Van Campen Seeks to Set Record Straight Portion of Free Cash Balance Tied to Water/Sewer Fund Deficit

December 12, 2012
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Alderman Robert Van Campen queried auditing consultant Tony Rosselli Monday night in an apparent attempt to discredit some of the local media reporting that followed last week’s Common Council meeting and the announcement that Mayor Carlo DeMaria’s “stringent budget management” and “strict spending policies” were the reasons for a greater than expected free cash certification of $5.3 million, of which $1.1 million has been directed to the city’s stabilization fund.

The $5.3 million free cash certification allowed the city to propose a tax rate that though slightly higher than last year’s, in terms of tax per thousand of valuation, was not as high as it could have been. In fact, in setting the tax rate for the current fiscal year, the city actually rolled back the tax levy by about $1.4 million.

Van Campen’s line of questioning to Rosselli actually came down to pointing out that the $1.4 million decrease in the tax levy was about equal to the deficit that the $1.8 million Massachusetts Department of Revenue (Mass DOR) has said it has found in the recently established water and sewer enterprise fund.

“So basically, we can say that the $1.4 million in free cash is there because we shifted to the enterprise fund and that represents the deficit in that account?“ Van Campen asked Rosselli.

Rosselli, who is a consultant to the city’s auditing department, largely agreed with that assessment, but also explained that the deficit cited by Mass DOR was also a result of how DOR counts money, versus the way the city balances its books.

According to Rosselli, “DOR deals on a cash basis,” so the deficit reported by DOR is the amount of money that the city has collected in the water enterprise fund, versus what it has spent in that account.

However, Rosselli also pointed out that the city has approximately $4 million on accounts receivables for the water enterprise fund, due to uncollected water bills and the recent water rate increases.

“I expect that not only will we eliminate the deficit in the water account by June 30, but we’ll have cash on hand,” explained Rosselli.

The truth here seems to be in the middle.

It is fair to say that the city, by creating the enterprise account and shifting the costs off of the city books and onto the rate payers, was able to at least partly increase in the amount of free cash in the city budget.

However, it could also be argued that the city would have been able to balance its books more equitably sooner, if it had switched to the enterprise account system sooner. The water and sewer payments to the MWRA were in effect a drag on the city’s annual budget planning and that drag has been removed.

Additionally, it is true that by adjusting the water rates, the city will now be able to have a self-supporting water and sewer system, which will allow the city to utilize its resources in other areas of government.

Finally, Chief of Staff Melissa McCarthy and Rosselli also explained that a portion of that large free cash windfall was a result of turning money back over to the city from approximately 25 line items that did not expend all of their FY ‘12 appropriation before June 30 2012.

By turning the remaining budgeted amounts to the city before the end of the fiscal year, those funds were able to be counted as free cash in the current year and could be allocated and appropriated as needed. In some cases the additional funds were result of belt tightening by department heads, in others the funds were available because of unfilled positions in the previous budget year. In either case, they are available to the city now, instead of next year, which means that everyone, including the taxpayers, gets the benefit.