put Council/Manager on the ballot!
Who said the council will not support “fireworks in town” Rather then help support the outdoor fireworks across the street at the ball field, they just decided to have their one indoor fireworks display at the council meeting.
Communications is the beginning of understanding and both sides need to figure out how to better communicate to each other and the public. As Todd said above “We are all in this together, and there is still no clear way forward for our finances.”
We have a list of unfunded capital projects on the “wish list” that looks like it exceeds $100,000,000. That’s about $500 increase in taxes per year for the next 20 years if we want to do all that is on the wish list. If we need a levy in the range of $3,000,000 as was suggested by the Levy teams who looked at this a couple of years ago that adds $170+ per year to the average of $841 paid by the average homeowner today. Some estimates of future revenue need for the city suggest a levy is needed about every 4-6 years. So there is a price for our “Small Town Charm”, we just need to figure out what IS small town charm and figure out how we are going to pay for it. It is time for logical, open, public discussion about what are the basic services we have today, how will they be funded going forward, and what do we want to add in the way of new things to make the city more livable. Then we need to figure out how and if we are willing to pay for it. Hopefully we can move the fireworks outdoors!
The reality is that “fireworks” at council meetings is sometimes the result of attempting to obtain accountability. I prefer some “fireworks” over insufficient accountability.
Having personally been at a Finance Meeting where the $2M question was asked directly of Mr. Hines, and at which he answered it so that even I understood it (finance is not my forte), it isn’t a lack of communication or a nomenclature misunderstanding. When the Mayor has to say he hasn’t got it in a desk drawer, and when the Council state they don’t trust the numbers given, there is a problem. Fundamental to their fiduciary responsibility is trust.
The Council must understand the finances of the City, and if they are confused it is their responsibility to clear up any confusion they may experience. To communicate in open session that they don’t “trust” the numbers they are given doesn’t serve the voters well. (And then they voted spent $50K from the general fund in that same session for “traffic calming” which is 13 on the priority listing they are proposing for the TBD).
Finances are difficult to understand, but as elected officials it is the responsibility of the Council to do just that. Blaming Mr. Hines, or saying there is a “communication” problem doesn’t serve the public trust well.
Diane T, Thanks for your comments. I have not had any issues with getting information and understanding issues presented by staff. As an example the $1.9m+ emergency fund was an issue for a long time. I met with Mr. Hines and while we were looking for he money in his office he explained all that I needed to know as to what it is, where is it, and how can we access it if needed. It took him about 2 minutes or less to answer my questions. Harry G. has posted the same information on this site and his explaniation matches what was the explaination from Mr. Hines. We can always impove the way we display data to make it even more useful and understandable but you are correct that the council vs staff discussion does little to create public trust. The TBD list of 30+ projects has a price tag of $60m. The TBD tax if passed will not generate enough to do the street overlays nor will it generate enought to make much headway on the 30+ projects as has been suggested. More money will be needed to make any significant progress on the list. Thanks for your comments they are helpful for our town.
I agree with Darrol that it is time to get past the misunderstandings , trust and communication issues. It is time to identify what the citizens really want, not all this pie in the sky stuff and figure out how we are going to pay for it
Don, you are a wise person.
@Don and Darrol;
the financial difficulties far exceed the level of “wish listing”. Having just gone through the long list of proposed Capital Projects (the CFP), I too was alarmed at the total cost – about $105 million! Whose great idea was this?! Turns out, every project listed is in response to our own requirements – things like limits on traffic levels, and other requirements. Not a list of “desired” items, but specifically required.
We don’t have a choice about what to list in the CFP, unless we explicitly change the level of service guidelines that are used to guide our project list. The CFP, however, doesn’t obligate any money. The CFP is implemented through a second document called the Capital Improvement Plan (CIP). The CIP contains a list of projects we intend to actually do, and thus, to fund.
Note that the TBD fee increase doesn’t address all of the transportation projects in the CFP, and, as noted above, doesn’t even pay for the required street overlay demand.
We have a clear mismatch between our requirements (as determined by our own level of service), and our finances. It’s not so simple as trimming a wish list, though I wish it were.
Todd, Good comments. You are generally right on. I am not suggesting trimming any list. Our finances are at issue. We do not have enough to maintain our existing levels of service for much longer with new revenues. Economic growth will not be enough to turn things around. It is likely that we will not be able to maintain the current level without a levy in the near term future. The $105m list is out there and there are those who feel we can do it all by just cutting a little here or there. Every project on the list has it’s backers and all will add something to the City. No matter how hard we try, if we want some of these projects then we will have to get out our collective check book and fund them in some way. Funding $60m of projects by floating bonds for 20 years would cost the average homeowner about $250+ added taxes per year for the next 20 years. There is a price for these projects and it is time to start talking about the projects together with a projection of costs and make some decisions of what we want to do. Your points are all valid, we just need to get real about the costs and how we will pay for the projects and get on with it. Small town charm has a price and as Don said “It is time to identify what the citizens really want, not all this pie in the sky stuff and figure out how we are going to pay for it.” I agree with Don, let’s get started on figuring our what we want and how we are going to pay for it. Politics is often one group of people advancing an idea or project and having others pay for it. We will all have to pay for what we want, there will be no free lunch.
Probably you all realize that finding out what people really want – developing a consensus – is easier said than done. I believe that the good news in that regard is that the city can delay making that determination; this is not a time for funding a $100 million “wish list” from an increase in property taxes.
Any property tax increase, until the economy improves, should be limited to enhancing our general fund reserve to the minimal recommended level of one month’s expenses. If Lorenzo Hines’ budget workshop revenue number is correct, a levy would not need to be held until 2012 for a tax increase in 2013. If his prior revenue number is the correct one, a levy, probably $3 million, would need to go to the voters in 2011 for collection in 2012.
As always Ron has some very good points. The issue is that there folks who think we can do things from the list without taxes. Politics in this town is some people want something and the push for it to be done with other peoples money. As all have said we no longer have buckets of money to do things that some want without raising taxes. So if we are truely honest in our thinking we should look at the list projects and begin to sort out the priorities based on the views of as many people as we can gain input from. With 40,000 people, 20,000 households, 26,000 registers with about 13,000 actually voting we need to get 7,000 people to vote for something to happen. I would rather live in a town that trys to gain input form the maximum number of people that let it be run by a minority. The mayors recent poll may help us understand what people are thinking but more importantly we can begin to generate input thouugh web polling that already exists on the City web site. In the alternative a telephone of about 350 people would provide some sense of what people want. To run an election just for Edmonds would cost about $125,000 if only Edmonds issues are on the ballot, less if we share the election with other issues. A more cost effective way to gain input is using our own polling on the city web site. No cost to do the poll, only the cost to write the questions and tabulate the results. A citizens group could do both these functions in an effort to help Edmonds. Who knows people may want to move forward with some of the projects given the cost of financing the projects is currently at an all time low. Gathering input should be our charge. Thanks again Ron for you sound advice.
Darrol makes a good point that the low cost of money makes this a good time to borrow; addtionally, contractors are hungary so it’s an opportune time to get work done.
I believe that the housing industry is a parallel situation. Housing prices are way down and the low interest rates puts the cost of borrowing at an all time low. Even with all of that, the volume of home sales continues to drop.
Opportune time or not, with the high rate of unemployment and little or no pay increases for a few years, people don’t have the money to buy homes or to pay more taxes