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Dresher & Malecki report: Town tax for Lewiston looms

Fri, Aug 19th 2016 07:00 pm

Lewiston hears of 'steady decline in revenues'

By Terry Duffy


The Town of Lewiston received some rather disturbing news Tuesday on its overall financial picture from town auditors Drescher & Malecki, as Lewiston enters the preliminary stages of developing its 2017 budget. In a nutshell, what Supervisor Steve Broderick and Town Board members were informed of is that Lewiston needs to come to grips on improving its revenue stream - and that a town tax is looming.

Led by Matt Montalbo, CPA, partner on engagement, and Carl Widner, manager/supervisor of audit, the Dresher & Malecki report included an outline of Lewiston's government operations trends over the past four years, where the town is now and what needs to be addressed down the road - both in planning 2017 and far beyond, as the town grapples with increasingly limited revenues and continuing escalating expenses.

Primary areas reviewed were the town's A fund (general), B fund (general town outside village fund), highway fund, water district and sewer district, with analyses from 2012-15.

"The final document is still being compiled. We want to make sure you're comfortable with it before it's issued final," Montalbo told Broderick and the board members.

He said Lewiston has seen its expenses exceeding revenues, basically due to the fact Lewiston does not have a town tax and that, for years, it has relied on such primary outside sources as Modern Disposal tipping fees and gross receipts taxes from CWM Chemical Services to fund its operations.

"This is a four-year operations trend. From 2012 onward, our expenses have exceeded our revenues. We've had a gap within the general fund," Montalbo said of the town's financial situation.

"We've seen a steady decline in the revenues (for the town). Major pieces here (lie) in non-property taxes. In 2012, you had almost $2 million in non-property taxes. That is the most significant decline," he said. "You're down $1.5 million in non-property taxes for 2015 - a decrease of almost $400,000 from that one revenue.

"It's obviously a significant impact on your budget."

Montalbo did point out that, in recent years, Lewiston has strived to keep its finances in order.

"The expenditure trend is pretty favorable," he said. "You've caught, you've shifted, you've cut down a lot of work on that general fund budget over the last four years."

Montalbo pointed to a decrease of $130,000 in expenditures from 2014. He called it the smallest decrease in the past four years.

"You've been able to narrow that, but how much more can you cut?" he said. "Revenues are still declining. It's based a lot on outside sources. You don't have a lot of control over those revenues."

Unlike most municipalities that rely on property tax levies for the primary funding component, Lewiston continues to rely on Modern and CWM money, and each company has its problems.

With Modern, it's unpredictable tipping fees that are based on tonnage received at the Pletcher Road municipal landfill and market trends - both are down and continuing to be flat.

For CWM, which is still awaiting a final determination on its future from a New York State Department of Environmental Conservation Hazardous Waste Siting Board, it's even more uncertain. CWM gross receipts taxes to the town, based on the company's hazardous waste landfilling activity, in the past were, at times, in the $275,000 range and even higher. Now they are nearly nonexistent - and promise to remain that way should the company receive an unfavorable ruling from the DEC.

It's an issue Lewiston now realizes it must contend with and correct.

Montalbo advised the town to be leery in its future budget planning.

"When you're looking beyond 2015 into 2016, you have a pretty similar budget to 2015, and you didn't appropriate any fund balance to balance that budget," he said. "Assuming 2016 follows a similar trend, that (possibility of losing yet another $130,000 in revenue) can put you in a more vulnerable position."

Montalbo suggested the town needs to pay attention to its fund balances for all accounts - most notably in the A fund. Pointing to a decline in fund balance for the A fund over the past four years from town operations, he advised Lewiston has to do better.

"You have to consider what percentage of your operating expenditures does this represent," he said. "Based on a 2016 (A fund) budget of $2.5 million, this (2015 unassigned fund balance of $209,748) represents about 8 percent of the budget. (The) office of state comptroller recommends a minimum fund balance policy of two months of operating expenditures - 17 percent of operating expenditures," according to a GFO recommendation.

