eg, CITY OF NORTH ADAMS, MASSACHUSETTS Office of the Mayor Richard J. Alcombright September 15, 2010 472 To: North Adams City Council Re: Financial Management Review At my request, the Department of Revenue’s Division of Local Services (DLS) has completed a Financial ‘Management Review of the City of North Adams. ‘Their review focused on: 1, The City government structure in the context of the duties and responsibilities of Financial Officers, 2. The degree of coordination and communication that exists between and among Boards, Officials and Staff involved in the financial management function 3. The performance of financial operations in such a way as to maximize resources and minimize costs This report encourages the Mayor, the City Finance Team and City Council to formulate strategies for improving the City’s financial management. The report is intended to consider the observations, analyses and recommendations and can be implemented at the option of the City. The report points out the seriousness of the City’s overall financial and economic health. It states that according to the 2009 census, North Adams’ population was 13,816 persons (down from 16,797 in the 1990 census) making us the smallest City in the Commonwealth. Over the past 20 years, we have had the ‘most precipitous decline in population of any community in Berkshire County. Our 2008 equalized property values (EQV) per capita was $57,156 or 34% of the state average of $165,919, and second lowest in the state just behind Springfield, Our per capita income based on a 2007/08 calculation was $14,668 or ninth lowest. These two factors reflect the significant financial and economic challenges that present themselves to North Adams, one of the poorest communities in the state. 10 Main Street + North Adams, Massachusetts 01247 G13) 662-3000This information continues to validate the fact that while we see growth through the arts and cultural economy, North Adams has had a pattern of economic decline for over 25 years. This administration is trying to right this ship and move forward to promote growth through economic diversity. In eight short months, we have established Develop North Adams (DNA) and given entrepreneurs greater flexibility to grow their business with less local government interference. We have re-established the Community Economic Development Advisory Board (CEDAB) that will work with this administration t areas and opportunities for economic growth. We continue to work with MoCA and MCLA to connect, the dots with the City in a way that will promote growth in the arts and the educational sectors. We are working with the Governor's office, our Senators, our Congressman and our local delegation to find any and all money that might be available to help us spur growth. We have begun working with and through Berkshire Regional Planning Commission (BRPC) on a document that will chart our way towards a comprehensive Master Plan, We have put more cops on the street and we are looking at our options with the School Building Assistance Bureau (SBA) on what our schools should look like as we move into this new century. ‘The report indicates that when I took office, issues. 1, Underfunding of the Medical Insurance Trust by $1.1 million over the previous two fiscal years 2. The budget administration was faced with two substantial fiscal With respect to the Medical Insurance Trust, my top priority upon entering office was to find settlement with local unions and move on. We did not allow this problem to continue, to further escalate, and to be a distraction to this administration. ‘The mismanagement for many years of the Medical Insurance Trust settlement increased the City’s contractual share of health insurance over the next three fiscal years and forced the City to amortize $880,000 to cover the “run out” of the existing claims. This also, as you know, forced us to tax to the maximum levy limit. With respect to the budget, when I took office and began to develop the FY2011 budget, we were facing. more than a $3 million budget gap. This gap was due in part to continued state funding cuts, normal increases in fixed costs, and the use of non-recurring reserves (some $1.4 million) to support FY2010 ‘operating costs. To eliminate the gap, we reduced spending and created a plan to increase revenues...neither of which has been popular. On the revenue side, we adopted the local options state ‘meals tax, increased water rates, and instituted a sewer user fee. And through all of this, we still found ourselves approving a budget that was $1.2 million in the deficit. I have worked tirelessly with our internal finance team, this Council's Finance Committee, external auditors and the Department of Revenue to begin the process of bringing our finances and financial practices into line. We have a long ‘way to go but we are now back on track. As we also know, due to the special legislation which I filed, we will be able to balance our budget utilizing the remaining reserves in our Land Sale Account. Even with this ability to balance our budget, the Director of Accounts with the Department of Revenue is very concemed with our fiscal position as we move through this year and into FY2012. Despite his concerns, he commended this administration for the bold and tough moves that we made while dealing with our budget even as we face a structural deficit for FY2012 of over $1 million dollars. 