Audit finds West Haven ran $2.5M operating deficit; General Fund deficit stands at $16.8M
WEST HAVEN >> The city’s long-delayed annual audit for last fiscal year still isn’t completely done, but officials know enough to report that West Haven ran a $2.5 million operating deficit and, once all was accounted for, added $500,000 to its cumulative General Fund deficit, an auditor told City Council members this week.
That raises the General Fund deficit from about $16.3 million to $16.8 million.
Scott Bassett of the New Haven office of RSM US LLP, formerly McGladrey LLP, appeared before the council’s Finance Committee Monday night as part of the council’s budget process, so council members would have all the information they need before voting on the budget Thursday night.
The audit currently is in “third party review” — being looked at by management before the company signs off on it — and that should be complete by the middle of this month, Basset said.
“We have an extension to May 15” and “we should have it by then,” he said.
The City Council and Mayor Ed O’Brien are waiting for the audit to be delivered before selling deficit bonds to finance the deficit.
During the 2015-16 fiscal year, West Haven had a net revenue shortfall of about $1.8 million, Basset told committee members.
It fell short on the expense side because health care and workers’ compensation costs exceeded the budget by about nearly $1.7 million and the Board of Education ran into dramatic increases in special education reimbursements and had to draw down on $2.1 million budgeted on the city side, which in recent years hadn’t been used, he said.
That was partially offset by $700,000 in better-than-expected tax revenues “so from a pure operating standpoint, you’re about $2.5 million, net, short in your budget,” Bassett said.
Not all of that gets counted against the city’s undesignated fund balance — the most common way of measuring the city’s cumulative surplus or deficit — however.
So, despite a $2.5 million operating deficit, the General Fund balance’s cumulative deficit rose by $500,000, from $16.3 million to $16.8 million, according to Bassett and Director of Finance Kevin McNabola.
Looking at all of the city’s various funds, however, the aggregate deficit is now about $17.8 million, Bassett told the committee.
One persistent issue in recent years has been “advances to other funds, under which the General Fund would lend money to other special funds under the city’s control, Bassett said.
When the city does so, however, “there has to be some ability to repay — or you’re carrying this receivable where there’s no chance the other party’s going to repay.”
Right now, “there’s approximately $4 million that was lent to these other funds over the last several years, where they don’t have the ability to repay,” he said, telling the committee, in accounting terms, that those debts have been written off as uncollectible. That apparently happened since the last audit report, which said the city has a $10.2 million General Fund deficit.
“You should take a look at your special revenue funds and look at whether each fund is able to sustain itself,” Bassett said. Meanwhile, from an accounting standpoint, “We need to look at, ‘Is there an ability to repay?’”
Asked later about those special funds, McNabola gaves examples that include the West Haven Adult Day Center, the Savin Rock Conference Center, the City of West Haven — Allingtown Fire Department and the city’s Sewer User Fund.
The special funds to which the city lent money included the Allingtown fire department, the adult day center, the high school’s sports complex and the school lunch program, he said.
McNabola told the committee that what has helped in preparing this year’s budget is that “we cut $3.2 million of non-recurring revenues over the last three years.”
Some council members were not happy that an actual audit report has not been delivered before the council must vote on Mayor O’Brien’s annual recommended budget.
“This is very difficult to follow without a PowerPoint, without a report,” said Councilman David Riccio, R-At Large, who plans to run against O’Brien in November. “It’s hard to weigh and make decisions without an audit report in front of us.”
McNabola responded that “I gave the Finance Committee the numbers ... two weeks ago. That’s the component that you build your budget around.”
Finance Committee Chairwoman Tracy Morrissey, D-8, and Councilman Sean Ronan, D-9, both said they don’t think it’s fair to “forgive” Allingtown’s deficit, which already stood at $275,000 when the city absorbed the formerly independent Allingtown Fire District in 2012.
“The people in the Center and ... on the West Shore already pay for fire service,” said Morrissey.
Mayor O’Brien did not attend the meeting and could not immediately be reached for comment Tuesday.
But one of the people who did attend, former City Councilman Mike Last, who is running for city treasurer on a Democratic challenge slate with mayoral candidate Nancy Rossi, said the auditor did not paint a rosy picture.
“The City of West Haven ended fiscal year 2016 with a $2.5 million operating deficit and an additional $4 million was written off as noncollectible from other funds,” Last said.
“The unassigned general fund deficit is now at $16.8 million, up from $10.3 million” and “the mayor continues to spend and hire and does not understand that without decisive action and making difficult decisions that lead to structural long-term change, the deficits will get larger and larger until the city can no longer operate,” he said.
“The city cannot deficit bond until it balances its budget — but this administration has yet to balance a budget and has not shown any sign of fiscal responsibility,” Last said.
“The mayor’s recommended budget for fiscal year 2018, which the council is scheduled to vote on Thursday night, is already $8 million out of balance because he included additional state money that most likely will not materialize,” Last said.
“And if passed,” the city’s actions “will continue to show fiscal irresponsibility,” he said.
“West Haven needs to make the structural budget changes necessary for long-term financial stability and success,” Last said. “We cannot continue on this path of reckless spending that is causing budget deficits, decreased property values and an uncertainty and lack of confidence in the business community.”