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Comptroller's COMPLETE Audit of Schenectady

Comptroller's COMPLETE Audit of Schenectady

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Published by David Lombardo
New York State Comptroller's Office reviewed the recent financials for the city of Schenectady
New York State Comptroller's Office reviewed the recent financials for the city of Schenectady

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Published by: David Lombardo on Nov 13, 2012
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City of Schenectady
Fiscal Stress

Report of Examination
Period Covered: January 1, 2011 — June 30, 2012 2012M-187

Thomas P. DiNapoli

Table of Contents

Page AUTHORITY LETTER 2 3 3 5 7 9 9 9 10 10 12 13 16 16 18 24 25 26 27

INTRODUCTION Background Population, Unemployment and Socioeconomic Considerations Tax Base Objective Scope and Methodology Comments of Local Officials and Corrective Action

FISCAL STRESS Financial Condition Budget vs. Actual Results Multi-Year Financial Planning Summary Recommendations Response From Local Officials OSC Comments on the Local Officials’ Response Audit Methodology and Standards How to Obtain Additional Copies of the Report Local Regional Office Listing




1 1

State of New York Office of the State Comptroller

Division of Local Government and School Accountability November 2012 Dear City Officials: A top priority of the Office of the State Comptroller is to help local government officials manage government resources efficiently and effectively and, by so doing, provide accountability for tax dollars spent to support government operations. The Comptroller oversees the fiscal affairs of local governments statewide, as well as compliance with relevant statutes and observance of good business practices. This fiscal oversight is accomplished, in part, through our audits, which identify opportunities for improving operations and council governance. Audits also can identify strategies to reduce costs and to strengthen controls intended to safeguard local government assets. Following is a report of our audit of the City of Schenectady, entitled Fiscal Stress. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the State Comptroller’s authority as set forth in Article 3 of the General Municipal Law. This audit’s results and recommendations are resources for local government officials to use in effectively managing operations and in meeting the expectations of their constituents. If you have questions about this report, please feel free to contact the local regional office for your county, as listed at the end of this report. Respectfully submitted,

Office of the State Comptroller Division of Local Government and School Accountability



Background The City of Schenectady (City) has approximately 66,000 residents and is located within Schenectady County (County) in eastern New York. The seven-member Common Council (Council) is the City’s legislative branch. The Mayor is the City’s chief executive officer and is responsible for supervising, directing and controlling the administration of all City Departments. The Commissioner of Finance and Administration (Commissioner) is in charge of administering the City’s fiscal affairs. The City Charter governs City operations and outlines the powers and duties of the Council, Mayor, and Commissioner. The City provides a variety of services to its residents, including general government support, police and fire protection, street maintenance, parks and recreation programs, and water, sewer and refuse service. The City’s 2012 general fund budget totaled $79.5 million and was funded primarily by property taxes, sales tax and State aid. In September 2012, Moody’s Investors Services (Moody’s) downgraded the City’s bond rating from A1 to A3. According to Moody’s, the rating is based on the City’s declining financial position, which is expected to deteriorate further in fiscal year 2012 as a result of delinquent real estate taxes and rising employee benefit expenditures. Further, Moody’s rating reflected the City’s aboveaverage debt burden and below-average socio-economic indicators. While we agree that these factors are concerns, we determined that City officials are taking positive steps toward improving the City’s financial condition, as discussed further in this report. In 2011, the City raised 40 percent of its revenues through property taxes. The City’s 2011 property tax revenue as a share of total general fund revenues was similar to what it was in 2000. The City’s reliance on sales and use tax, as well as charges for services, has shifted since 2000. In 2000, only 4.8 percent of the City’s revenues were derived from charges for services. By 2011, that share had grown significantly to nearly 13 percent. Conversely, sales tax as a share of total general fund revenues has markedly declined from over 27 percent in 2000 to less than 18 percent by 2011. This decreased reliance on sales tax is not surprising, given the fixed nature of the City’s sales tax sharing agreement with the County, as discussed in more detail later in this report.


