Budget Questions & Answers, w/ former Councilor Alison Lindstrom

Below is an exchange that I recently had with former District 6 Councilor Alison Lindstrom. I think it's important enough to include here, her email followed by my response:

-----Original Message-----
From: AML [mailto:aml@itsjustart.com]
Sent: Fri 6/6/2008 2:07 PM
Cc: Anne Ferguson; Allen Neale; Joseph McMilleon; Jonathan Sherwood; Mary Chatigny; Robert Gilday; Robert Lavoie; Roger Benson; Stephen Dunford; Macone (Daily)
Subject: Question from your last regular Fin Com meeting Part 1


Hi all,
Not standing on formality this is just too lengthy, I have more questions but this is a start.

Questions resulting from the May 27th Fin Com Part 1
First, I just can't express how generous last year's budget was so any over spending is highly suspect. Second, according to Mass Finance Law it's illegal to intentionally overspend a budget and this relates to the mayor's aide salary and the new cruisers. Third, the last council pushed for money in the stabilization fund.
.
2008-031: Grant for Summer Youth Program:

032: Surplus Vehicles: Alan Neale asked Kendra if this will create a need for more vehicles. Response was Yes it could surplus vehicles were from Public works.
1. How many new vehicles did the DPW purchase or lease in the last 2 - 3 years?
2. How many vehicles has the town purchased or leased in the last 2 - 3 years?
3. What is the cost for maintenance of the 'special use' units? Why do we have those? Does Amesbury use them in town or to aid other communities (reciprocal aid)? What is the cost?
4. How many employees receive free gas for their private vehicles? Why? How much is this costing us?
5. How many town owned vehicles go home with employees? How many private vehicles does Amesbury use?
6. Including the school department, how many vehicles does the town own, lease, and/or maintain?
What is this cost?

036 : Tansfer from the Youth Fund to cover expenditures through the balance of 2008
Mayor is requesting $20,000 to cover the cost of the Life Guards for last summer ($12,000) and the cost of reinstating the Middle School After School Program ($8,000) Youth Fund usually collects about $170,000 which then goes back into program
The Youth program is supposed to be self funding, an 'enterprise fund' (a private fund specifically for the youth program nothing else). What is this request about? The '08 appropriation plus the program's income had money for the lifeguards and the After School Program (parents pay tuition for this program as well). Why was money taken from anywhere else? Where was it taken from? Where is the appropriation from the enterprise fund going?

037: Transfer from Ambulance Fund
Need to transfer $91,000 from ambulance fund to cover 3 on the job injuries. All three employees needed surgery so the money covers medical expenses and overtime to cover shifts. Brickett hopes this will cover it but isn't sure. Roger asked if on of those was hit by another employee. Response: Person on his motorcycle responding to an ambulance call did get hit by ambulance.
What type of health insurance does the town carry where the town budget pays for medical expenses?
What is the true cost of our ambulance service now that we are servicing S. Hampton, Salisbury and sometimes Nbypt?
How much was the fire overtime budget overspent? Were all injuries on the job? How could the firefighter on the motorcycle have been on the job if he hadn't clocked in? Doesn't the ambulance have liability insurance for hitting people? Why didn't that cover the expense? How much higher has our workman's comp insurance risen in the past 3 years?

038: Transfer from free cash for snow and ice


039: Transfer between General Department funds to cover expenditures Money from Employee Benefits to cover various departments to get them through year.
Mayor - $6,000 to cover shortfall of salary for chief of staff. Last council KEPT aide's salary at $46,000 at previous aide's salary. The reasoning was a job description change.
If the benefits account had such a large surplus again and could pay for all this and then some means the tax payer was overcharged by a tremendous amount. This seems to be a consistent theme.

1. The council appropriation for that salary was for $46,000. Overspending that amount is a violation of state law. Where else did the Mayor ignore the last council's vote?

2. The Town does not have a 'Deputy Mayor', the Mayor's "aide" Section 2-2 of the Charter states: "The mayor may appoint one or more qualified assistants to aid in the performance of official duties." Wouldn't creating the "Deputy Mayor" be a position and as such a reorg as in Sec 6-1 (a)(2) of the Charter? Just like the DPW reorganization which will cost us plenty.

Treasurer $7,000 tax attorney for tax titles: Why so much more? How many tax takings? How many compared to other years? Is there a message for the town in this?

Legal an additional $30,000 40 B cases - $40,000 was just approved 2 months ago. What is the total overspending of the legal budget? Have you seen the bills? How much has Urbellis' bill increased?

$5,000 Municipal Building need AC repaired last summer - What about fans? What is the energy savings?

$97,000 for Police Department $85,000 vehicle purchase of leases and $23,000 for dispatcher phone services
1. How did the money for the cruisers get spent without appropriation if it wasn't used from within the police budget?
2. How much is left in their $511,000 overtime budget (this budget does not include traffic details)?
3. 1 1/2 years ago the police spent $300,000 on the new dispatch center. It included 3 climate controlled communication units. (They had requested 2 but bought 3) Why is there a new $23,000 telephone bill for this brand new center? This is unbelievable!

$23,000 Veterans Benefits which we will get some back - how much this year? Money was just approved for this a couple of months ago, How many more veterans do we have?

We are headed down a very bad path. Let me know your thoughts.


--
Alison M. Lindstrom
EotU
New Horizons art & design
Amesbury, MA 01913
www.ItsJustArt.com
Vita brevis, ars longa. Hippocrates

+++++++++++++++++++++++++++++++

Sunday, June 8, 2008

Ms. Lindstrom -

thanks for your questions and comments regarding various items recently recommended for approval by the Finance Committee. You raise a few important points, some 'big picture', some specific. I'd like to take the opportunity to respond and highlight some philosophical differences that I find and that are worth noting.