10 Main Street + North Adams, Massachusetts 01247 13) 662-3000‘The budget approach that this administration moved forward did the following: ‘© Developed a Finance Team consisting of the Administrative Officer, Business Manager, Manager of Information Systems, Auditor, Assessor, Treasurer and Purchasing Officer. In previous years, there was no “team based” effort. © Putting greater emphasis on the City Council’s Finance Committee to meet more frequently to help develop the budget. In previous years, the Council’s role was very weak. © Began to build the budget by identifying all receipts both local and state. In previous years, the Council's Finance Committee never had a true understanding of revenues © Department heads were given budget forms and asked to submit “zero-dollar” based budget ‘numbers for operating expenses and capital. ‘* Department head meetings were held to discuss ways to save money and improve operations. ‘+ Delivered the budget to the Council the first meeting in June contingent upon water increases and a sewer fee. ‘+ Begun to establish true “fiscal policy” to guide the budget process. «Began to build budget around revenues which has established fiscal policy that will allow us to more readily understand and determine our financial position and direction. © FINALLY...1 am very proud to say that in Recommendation 2, the DOR states “we recommend that the current budget procedures be adopted as an ordinance.” That statement alone tells me that we are well on our way to putting our fiscal house back in order. |In past years, without tight and well defined fiscal policy, the city has used its non-recurring revenue sources on capital and one-time expenditures as well as on operating expenses such as salaries and debt service. This year, we will once again utilize non-recurring revenue but only to satisfy our debt service as all other operating expenses will be covered by recurring revenue sources. Finally, the City has one of...if not the lowest cash positions in the Commonwealth with only $312,000 in stabilization funds. Typically with a budget our size, that amount should be $1.3 - $1.8 million. Our financial situation is bleak at best and while we have raised taxes and fees, itis the only way we can sustain our city’s finances and ensure that we keep moving forward. I will say that the only way for us to improve is through growth. I would suggest that in the past, it was ‘easier to rely on a very and untypically high percentage of state aid to support our budget. By virtue of ‘our long term ailing economy, this is no easy task and we are now reaching out to state and federal officials, local and regional economic development partners, and creating the beginnings of a Master Planning process. 10 Main Street + North Adams, Massachusetts 01247 413) 662-3000‘There are 30 recommendations in the state’s review, several of which I will most specifically focus on: Recommendation #1 — Further Consolidation of City Operations ~ continued focus on the finance ‘and human resources areas need to be a priority. Recommendation #2 — Establish fiscal Planning Practices — while we did a good job establishing 1a budget process, we still need to do long range planning, capital planning and create written fiscal policy that will become the model going forward Recommendation #3 — Establish an Audit Committee — what that will look like needs to be carefully thought through and I will work with our new external auditor Tom Scanlon as well as the DOR and this Council, to pull this recommendation together. Recommendation #7 — Review and Revise Classification and Compensation Plans ~ our current documents are outdated and out of alignment — this will be done by the next budget cycle, Recommendation #9 Review Personnel Ordinances and Finalize Employees’ Handbook ~ the City currently does not have an employee handbook and a draft of one is currently under review by legal counsel. Recommendation #12 — Reconsider Benefits for Part-Time Boards ~ this deals most specifically with insurance benefits As I came into office, I wanted to do several things with respect to our finances, and many have been accomplished: Independent audit of the Medical Insurance Trust Settlement of the Medical Insurance Trust issues Create a relationship with the Department of Revenue Create a Finance Team at City Hall Establish a very close relationship with the City Council’s INCOM “Make the budget process open and transparent Develop a new budget procedure that would project and establish revenues before looking at expenses Bring in a new external audit firm Bring the budget to the council for approval by early June Have the DOR conduct a Financial Management Review ‘Act on recommendations brought forward by the review Wait for the FY2010 Audit which will also perform a cursory review of the FYO8 and 09 ‘Act on management letter at the conclusion of that audit 10 Main Street + North Adams, Massachusetts 01247, 413) 662-3000In conclusion, the plan to address the Financial Management Review will be as follows: © We will be reviewing each and every recommendation internally at the department level and with ‘our finance team © Through that review, we will categorize and prioritize based on the recommendations relevance to our own internal business philosophy, implementation requirements, costs to implement, cost benefit analysis, and other factors. ‘© We will assign specific areas to relevant department heads with expectations for implementation ‘© We will create a timetable for completion of assigned items ‘© We will work with the City Councils FINCOM and provide quarterly updates on our progress © We will give priority to the areas that will create efficiencies and with the most potential for saving money. ‘As you can see, we have accomplished much however much more needs to be done. I look forward to the challenges ahead as we continue to set fiscal policy, create a capital planning process, re-align procedures, act on audit recommendations and build all of our fiscal practices into ordinance. I will keep ‘you all informed of our progress with respect to the Financial Management Review through the Council’s Finance Committee, Sinegaely, Richard J. Alcombright > Mayor RUA 10 Main Street + North Adams, Massachusetts 01247 13) 662-3000