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2011 General Fund Revenues $66.9 Million
Federal Aid 0.3% All Other Local Revenues 10.9% State Aid 18.0%

Property Taxes, Assessments, and Other Items 40.2%

Sales and Use Tax 17.8% Charges for Services 12.8%

In 2000, property tax and sales and use taxes combined made up 67 percent of total general fund revenues. By 2011, that combined share had dropped to 58 percent.
State Aid Comparison 2011 Percent of Total Per State Aid Revenues Capita City of Saratoga Springs $3,426,087 8.8% $127 City of Albany $16,824,315 10.9% $177 City of Schenectady $12,037,722 18.0% $184 City of Troy $14,427,393 23.4% $288 City of Rome $10,134,095 25.7% $306 City of Utica $19,204,546 30.4% $313

State aid is another major component of the City’s revenue mix. In 2011, it accounted for 18 percent of general fund revenues, compared to 15.8 percent in 2000. On a per capita measure and as a percent of total revenue, Schenectady receives more State aid than Saratoga Springs and Albany, but significantly less than the cities of Troy, Rome and Utica.



2011 General Fund Expenditures $72.2 Million
Culture and Community Recreation Transportation Services 1.2% 7.9% 0.9% Sanitation 5.6% Debt Service 7.7% Economic Development 0.9%

Public Safety 34.7%
General Government 7.5%

Employee Benefits 33.7%

Like most city governments, the majority of City spending occurs in the areas of public safety and employee benefits. The share of public safety expenditures relative to total general fund expenditures decreased from 38.9 percent in 2000 to 34.7 percent in 2011, but the share of employee benefit costs increased from 23.9 percent to 33.7 percent. Together, these expenditures accounted for just over 68 percent of total general fund expenditures in 2011. Population, Unemployment and Socioeconomic Considerations On a positive note, as of the 2010 Census, the City has started to reverse course and has regained some of the population losses it experienced in past decades. Even so, the fact remains that the City is home to a relatively high needs population. The City’s median household income of $37,607 is well below the State’s median household income of $55,603 and the all cities1 average of $43,590. Similarly, with 15.4 percent of its families living below the poverty level, the City fares much worse compared to the Statewide average of 10.8 percent but is not significantly higher than the all cities average of 14.0 percent.

New York State has 62 cities including New York City. However, New York City is unique in that it is a global center of commerce. Therefore, for purposes of this report, the term “all cities” refers to all cities in New York State excluding New York City.


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City of Schenectady: Percentage Change in Population (1900 2010 Census)
140% 129.9% 120% 100% 80% 60% 40% 20% 0% 21.8% 7.9% 8.5% 4.8% 11.0% 4.6% 12.8% 3.5% 5.7% 7.0%

1900 10

1910 20

1920 30

1930 40

1940 50

1950 60

1960 70

1970 80

1980 90

1990 00


Median Household Income
2010 Census
$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 City of Schenectady Average, all cities (excluding New York City) New York State $37,607 $43,590 $55,603

Families in Poverty
2010 Census
18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 15.4% 14.0% 10.8%

City of Schenectady

Average, all cities (excluding New York City)

New York State



2000 10

Since 2005, the City’s unemployment rate also has been above the Statewide average. Preliminary estimates for July 2012 put the City’s unemployment rate (10.3 percent) significantly above the State rate (9.1 percent).
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

Unemployment Rates
(Bureau of Labor Statistics)
10.3% 9.1%

City of Schenectady

New York State

Bolstered by various economic development-type entities including the Schenectady Metroplex Development Authority, the City has attracted an impressive amount of new investment – more than $300 million since 2004 − especially in the City’s downtown corridor. Tax Base Between 2004 and 2010, the City experienced reasonably healthy growth in full value assessment. For most of that period, the City either exceeded or closely mirrored average growth for all cities, Statewide. Notably, the period prior to 2001 was not as positive, as the City dealt with persistent losses in tax base. Between 2000 and 2011, the average annual increase in full value assessment was 4.9 percent, only slightly below the 5.2 percent average annual increase for all cities. Although the City has, in the past two years, experienced reduction in full value (-0.3 percent in 2011 and -1.0 percent in 2012), its losses are not as severe as for cities in general. Nonetheless, this could be cause for concern if the trend continues.


