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In Audit Findings by Hal Peterson1 Comment

NYS Comptroller’s Office Audit of the City of Long Beach, New York

Excerpts from Report # B18-7-5 issued May 8, 2018

To: Acting City Manager Michael Tangney

Our Office has recently completed a review of the City’s budget for the 2018-19 fiscal year. The objective of the review was to provide an independent evaluation of the proposed budget. The scope of our review does not constitute an audit under generally accepted government auditing standards (GAGAS).

Assessment: The City is in significant fiscal stress and its condition has been deteriorating over recent years. Because of prior year appropriations of fund balance and over-expenditures, the City has incurred operating deficits. These deficits have caused fund balance to decline as well as available cash balances. For the most recent completed fiscal year ended June 30, 2017, personal services and employee benefits totaled over 75 percent of available revenues and debt service was almost 12 percent. Alarmingly, both of these costs have seen steady increases as a percent of revenue over the past few years. With these costs accounting for 87 percent of revenue, there is limited ability to finance operations and maintain infrastructure. Given the uncertainty of current year operations, it is difficult to project how the City’s finances will be at year end. City officials have stated that they have financial plans to cover the cost of operations for the rest of the current year, but did not provide them for our review. We also found that City officials only partially implemented the recommendations in our May 2017 budget review letter. Particulars.

Refuse and Garbage Charges – The proposed budget includes estimated revenue for refuse and garbage charges of $9.6 million. These amounts include an increase of refuse and garbage charges of $20 per sanitation parcel (from $585 to $605), which the City Council has not yet authorized.

Termination Salary Payments. The City’s 2018-19 proposed budget contains an appropriation of approximately $1.8 million1 for “termination salaries.” The City’s termination salary expenditures have averaged $2.6 million over the last three completed fiscal years. Based on these trends, it does not appear that the total proposed appropriation will be sufficient. City officials planned for these payments to be financed with budgeted proceeds from borrowing. Officials indicated that they have alternate plans to finance operations through the end of the year without the debt proceeds but did not provide us with specific details.

Borrowing. The City’s continued practice of borrowing to fund these operating costs is not fiscally prudent. This practice will saddle future taxpayers with the repayment of past service costs, with interest, for which they received no benefit.

Cash Flow. City officials did not include cash flow projections with the proposed budget. Although such projections are not a required part of the annual budget, we believe the City should include them to compare not only total revenues with total expenditures but also to compare timing of receipts and disbursements to be sure cash will be available when needed and any shortfalls can be planned for. With the City’s weak financial condition, declining cash balance and uncertain projections. For the rest of the current year, cash flow projections would provide officials with another gauge of the effectiveness of the proposed budget.

Budget. The City’s initially proposed budget includes a tax levy of $41,358,266 which is $3,712,839 above the limit established by law.

 

 

Summary.

  1. The City is in significant fiscal stress and its condition has been deteriorating over recent years. Because of prior year appropriations of fund balance and over-expenditures, the City has incurred operating deficits. These deficits have caused fund balance to decline as well as available cash balances.
  2. For the most recent completed fiscal year ended June 30, 2017, personal services and employee benefits totaled over 75 percent of available revenues and debt service was almost 12 percent. Alarmingly, both of these costs have seen steady increases as a percent of revenue over the past few years. With these costs accounting for 87 percent of revenue, there is limited ability to finance operations and maintain infrastructure. Given the uncertainty of current year operations, it is difficult to project how the City’s finances will be at year end. City officials have stated that they have financial plans to cover the cost of operations for the rest of the current year, but did not provide them for our review.
  3. Based on our review of the proposed budget, City officials continue to take actions that are detrimental to the City’s financial position. It is imperative that officials address the City’s declining financial condition during this current budget cycle. While the proposed budget has balanced revenues and appropriations, it does not include measures to improve financial condition.

 

 

 

 

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Comments

  1. This is only one city, town, etc of many that is fiscally irresponsible.
    Eventually it will catch up to all of them. But the politicians don’t care they just kick the can down the road.
    Plus I have a feeling that this problem might be more prevalent in “blue” places.

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