You note that the previous Council approved the transfer of funds into the Stabilization Fund. As an observer during last year's budget process I was a) very pleased that the Town's management had been able to deliver a surplus at the end of the year and b) was very pleased that the Council approved the largest transfer into our Stabilization Fund that we've had (at least that I'm aware of). This is a very good thing and is a great *start* in adequately funding future stabilization needs. Though the previous Council supported last year's transfer, you seem to suggest generally that ending the year with a surplus represents a problem and that taxpayers were "overcharged by a tremendous amount." This point is worth exploring.

Perhaps you have not been in the position of developing and managing a large budget but it is a basic good practice that one should be 'liberal' in estimating costs and 'conservative' in estimating revenues. It is virtually impossible to end a budget cycle with every line item hitting its mark exactly. This is especially true with a complex enterprise such as a municipality. If the alternative to having 'overcharged' the public by running a surplus is having 'undercharged' them by running a deficit, I think we can agree which represents a better budgeting process. In fact, running a surplus, funding a stabilization fund and having free cash are all considered positives both by the DOR and by our bond raters, Standard and Poor's, with low reserves and free cash indicating a weak financial position and thus a weaker bond rating and thus higher interest costs for our debt. I quote from our most recent S&P analysis (7/26/07):

"The town's weak financial position, which has experienced limited improvement, constrains the town's long-term rating...Although financial operations remain stable, the town's financial position is weak, with below-average reserve levels. Fiscal 2006 closed with a modest surplus of $154,000 and an ending general fund balance of $1.5million, or 3.5% of expenditures, of which $1.4Million (3.2%) is classified as unreserved...According to the town, fiscal 2007 results were in line with budget; actual results did not deviate greatly from budgeted amounts, and town officials project an overall operating surplus of roughly $500,000."

Two important points there. First, a primary source of our weak position is the lack of a substantial reserve of funds to operate as a future buffer or stabilizer against either higher than normal expenses or lower than normal revenues. Second, S&P notes positively that for FY07 the town's spending came in within expected levels of +/- deviation that represent normal levels of business operation. Let's look at these more closely.

To the first point. I've said already that it is a good thing a) that we are generating a reasonable surplus based on good budgeting and positive budget management and b) that we are using that surplus to begin to adequately fund our 'savings' account. Just as it is smart for a household to have savings in place to buffer against unforeseen contingencies, it is smart for a municipality to do so, as well. It is only a bonus that this will also SAVE us money on interest costs, as a stronger stabilization fund positively impacts our bond rating.

To the second point. You raise the notion of 'overcharging' residents. This is certainly a possibility, but it is important to note that a surplus in any particular cost center does NOT necessarily equal an 'overcharge.' My approach to year end transfer requests and line item adjustments is to start with two questions: 1) On the line item being tapped for the transfer, was the excess monies available within reasonable limits? That is, does the excess represent a gross miscalculation, which might indicate bad forecasting, or does it fall within reasonable deviations from the value of the line item, based on sound management principles? 2) Similarly, does the line item that will be supplemented by a request also represent reasonable deviation from the cost center budget approved at the start of the year AND does the basis for the request reflect other positive management principles.

Let's look at an example. You mention the $169,000 tapped for transfer from the employee benefits cost center. I remind you that this cost center was funded last year at $4.44 million. This surplus represents a 3.8% deviation from the budgeted amount. Employee Benefits probably stands with Ice and Snow Removal as one of the most unpredictable cost centers in the budget. It is dependent on factors largely outside the town's ability to control, namely, whether employees join insurance plans as individuals, couples, or families. You might know from your own experience that as family members change jobs and as family compositions change, how persons enroll in insurance benefits can change on a dime. And as you many know, just the change from an individual to a family enrollment will change the *cost to the town* dramatically. I know that for my employer, their costs go up by over 100% if a person switches from individual to family plans. So, applying my litmus test to a cost center driven by ALL of the town's employees, I find that 3.8% is definitely within a reasonable margin for error. Now, if we were grossly over/under this mark, then there would be cause for concern about the town's management abilities. Since this is not the case, this overage--and the request to transfer out of this line--is reasonable.

Similarly I would apply the same standards to the transfer requests. For example, Veteran's Benefits. This perfectly illustrates the question. You note that a transfer from free cash was approved earlier this year. Indeed it was. What drives the Veteran's Benefits cost center? The number of eligible recipients of veterans benefits in this community. This in turn is driven by two things: the relocation of 'new' veterans into our community and the number of existing veterans that may have *become* income-eligible during the year. I remind you that there is a war on and that Amesbury as well as most communities have veterans from these campaigns returning. I also remind you that many recently discharged veterans return to the community with dramatic economic disadvantages. So, we have the equivalent of a winter of bad snow storms going on here. As the unpredictable number of eligible vets in the community rise, so will the required appropriation for this cost center. If this particular example says anything to me, it is that we should perhaps significantly increase this cost center for the FY09 budget, based on this trend. That said, we have statutory obligations to offer benefits, so as this number increases beyond our control, we must and will adequately fund this line item. Again, the bottom line is 'does this transfer request reflect bad management or is it reasonable, given its particular context'?

Thanks again for your note and for raising important questions. I hope you have a better sense where I stand on some of these issues, in terms of approaching the budget and the town's finances.

Jonathan Sherwood
Municipal Councilor
District 6, Amesbury Municipal Council
978-388-0152

Blog: SherwoodD6.blogspot.com

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