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Percentage Change in Full Value Assessement
17.0% 12.0% 7.0%
3.3% 5.0% 0.5% 0.9% 0.5% 2.1% 0.3% 1.0% 3.8% 6.5%

14.6% 11.4% 6.6% 5.5% 8.7% 7.5% 7.0% 12.8% 11.0% 10.9% 10.9% 5.8%


2.0% 3.0%

City of Schenectady 8.0%

All Cities (Not including NYC) 05 06 06 07 07 08 08 09 09 10 10 11

00 01

01 02

02 03

03 04

04 05

11 12

Full Value Property Tax Rates
Levy Per $1000 Full Value Assessment
$20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 CY CY CY CY CY CY CY CY CY CY CY CY 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 City of Schenectady All Cities (Not including NYC)

The City’s tax rates are significantly higher compared to the all cities average. After peaking in 2004, however, tax rates have steadily declined. The City recently undertook a full revaluation of its properties. This effort affected the 2010 assessment rolls by increasing the assessed property value, which allowed tax rates to decrease. Delinquent and abandoned properties have had a negative bearing on the City’s ability to raise sufficient property tax revenues. The City is working to get a handle on its high number of tax delinquent and abandoned properties, and has recently been approved for establishment of a Land Bank, as discussed further in the report. According to the 2010 Census, the City has a higher than average incidence of vacant housing units – 11.5 percent compared to the Statewide average of 9.7 percent. About 56.2 percent of the City’s housing units are renter-occupied. Statewide, the average is 46.7 percent.




The objective of our audit was to examine the City’s financial condition. Our audit addressed the following related question: • Do City officials adequately monitor the City’s financial operations to ensure fiscal stability?

Scope and Methodology

We examined the City’s financial condition for the period January 1, 2011 to June 30, 2012. We also reviewed certain select financial information for periods back to January 1, 2008 to provide historical perspective in this report. We discussed the results of this audit with City officials prior to the adoption of the City’s 2013 budget. We conducted our audit in accordance with generally accepted government auditing standards (GAGAS). More information on such standards and the methodology used in performing this audit is included in Appendix C of this report.

Comments of Local Officials and Corrective Action

The results of our audit and recommendations have been discussed with City officials and their comments, which appear in Appendix A, have been considered in preparing this report. City officials generally agreed with our recommendations and indicated they planned to initiate corrective action. Appendix B includes our comments on the City’s response letter. The Council has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report should be prepared and forwarded to our office within 90 days, pursuant to Section 35 of the General Municipal Law. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the City Council to make this plan available for public review in the City Clerk’s office.