Town Finance Officer Martha Blazick said municipal lending agencies, such as Moody's Investors Service, want to see even more - 30 percent.

"What we need to decide as a town is what do we need to be comfortable, so we can handle the emergency, the little things that come up without causing a catastrophe and totally wiping out our fund balance?" she said. "I would say the 17 percent GFO is a bare minimum."

"Once you find a percentage you're comfortable with, it's what do you do if it goes below that percentage," Montalbo said. "You have to consider a two-year plan; do you raise taxes, or some other action, to get you to the level you are comfortable with."

"That is something the town has never done," Blazick said. "There's been huge disagreements (here as to) what the fund balance should be. Some people were saying, 'Oh, you can spend that.' As a town, we need to come up with what are we comfortable with.

"It's really looking ahead and planning, rather than shooting from the hip, not looking ahead. In general, the town has never really looked ahead. We've always looked at what our immediate needs are.

"Historically, (for people) it's hard to look beyond what is here today."

Montalbo went on to caution that, should 2016 remain at the same level of expenditures vs. revenues as 2015 (a $130,000 decline), with all things being equal (lack of other revenues), the town could see its fund balance fall to $70,000-$80,000, or 3 percent - well below the GFO-recommended 17 percent minimum.

"2016 could be at a worse level. It's something that definitely needs attention with the general fund," he said.

"The town is headed in the right direction, but it still needs to make some drastic changes," Blazick admitted.

Moving to the B fund - town outside of village - Montalbo called it, overall, "a very favorable trend. The revenues/expenditure lines are really close together. It shows a very balanced budget within the B fund."

"You're not bringing in excess funds, but at the same time you're maintaining your budget," he said, noting the fund balance in the B fund trend reflected a small increase of $60,000 over 2014.

Montalbo said the town's highway fund also reflected a consistent trend from 2012-14 as predicted: Revenues have kept pace and, that for 2015, it realized savings on the expenditures side.

He said this was due to a milder winter and lower retirement costs. As a result, with more revenue, the highway fund generated approximately $290,000 of fund balance to just over $400,000 in 2015. For 2016, the $2.8 million highway budget shows a fund balance of $316,010, or 11 percent, but still below GFO recommendations, Montalbo said.

As to the separate water and sewer fund accounts, Montalbo said both are volatile.

"Consumption is such a big driver," he said pointing to such factors as weather conditions influencing water use and sewer activity. He said water revenues have been consistent and expenditures are going up.

Noting a total fund balance of $143,000 in the water fund, he added, "You may want to look at adjusting rates in the water fund.

"For sewer, when you look at the total fund balance, you've maintained a pretty stable level. It compares favorable to your $2.5 million budget," Montalbo said. "You want to hold a good amount of fund balance; you need to be flexible. There's infrastructure to deal with, but also consent orders - environmental consent orders, mandated improvements to the system."

"These are huge capital projects you can't really get away from," he said.

Others discussed Tuesday involved such issues as: the need for the town to hire a junior bookkeeper to assist Blazick - which Montalbo strongly recommended; better management by the town in the reconciling of total cash in banks to town cash balances in the general ledgers; improved departmental procedures, focusing on the town clerk, tax collector and town courts; plus better analysis/structure in such town areas as its IT policies, the Lewiston Family Ice Rink operations; the town's purchasing policies; its long-term planning for restricted funds; a better monthly reporting system; and a minimum fund balance policy.

Throughout discussions, board members increasingly came to the realization that a town tax would be the inevitable answer to addressing not only Lewiston's challenging revenue issues, but also its entire operations and financial picture.

"The town is undergoing a paradigm shift," Councilman Al Bax said. "I've said this before, historically we've relied on the main industries in town (waste disposal companies) to support our budget. And now with the advent of that era into the bath, we are going to have to reinvent ourselves and deal with the resources we have now."

"We're talking about going over the tax cap, and it will be for more than one year," Blazick said.

Broderick closed by saying the Town Board would be discussing the Dresher & Malecki report findings, once complete, in greater detail, both at upcoming meetings and in town budget planning sessions as the budget development process commences.

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