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County in Strong Fiscal Shape According to Auditor
But, why the shortfall? ask Legislators
by Maria Theodore Leiter
Nothing in Putnam County’s audit suggests that there are any hidden land mines, an independent auditor told Legislators of the Audit and Finance Committee this month.
The County is in a strong financial position, according to the 2004 audit he performed, said Dominick Consolo of Bennett Kielson Storch DeSantis. He said that the problems faced by the County are the same that plague all New York State counties, namely dealing with the increasing costs of unfunded mandates like Medicaid, an increase in pension contribution requirements that took effect last year, and rising health insurance costs.
Recently, state lawmakers have responded to county requests for relief by passing legislation that caps Medicaid costs, holding the annual increases to no more than 3% to 3.5%. According to Finance Commissioner William Carlin, Jr., the increases in Medicaid in recent years have been 8% to 10% or more.
The auditor praised County efforts to decrease the amount of surplus dollars used to balance its budget. It went from $11.9 million in 2004 to $9.5 million in 2005 to $7.3 million in 2006. At the end of 2004, the County had over $11 million in its general fund surplus, a percentage point above the 5% to10% range recommended to maintain the County’s excellent bond rating.
He also made several recommendations to the administration for tightening internal financial controls. It was those recommendations and the responses from the County Executive that were on the October 24, 2005 committee agenda. But, Consolo also answered questions about why the County with its strong financial position found itself in a financial hole this year.
Consolo attributed that to the County’s use of surplus funds to balance its budget over the years and to the fact that there is no longer much of a cushion in that surplus. Unless sales tax revenues are greater than projected for this year, the surplus will remain at the level recommended to protect its bond rating. Drawing on this reserve may have an adverse affect on the County’s borrowing interest rate, which is a function of its bond rating. “Some [counties] are in a better fiscal condition; most are not in as good a position,” Consolo replied to an inquiry from Legislator Regina Morini. County Executive Robert Bondi said in an interview on Monday that the audit shows that the County is in overall very strong fiscal shape, with one of the lowest ratios of debt per capita in the state.
“The general fiscal health of our residents is very good and forms the backbone of the County finances,” he explained. “We have low unemployment and a high number of two income, high earner families.”
“We are in a good financial position as far as our bond rating,” said Committee Chairman Tony Hay in an interview on Monday, “but, we had to raise the sales tax, we had to raise the property tax.” He said that next year’s budget will be even harder to balance, because this year, in addition to the surplus amount, the County benefited from $3.7 million in one-time revenues that included refinancing of Tobacco Settlement funds and a last minute grant from the state.
This year’s shortfall prompted calls for a forensic audit from Legislator Vinny Tamagna and a promise from Chairman Robert McGuigan, Jr. to pay closer attention to how money is being spent.
When Hay suggested that the Legislature was caught off guard by the budget gap, Commissioner William Carlin, Jr. responded, “If the Legislature paid attention to the red flags that were raised in the County Executive’s past budgets, they would not have been caught by surprise.” Carlin said that the County Executive has been raising the alert about the diminishing surplus for years. Consolo took the steam out of Tamagna’s request by explaining to the committee that forensic audits generally begin after a fraud has occurred; a claim not being made by any of the Legislators.
“That implies that a crime has been committed,” said Legislator Terry Intrary, who opposed talk of a forensic audit, “and that is not the case. This administration has been above board.”
Hay said that, although he was frustrated at not being able to get reports from the administration that fully detail the money spent on projects such as Tilly Foster Farm and Putnam National Golf Club, Tamagna was the only legislator interested in exploring the forensic audit.
Tamagna, who was not at the meeting where his request was discussed, said on Monday that he was still uncomfortable with the fact that there was a $10 million shortfall two months after the budget was passed and that if not a forensic audit, then he would have liked some other type of detailed audit done by an independent firm. When it was pointed out that the Legislature itself hires the audit firm and could request greater detail, Tamagna said that BKSD has been performing the County’s audits for twelve years and he would prefer a firm that has not been involved in the past. However, he said that it was unlikely he could convince his colleagues to change auditors. For now, he said he would have to be satisfied with increased scrutiny by the Legislature.
Hay said that keeping the same auditor allows that auditor to spot anomalies from year to year.
“The Legislature itself will look more closely at how money is being spent,” Tamagna said.
While he doesn’t believe there is any criminal activity, he said he believes that the County is not carefully accounting for how manpower hours are being allocated. For instance, he said there were resources put into projects like Cornerstone Park in Carmel that were not budgeted. “We do a lot of things in-house, and there is a cost associated with that.” Hay also contends that the County is not keeping close enough track of the hours spent by employees and on supplies and equipment being used on in-house projects. At a previous meeting of the Physical Services Committee, Highway Commissioner Harold Gary explained that the detail being requested would be an administrative nightmare for his workforce. Still, Hay says it should be done.
Legislators are hoping that shining a brighter light on spending will reveal possibilities for cutting waste. This will give them alternatives to following the recommendations of the County Executive, which are to reduce contributions to outside agencies, in effect cutting services, and increase contributions from retirees for their health insurance two things Legislators have been reluctant to do; or, from considering workforce reductions or more tax increases. But, unless the County sees a dramatic increase in sales tax revenues, which according to Hay is unlikely even with the tax rate hike, most Legislators agree with Carlin’s assessment that they “will have to either cut expenses or raise revenues in 2007.”
“We still have one of the lowest [county] tax rates in the state,” Carlin points out.
As for the recommendations made by the auditor, they included that the County require Putnam County National Bank to increase its collateral for funds deposited by the county by over $1.5 million and that all the County’s bank accounts be reflected in its books. Bondi said that the bank has agreed to increase its collateral and explained that some of the accounts under the County Tax Identification Number were not owned by the County, but were set up to handle transfer accounts, such as those for money held by the county for the State or for inmate accounts. Also, the auditor recommended that the County reconcile its subsidiary accounts to the general ledger on a monthly basis, review all encumbrances regularly, and identify outstanding balances on its Capital Projects Fund. The County will implement these recommendations, responded Bondi.
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