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Fiscal Stress
Financial condition may be defined as a city’s ability to balance recurring expenditure needs with recurring revenue sources, while providing desired services on a continuing basis. A city in good financial condition generally maintains adequate service levels during fiscal downturns and develops resources to meet future needs. Conversely, a city in fiscal stress usually struggles to balance its budget, suffers through disruptive service level declines, has limited resources to finance future needs, and has minimal cash available to pay current liabilities as they become due. City officials have a responsibility to taxpayers to ensure that their tax burden is not greater than necessary. In order to fulfill this responsibility, it is essential that officials develop reasonable budgets and manage fund balance responsibly. Finally, city officials should develop detailed multi-year plans to allow them to set long-term priorities and work toward goals, rather than making choices based only on the needs and politics of the moment. City officials are monitoring the City’s financial condition. While the City’s financial condition appears to be slowly improving, the Council must be very careful to not spend down all of the City’s fund balance. In each of the fiscal years 2008 through 2011, the City has incurred planned operating deficits that have reduced fund balance in the general fund. While the Council planned for operating deficits in each of these years, the actual operating deficits were less than budgeted, so the Council was not required to use as much available fund balance as originally anticipated. The Council again appropriated $5.3 million to fund 2012 operations. As part of its multi-year plan, the City has revenue enhancements and savings initiatives for 2013 that could total as much as $4.0 million. Even if the City realized only half this amount, these initiatives, in conjunction with the 2 percent property tax levy/revenue increase, would be enough to close the 2013 budget gap. However, going forward, City officials would need to implement further cost savings and/or revenue enhancements to close future budget gaps. Financial Condition A key measure of the City’s financial condition is its level of fund balance, which is the difference between revenues and expenditures accumulated over time. When maintained at reasonable levels, fund balance provides cash flow and can be used to help finance the next fiscal year’s operations. The restricted portion of fund balance represents the amount that the City may use only for specific purposes. The unrestricted portion of fund balance is the amount that may be appropriated to fund programs in the next year’s budget.



Operating Deficits (General Fund)
$0 2008 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 2009 2010 2011

The City ended the 2011 fiscal year with an operating deficit of $4.8 million and an unassigned fund balance deficit of $1.9 million. For the past four years, the City has incurred planned operating deficits that have reduced fund balance in the general fund. In its budget for the 2012 fiscal year, the Council again appropriated a portion of fund balance reserves ($5.3 million) to fund operations. The following table illustrates the City’s fund balance as of December 31, 2011 and projected 2012 use of reserve funds:
Table 1: Fund Balance as of December 31, 2011 with 2012 Budgetary Appropriations Amount appropriated December 31, 2011 toward 2012 operations
Non Spendable Employee Benefits Reserve Snow and Ice Removal Reserve Tax Stabilization Reserve Debt Reserve Miscellaneous Reserves

$1,950,312 $1,488,876 $200,000 $5,857,388 $556,900 $1,016,958 $218,738 ($1,874,129) $9,415,043

$0 $1,488,876 $0 $3,128,694 $400,000 $254,976 $0 $0 $5,272,546

Committed Fund Balance Unassigned Fund Balance Total

Miscellaneous reserves consist of reserves for tax certioraris, judgments and claims, liabilities, and capital improvements

General Municipal Law Section 6-e (GML) allows the City to utilize contingency and tax stabilization reserve funds (1) for certain "unanticipated revenue losses" or "unanticipated expenditures" due to events taking effect or occurring after the adoption of the final budget, or (2) to lessen or prevent projected increases in excess of 2.5 percent of the amount of the real property tax levy needed to finance the eligible portion of the annual budget. The appropriation of $3,128,694 of this reserve toward 2012 operations was questionable. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 11 11

At the end of 2011 when the reserve was appropriated, 2012 operations had not yet begun, so no unanticipated revenue losses or unanticipated expenditures of the 2012 fiscal year had yet occurred. Also, the increase in the City’s tax levy for 2012 was less than 2 percent, so the reserve was not used to lessen or prevent a projected tax increase in excess of 2.5 percent. The decline in unassigned fund balance weakens the City’s financial condition and could impact the level of services provided to residents in subsequent years. An unassigned fund balance deficit also limits the amount of fund balance City officials can appropriate to balance subsequent years’ budgets. Budget vs. Actual Results In preparing the budget, the Council is responsible for establishing appropriations at a level sufficient to finance planned services, estimating City revenues and other financing sources, determining whether the City will have unassigned fund balance to help fund the ensuing year’s operations, and establishing the tax levy. Prudent fiscal management also requires the Council to continually monitor financial operations and amend the budget, when necessary, to ensure that appropriations are not overspent. City officials have adopted realistic budgets and have not overspent the budgets for the past four years. While the City has experienced operating deficits during this period, the actual operating deficits were less than planned, as illustrated by the following table: Table 2: Budget vs. Actual Results for Fiscal Year Ended December 31 2008 2009 2010 2011
Budgeted Operating Deficit Actual Operating Deficit Variance $2,659,686 $1,749,658 $910,028 $5,308,529 $2,218,691 $3,089,838 $7,611,803 $5,015,227 $2,596,576 $7,666,152 $4,821,312 $2,844,840

