By Elizabeth F. McNamara
The former Town Council entered fiscal year 2019 planning to use $1 million of reserves to fund the town’s operating budget. According to financial consultant Mike D’Amico, nearly seven months into the fiscal year, the town is on target to need that $1 million and possibly as much as $1.4 million to balance the budget.
In addition to the plan to use reserves to fund the operating budget, D’Amico factored in lower-than-usual midyear tax receipts and the extra $263,000 the Town Council allotted to the schools two weeks ago.
In response to a question from Councilor Renu Englehart on the previous council’s decision to use reserves to balance this year’s budget, D’Amico said, “I don’t know what the thinking was behind using that. I will say I don’t think it’s good fiscal policy. I would not recommend budgeting the use of fund balance.”
The 2019 budget kept the tax rate flat; in 2018, the budget gave taxpayers a slight rate decrease. At the time of the budget discussions, then Town Manager Gayle Corrigan argued any tax increase would not really help the town overall. By state law, taxes can only be increased 4 percent over previous year. A 4 percent increase would be $2.2 million. Then-Councilman Andy Deutsch said during a candidates forum before the election that the decision was made to put the town in a better bargaining position going into contract negotiations with the five unions whose contracts expire the end of this year.
Council President Mark Schwager – the only current member who was on the previous council, as well as the only dissenting vote on the fiscal year 2019 budget – pressed D’Amico on the use of reserves to fund the government.
“It looks like the budget went according to plan, and the plan was a $1 million deficit,” Schwager said. “In the absence of a fiscal emergency, a recession, or some other one-time expense, is there a reason to take a million deficit to fund a budget? And the follow-up question to that, what is the effect on our 2020 budget? Is that then a structural deficit that needs to be made up from fund balance in subsequent years?”
“Other than some sort of emergency, a one-off you fund for one time and not again … I can’t really think of another time when you should budget to take money out of fund balance to pay for ongoing expenses,” D’Amico replied. “In terms of what that means for 2020, yes, if there were to continue, the fund balance would be zero very quickly. Which is why just about any finance professional will tell you you shouldn’t use your fund balance to fund operating expenses.”
The town used fund balance to pay a $1.7 million legal claim in 2017 – D’Amico said that was exactly when a municipality should use its reserves since it was a one-time unexpected expense.
In D’Amico’s outline of the town’s budget halfway through the budget year also raised another issue: tax receipts are lagging traditional metrics. According to D’Amico, taxes traditionally have come in at a regular pace, with 53 percent of taxes coming in during the first half of the year and 47 percent coming in the second half of the year.
Tax receipts for fiscal year 2019 are down 1 percent. If that does not correct, that could mean a $700,000 shortfall. D’Amico said he could only venture a guess as to why this was happening – that maybe people’s habits have been altered with the change in the 2017 tax code – and that he thought probably receipts would catch up. The town will know by mid-March, after the receipt of third-quarter tax payments, if this is a change in payment habits or a real deficit.
Among the other budget highlights, it appears the fire department will end the budget year with spending at $4.4 million, the same level as last year, $400,000 below what had been budgeted. D’Amico attributed the savings to personnel – the department has been without a chief since mid-November and is down two firefighters – as well as lower-than-budgeted overtime. Overtime had been budgeted at $1.2 million; D’Amico said Monday it would probably be $920,000 (up from $802,000 in fiscal year 2018).
The police department is forecast to end $166,000 higher than budgeted, due to overtime, which is projected to come in $172,000 over budget (overtime – $327,000 in 2018 – was budgeted at $285,000 this year but is projected to come in at $458,000). On Tuesday, Police Chief Steven Brown said the department was down seven officers right now, 25 percent of the force. Some are out with on-duty injuries (IODs), a couple are out with illnesses and two officers left the department in the past year. Brown said a third officer was planning to move to the South Kingstown PD. He said this year has been particularly tough, but that he’s working with the Town Council on a plan to fill the vacant positions.
The meals tax budget line is forecast to come up $144,000 short. That’s the 1 percent in restaurant receipts the state reimburses the town. In 2018, the town got $690,000 in meals tax money. The budget for 2019 was $914,000, but it looks like the actual meals tax number will be $770,000.
Town legal costs were budgeted at $300,000 but are forecast to come in at $382,000. That’s a whole lot lower than in 2018 – $2.3 million – but mainly because of a $1.7 million legal claim the town had to pay for what were found to be illegal impact fees collected by the old EG Fire District. Legal costs in 2018 were also higher due to $341,000 in outsourced legal work. In 2019, that number is forecast at $40,000. Health insurance is also higher than was budgeted, by $190,000.
Now that the Town Council has gotten updated on 2018 and 2019, it’s on to the 2020 budget, which must be approved in June.
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