2022 Town Budget Confirms Utility Bills Paid for Town Operations
The Town's 2022 Budget claims a revenue increase of 18% YoY from 2021. However, if you look deeper into what's presented - it's really 7%, and confirms that our Utility bills have been paying the Town's operations - to the tune of $4.0 million in 2022 alone
The General Fund is the primary operating fund for the Town. This single account is where all revenues and expenses are allocated relating to Town Administration, Legal, Legislative, Parks and Recreation, Public Works, Finance, Economic Development, Communications and Community Engagement, HR, IT, Public Safety, and Central Charges (ie. Debt and Transfers to other funds). The revenues that fund this account results from our sales taxes, property taxes, development related fees, recreation fees, landfill fees, oil and gas related income, and other miscellaneous sources.
Adopted by the Board of Trustees in November, this year’s budget was prepared for the first time in over 10 years by someone other than our previous Finance Director. The 2022 General Fund Budget projects a total of approximately $42.6 million in revenues for the Town. This is an increase from approximately $36.1 million in 2021, for a year-over-year growth of $6.5 million or 18%.
At first glance this might look great, but the Budget then continues to explain that this double-digit growth is largely just a result of an “accounting change.”
Town of Erie, Adopted Budget 2022, page 37
In other words, the 2022 budget actually projects an increase in General Fund revenues to $38.6 million, or a 7% year-over-year change of approximately $2.5 million. The budget then includes this additional $4 million amount, relating to both personnel and operation expenditures, which will now be included annually:
Town of Erie, Adopted Budget 2022, page 37
Town of Erie, Adopted Budget 2022, page 30
In the new Finance team’s very first budget presented for the Town, they included an expense line-item called “Indirect Cost Allocation”. As stated in the narrative, this change was made because “in the past, the practice has been to lower the budgetary representation of those costs. It is more appropriate to show the full costs in each department.”
So where is this additional $4 million dollar amount being included from, which results in 11% of this supposed 18% year-over-year growth? The answer is simple – this almost entirely comes from our water, sewer, and wastewater bills.
This new revenue source for the General Fund is actually received from all “Enterprise Fund” accounts (ie. Water, Wastewater, Storm Drainage, Airport) and “URA Fund” accounts (ie. Airport, Daybreak/Colliers Hill, Historic Old Town, Highway 287/Nine Mile, Four Corners, and I-25 Gateway). Of this almost $4 million total, 92% is received directly from the Water, Wastewater, and Storm Drainage funds.
Town of Erie, Adopted Budget 2022, Budget Details ‐ Expenses, pages 166-265
The next question then becomes: what is the amount of these additional expenses which weren’t previously included? While the 2022 Budget includes the note “the administrative cost for prior years is not calculated because that would require significant effort for minimal value” (page 22), the budget Memorandum presented to the Board of Trustees sheds some additional light on this change – noting that it will be now “recognized as a revenue source instead of previously being reflected as a reduction expenditure in the General Fund.”
Town of Erie, Town - 2022 Budget Overview Memorandum, pages 10-11
Explaining just how much this change would have affected the 2021 budget, this would amount to another approximate $4 million in “expense reductions” to the General Fund. This was made possible because before 2022, these expenses were, as noted within the Town’s Comprehensive Annual Financial Report, “Indirect Costs”, of which “the Town does not allocate indirect expenses to functions in the statement of activities.”
Ok, so if we are shifting personnel and operating expenses to the General Fund, which sound like they should have been in there from the beginning – where were these expenses located before 2022? Well, you guessed it – they were tucked away inside of the “personnel” and “operations” line-item expenses for the Water, Wastewater, Storm Drainage, and URA funds.
Yes, you read that correctly – it is confirmed that our Utility Bills were in fact paying the Town’s bills – in that the funds were expensed directly to, and paid from, the Water Fund and other enterprise activities, instead of being charged to the General Fund directly. Because they were seen as “indirect charges”, the items had to be expensed from one of the various funds (the Town chose the enterprise funds), and the General Fund simply saw these as “expense reductions” – meaning the expenses were not attributed to the General Fund directly.
This has now changed, where the personnel and operations which should have originally been paid and expended directly from the general fund, are now accounted for in the General Fund. This alone has decreased the Water Fund “Personnel Total” by $1.5 million annually (2022 Budget Book, page 241) and the Wastewater Fund “Personnel Total” cost by $1.4 million (2022 Budget Book, page 254) – which is then recovered through the Indirect Cost Allocation expense charged to these enterprise activities’ accounts.
Conclusion:
Personally, I like this change made by the Town’s new Finance Department team. It provides transparency to us, the residents, as well as provides proper cost allocations to the various funds as they should have been originally. The changes made here directly address what was pointed out in an article back in 2020, and explain the funds balances that were seen at that time: the cash on hand went up because the funds were never expended from the general fund - no general fund expenditures means the on-hand amount goes up.
I also like it because it begins to undo the years of potential mishandlings committed by those previously in our Finance department (yes, these mishandlings include the bridge fiasco). While we don’t know the full amount as to how much this budgeting method affected the General Fund, based on a span of 10 years at an average of $2 million each year – this would mean that our Utility Bills for Water, Wastewater, and Storm Drainage paid for at least $20 million of the General Fund's expenses in that timeframe, paying for Town operations from a Fund which should not have been able to do so.
Our Town needs proper financial oversight if we are going to be able to
pay for the infrastructure, public safety, parks and recreation, and other activities that make this the great place we call home. While COVID has been partly, but not entirely to blame, in the past 2 years alone, our Town has seen a net-reduction of almost $10 million in our
available
unassigned General Fund balance. Meaning if we stay on the path as we currently are, it will become harder and harder for us to maintenance our open spaces, service our roads, or even to simply pay our bills - potentially requiring us to divest our investments or to dip into our emergency reserves.
Town of Erie, Comprehensive Annual Financial Report, Years 2011-2020
Town of Erie, 2021 2nd Supplemental Budget, Page 20
Town of Erie, 2022 Budget, Page 43
If provided the chance to be your Trustee, I will continue my efforts to ask the tough questions in order to keep Town Hall accountable. I know that this specific item is just the tip of the iceberg when it comes to our Town's financial issues, but will continue to make sure that our Town's finances are managed properly. These are the necessary actions required to remain Forward Thinking for Erie's Future.
*Just a side note to all of the items that I discuss: I am a solutions driven problem solver by nature. I wonder how things work, why they work the way they do, and how to make them better. This means seeking different, outside-the-box methods to figure out solutions to various issues. Accordingly, I am always open to learning new ideas, different ways of doing things, as well as constantly learning from others' experiences to make better decisions. When I see an issue, I view it in a holistic fashion, and then dive into specific areas to remove deficiencies and create efficiencies. If you, who are reading this, have some thoughts or ideas about any of the subjects I discuss, I would be more than happy to speak with you to hear your opinions. Please reach out to me here through my website. Listening, hearing, and understanding different perspectives is the only way that we can all grow and create positive change - by learning from others, and delivering ideas that push the needle to become Forward Thinking.
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