The City has been conservative with its budgeting for fire fighting, public works, and employee benefits, which led to the positive variance in operating deficits for fiscal years 2008 through 2011. Also, in 2010, the City undertook a new health insurance program that led to reduced health insurance expenditures and contributed to the positive variance in budget vs. actual results in 2010 and 2011. Because the City continues to experience operating deficits and use reserves to fund the ensuing year’s budget, it is important that City officials continue to monitor the City’s operations. City officials must closely compare actual results of operations to the budget to ensure that spending does not exceed the budget. 12 OFFICE OF THE NEW YORK STATE COMPTROLLER

Multi-Year Financial Planning

Multi-year financial planning is a tool local governments can use to improve financial planning. Planning on a multi-year basis allows City officials to identify developing revenue and expenditure trends, set long-term priorities and goals, and avoid large fluctuations in tax rates. It also allows City officials to assess the impact and merits of alternative approaches to address financial issues, such as the use of surplus fund balance to finance operations and changes to the service levels provided to residents. Any long-term financial plan should be monitored and updated on an ongoing basis to provide a framework for preparing budgets and to ensure that decisions are guided by the most accurate and current information available. City staff has demonstrated an ongoing commitment to multi-year financial planning. Based on the most recently revised plan, it appears that the City is both conservative and reasonable in its projections of non-property tax revenues and expenditures for fiscal years 2013 through 2016. The City acts as the tax enforcing agent for the Schenectady School District. This means that the City pays any property tax shortfall to the School District, and the City then has to try to collect the delinquent taxes.2 The City’s uncollected taxes have increased steadily over the last four years. As a result, the City’s tax levy is usually much higher than actual property tax revenues for a given year. For example, in 2011, although the City issued tax bills for $31 million, it actually collected only $27 million, a $4 million difference, or about 13 percent.
$33 $32 $31 $30 $29 $28 $27 $26 $25 $24 $23 2008 2009 2010 2011 Real Property Tax Levy Real Property Tax Revenue and other Tax Items

Real Property Tax
(Levy vs. Revenue)

The City’s recently updated plan, which covers the period 2012 to 2016, shows a 54 percent increase in property tax revenues to balance the budget. However, it is common in multi-year planning to show all budget gaps being closed by property tax increases. These are ____________________
Until 2012, the City was also responsible for making the County whole for uncollected taxes. The City would be responsible for collecting these taxes.


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not intended to indicate realistic projected property tax increases, but rather to demonstrate the magnitude of total revenue and/or expenditure actions needed to bring the budget into balance. In fact, because the City’s percentage of uncollected taxes has been steadily rising, it is likely the City would have to raise rates by even more than 54 percent to actually collect enough revenue to close the projected budget gaps. Therefore, the City might have to rely on additional revenue raising or expenditure cutting actions to balance the budget. Given this new era of the real property tax cap, it also is useful to consider what potential revenue gaps the plan might incur assuming that property tax levy increases (and property tax revenues) will be 2 percent a year in accordance with the intent of the real property tax levy limit. Under this scenario, significant gaps will appear in each of the projected fiscal years—with double digit gaps starting in 2015. If the City’s collection rate worsens, gap estimates will grow. The budget gaps below could be greater, depending on the availability of reserve funds to appropriate toward the ensuing year’s expenditures.
Table 3: Multi-Year Plan: Bottom Line Comparisons
FY 2012 Expenditures Less: Non-Property Tax Revenues Less: Net Property Tax Revenues with 2% increases Initial Gap Less: Appropriated Reserves Remaining Gap Initial Gap as a Percent of Expenditures Remaining Gap as a Percent of Expenditures 6.1% $79,694,428 $46,575,122 FY 2013 $83,026,929 $48,936,113 FY 2014 $87,588,585 $51,501,084 FY 2015 $92,095,910 $52,657,752 FY 2016 $96,785,910 $53,365,405

