East Carbon struggles with $750,000 shortfall
East Carbon City may now be feeling the full effects of the economic recession as the city is dealing with a shortcoming of $130,000 on the current budget and the general fund deficit of $750,000.
The city council held a special work meeting on Friday evening to discuss budget issues that the city is currently facing. Council members Andy Urbanik and Cheryl McFarland and City Attorney Jeremy Humes met with Greg Marsing, of Smuin, Rich and Marsing Certified Public Accountants, about the current city audit and heard of the challenges the city is facing.
Before sending off the information to the state auditor's office, council members put language in the audit to state that the city will strive to use the allotted funds in the best interests of the city and those who are served by city operations, as revenue increases the funds will be used to make necessary improvements in government operations roads and recreation improvements, utility improvements and purchase of supplies and equipment that are appropriate and beneficial.
According to the audit, East Carbon City's revenue increased last year due to an unexpected increase in tippage fees and an increase in the amount of governmental grants received last year. The city has issued refunding bonds in an effort to reduce interest costs associated with bond issues and this action will help the city substantially, according to the audit. Rising costs of city employees health benefits are a continued burden on the city and the mayor and city council are committed to maintaining the existing level of benefits for city employees.
Listed in the audit were 12 findings that the city will need to address. The findings were listed in the audit as:
*Lack of knowledge to apply the GAAP (General Accounting Accepted Principals);
*Failure to record receivables;
*Failure to deposit public funds within three days;
*Expenditures in excess of budget;
*Deficit fund balance;
*Failure to record transactions accurately;
*Failure to reconcile accounts;
*The city does not have a definitive purchase policy;
*Failure to advertise budget hearings;
*Failure to formally adopt a certified tax rate;
*Failure to submit uniform business permits;
*City employees using public funds to purchase products and services for their personal use.
While it feels like each and every finding is making things worse for the city, Humes said that most of the findings are nothing brand new that the council was just informed about. He also suggested that the council members should each be assigned a few of the findings to review and see what the city can do to fix them, but noted that a number of them have already been dealt with. In the 2009 audit, there were 14 findings listed and Councilman James Wayman said he thinks the next audit for the city should show the improvements that have already been made.
Currently the city is facing a $130,000 shortfall on their current budget of $1,019,725 as along the way the city has ended up with an overstated revenue, thinking that more revenue would be received over the last few years. The budget has actually been balanced each year, Humes said. He provided an example of the city saying if $100 is brought in, then the city will spend $100. But instead of $100, the city brought in only $80.
"That has happened over the last few years and that is how we have ended up with this deficit," Humes said.
The city was not ignoring the budget and overspending, the problem was that the city was spending what was budgeted and it was balanced but the city did not get the money due to overstating, Humes explained. The city had projected to earn in interest on some accounts, but with interest rates at zero percent, the city is not earning any interest from money sitting in various accounts. To help stop problems like this from occurring again, McFarland suggested that the city needs to review financial statements on a quarterly or monthly basis and work on making changes if needed.
When the city overspends from the general fund, it is using money from other funds because all of the departments are in the same back account. Humes explained that the city is still able to operate because the city has cash in other funds such as special revenue fund, sewer funds, water funds and others. Those accounts are basically subsidizing the general fund which has been ok because the city has not been charged for those bonds by the state for three years. But since the state has sent the city a bill for $584,000, the city needs to look at changing this method, Humes said.
"You can't do that forever," he said, saying this problem has been going on over a three-year period. He feels that the city did not have any malicious intent with this by going out and overspending on purpose.
Helping to keep the city afloat are the water and sewer departments, McFarland said. Another issue the city discussed is that property taxes have not been raised for 20 years. Last year the city took in about $304,000 from property taxes and this year the city is budgeted for $265,000, although council members questioned whether that was a correct figure.
Another area that is being focused on is the general fund deficit of $750,000. From 2007 through 2010, the city's general fund deficit grew from $51,000 to $163,000 to $345,000 and to $500,000 last year. To fight this problem, the city needs to pull revenues back in line and match expenses so that the bleeding stops and then take little pieces of money from various places to start paying back the deficit in the general fund. While paying back the money is important, the city should not get too overly aggressive as far as paying back the debt, Urbanik said. He said the city should make timely payments showing proof that the city will pay off debts.
Suggestions for the city to follow included creating a plan to be put into place so that any new council members coming into office would be ready to deal with any budget problems from their first day and that each department in the city needs to work on having reserves in the event of something happening, Wayman said. Urbanik suggested that the city start working on a budget in May, one month before the fiscal year ends in June.
The budget deficit is still a serious issue, Humes said. There are definite steps the city can take to address the deficit and in a few years, if the city follows through on correcting the problems, things can get better, he said.