$27,846,760 $5,272,546 $5,272,546 $0

$28,403,695 $5,687,120 $3,500,000 $2,187,120 6.8%

$28,971,769 $7,115,732 $400,000 $6,715,732 8.1%

$29,551,204 $9,886,953 $400,000 $9,486,953 10.7%

$30,142,229 $13,278,276 $400,000 $12,878,276 13.7%






Interestingly, in 2012, the City’s actual property tax levy was well below what it could have been (without the need for an override) according to its allowable levy limit calculation. More specifically, the City could have levied $1.6 million more in taxes than it actually did for fiscal year 2012. As part of its multi-year plan, the City has revenue enhancements and savings initiatives for 2013 that could total as much as $4.0 million. Even if the City realized only half this amount, these initiatives, in conjunction with the 2 percent levy/revenue increase, would be enough to close the 2013 budget gap. Many of these initiatives would be on-going, and therefore, also would reduce the subsequent year gaps. However, even with these initiatives, the City would still need 14 OFFICE OF THE NEW YORK STATE COMPTROLLER

to implement further cost savings or increase revenues in future years. The specific City initiatives contained in the multi-year plan include: Early Retirement Incentive/Other Efficiencies — The City is planning on $2.3 million in cost savings initiatives for the 2013 fiscal year. An early retirement incentive is estimated to save approximately $1.3 million in fiscal year 2013; consolidations and staff reductions make up the $1 million balance of these initiatives. The City also is planning consolidation initiatives for future years. For example, the City has demonstrated a desire to gain control over its public safety spending; it currently is investigating prospects for police service consolidation with the County. Such a move could have a substantial impact on the City’s police budget. In fact, a Columbia University study suggests that such a move would save the City upwards of $6 million per year. The City also is looking at possible consolidations in its fire services operations; it has received one study grant from the New York State Department of State and is planning to pursue another. These initiatives will take years to implement and therefore could not be included in the savings calculations for the 2013 fiscal year. Home Ownership Made Easy in Schenectady (HOMES) Program — This program is meant to facilitate the rehabilitation and sale of houses that have been seized by the City through tax foreclosures. The City also has formed partnerships with a real estate agency and construction company to help determine the value of the properties and estimate the costs of rehabilitation. The properties that are salvageable are then bid on by contractors, who will perform the renovation and put the property up for sale. Key Bank has agreed to assist purchasers with up to 100 percent financing for these properties. This relatively new program should begin to have a revenue pay-off – in the form of back taxes and a share of the profit at sale – by the end of fiscal year 2012. The City expects to sell 20 houses by March 2013 and is anticipating selling 10 to 20 houses per month once the program is underway. The average amount of unpaid taxes per property is $16,000. The City expects to collect the amount of back taxes and additional revenue from the sale of each property. These additional revenues could improve the fiscal year 2013 budget situation by more than $1 million. Sales Tax Renegotiation — Until recently, the City had been receiving a fixed amount of the County’s sales tax per terms of a sharing agreement. That agreement (which covered the period from December 1, 2008 to November 30, 2012), provided the City with $11.025 million in the first year, and allowed for fixed increases of $25,000 for each year thereafter. This last agreement was actually a renewal of an original 1989 agreement that first granted a fixed $11 million share to the City. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 15 15

Subsequent to our onsite fieldwork, the Council approved a new eightyear sales tax sharing agreement with the County. The City will receive $11.7 million in sales tax revenue in the first year of the agreement (approximately $700,000 increase in revenues). The agreement also provides that, in subsequent years, the City’s distribution will vary up and down in proportion to the County’s overall collections. Language that links continued intermunicipal cooperation as well as other guaranteed funding to the new sharing agreement is also included. This new sales tax sharing agreement will be a change from the previous fixed distribution agreements. Notably, the City’s sales tax revenue only increased by 0.7 percent over the period from 1990 to 2011. The new agreement will give the City the opportunity to realize gains in sales tax revenues due to economic growth, but it also carries the risk that the City will lose revenue in an economic downturn. For most of the other counties in the State that have sharing agreements with cities, the agreement is based on the city receiving a percentage share of the county’s collections (either a set percentage or one based on property values or population). This allows a city’s sales tax revenues to increase with economic development, though it also exposes the city to the effects of declines in taxable sales in economic downturns. Land Bank — Early in 2012, the State Legislature passed a measure that would allow the creation of a Land Bank covering the areas of Schenectady County including the City. Land Banks have the power to buy, hold, manage and develop foreclosed, vacant and abandoned properties. They can do so more expediently than what is typical under the usual municipal process to demolish properties, or offer them for sale to investors/developers. The City is planning to foreclose on up to 625 properties with outstanding tax liens. These properties would then be turned over to the Land Bank. This would have no immediate budget effect, but would relieve the City of the obligation to reimburse the school district for these properties’ unpaid taxes. Eventually, some of these properties could become part of the HOMES program. Summary Despite some of the severe fiscal problems that the City experienced in the early to mid-2000s, it appears to be undergoing somewhat of a recovery period, as evidenced by a number of factors including recent gains in population, increased economic development activity, and ongoing work towards cost savings and efficiencies. The City still faces a number of challenges moving forward; how it manages itself for the remainder of 2012 and throughout 2013 will be critical. 1. City officials should implement a plan to eliminate the unassigned fund balance deficit.

Recommendations 16


2. City officials should closely monitor the City’s use of fund balance to ensure that action is taken, if necessary, to identify other funding sources that can be used if fund balance is no longer available to fund City operations. 3. City officials should ensure that the tax stabilization reserve funds are used in accordance with GML Section 6-e. 4. City officials should continue to update the multi-year plan to ensure the most current financial data and conditions are available for the Council to make informed decisions about the City’s financial operations. 5. City officials should continue to pursue consolidation/shared service opportunities if they can be shown to drive efficiencies and cost savings. 6. City officials should continue to use the HOMES program and the Land Bank as opportunities to collect overdue taxes and return properties to the tax roll.


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The local officials’ response to this audit can be found on the following pages.




19 19

See Note 1 Page 24



See Note 2 Page 24


21 21




23 23


Note 1 Our report states that, although the City has, in the past two years, experienced reduction in full value (-0.3 percent in 2011 and -1.0 percent in 2012), its losses are not as severe as for cities in general. Nonetheless, this could be cause for concern if the trend continues. Note 2 The one-time charge of $1.9 million to fund balance was not the result of the Government Accounting Standards Board Statement 54 (GASB 54) conversion. Prior to the City adopting GASB 54, City officials should have classified prepaid expenses as reserved fund balance. When the City adopted GASB 54, this reserve should have been reclassified as nonspendable fund balance, not a one-time charge to fund balance. Additionally, for future periods, all prepaid expenses must be classified as nonspendable fund balance.



Our overall goal was to assess the financial condition of the City’s general fund. To accomplish the objective of this audit and obtain valid audit evidence, our procedures included the following: • • • • We interviewed appropriate City officials and reviewed pertinent documents, such as City policies and procedures manuals, Council minutes, and financial records and reports. We reviewed the City’s internal controls and procedures over the computerized financial databases to help ensure that the information produced by such systems was reliable. We evaluated the audit area for the risk of potential fraud, theft and/or professional misconduct. We reviewed the December 31, 2011 trial balance and compared the balances to the 2011 independent certified public accountants’ audit report. We traced balances in the trial balance to the detailed support to verify the accuracy of the audit report. We reviewed tax certificate receivables and the allowance for uncollectable amounts to determine if the reported amounts were accurate as of December 31, 2011. We reviewed restricted fund balances as of December 31, 2011 to determine if they were properly accounted for. We compared budgeted data to actual revenues and expenditures to identify significant differences. We reviewed the multi-year financial plan to determine if the estimates are reasonable.

• • • •

We conducted this performance audit in accordance with generally accepted government auditing standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective.


25 25

To obtain copies of this report, write or visit our web page:

Office of the State Comptroller Public Information Office 110 State Street, 15th Floor Albany, New York 12236 (518) 474-4015 http://www.osc.state.ny.us/localgov/



Andrew A. SanFilippo, Executive Deputy Comptroller Steven J. Hancox, Deputy Comptroller Nathaalie N. Carey, Assistant Comptroller

BINGHAMTON REGIONAL OFFICE H. Todd Eames, Chief Examiner Office of the State Comptroller State Office Building - Suite 1702 44 Hawley Street Binghamton, New York 13901-4417 (607) 721-8306 Fax (607) 721-8313 Email: Muni-Binghamton@osc.state.ny.us Serving: Broome, Chenango, Cortland, Delaware, Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties NEWBURGH REGIONAL OFFICE Christopher Ellis, Chief Examiner Office of the State Comptroller 33 Airport Center Drive, Suite 103 New Windsor, New York 12553-4725 (845) 567-0858 Fax (845) 567-0080 Email: Muni-Newburgh@osc.state.ny.us Serving: Columbia, Dutchess, Greene, Orange, Putnam, Rockland, Ulster, Westchester Counties

BUFFALO REGIONAL OFFICE Robert Meller, Chief Examiner Office of the State Comptroller 295 Main Street, Suite 1032 Buffalo, New York 14203-2510 (716) 847-3647 Fax (716) 847-3643 Email: Muni-Buffalo@osc.state.ny.us Serving: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Niagara, Orleans, Wyoming Counties

ROCHESTER REGIONAL OFFICE Edward V. Grant, Jr., Chief Examiner Office of the State Comptroller The Powers Building 16 West Main Street – Suite 522 Rochester, New York 14614-1608 (585) 454-2460 Fax (585) 454-3545 Email: Muni-Rochester@osc.state.ny.us Serving: Cayuga, Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties

GLENS FALLS REGIONAL OFFICE Jeffrey P. Leonard, Chief Examiner Office of the State Comptroller One Broad Street Plaza Glens Falls, New York 12801-4396 (518) 793-0057 Fax (518) 793-5797 Email: Muni-GlensFalls@osc.state.ny.us Serving: Albany, Clinton, Essex, Franklin, Fulton, Hamilton, Montgomery, Rensselaer, Saratoga, Schenectady, Warren, Washington Counties

SYRACUSE REGIONAL OFFICE Rebecca Wilcox, Chief Examiner Office of the State Comptroller State Office Building, Room 409 333 E. Washington Street Syracuse, New York 13202-1428 (315) 428-4192 Fax (315) 426-2119 Email: Muni-Syracuse@osc.state.ny.us Serving: Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, St. Lawrence Counties

HAUPPAUGE REGIONAL OFFICE Ira McCracken, Chief Examiner Office of the State Comptroller NYS Office Building, Room 3A10 Veterans Memorial Highway Hauppauge, New York 11788-5533 (631) 952-6534 Fax (631) 952-6530 Email: Muni-Hauppauge@osc.state.ny.us Serving: Nassau and Suffolk Counties

STATEWIDE AND REGIONAL PROJECTS Ann C. Singer, Chief Examiner State Office Building - Suite 1702 44 Hawley Street Binghamton, New York 13901-4417 (607) 721-8306 Fax (607) 721-8313


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