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Episode 10 Residents Role in Protecting the Future
To determine what needs to be done, we must determine where we are. In earlier episodes I have shown the financial history of Ridley Park that included discussion and charts of Revenues, Expenditures, Fund Balance (Cash & Investment Reserves), Deficit Spending, Debt and Accounts Payable.
To put the level of Reserves required or Debt limit in perspective requires comparisons. The “Annual Audit and Financial Reports” for the Boroughs in Delaware County are shown under “Public Notices”, “Financial Reports” in the “Delaware County Daily Times”. Shown below are comparisons with other nearby Boroughs. Ridley Park numbers are for 2008 but will be revised for 2009 when available in May of 2010.
Ridley Park has the lowest Fund Balance (Reserves) and is among the highest in Gross Debt.
Comparative Financial Analysis uses Financial Ratios to draw meaning from columns of numbers. The ratio of Debt to Fund Balance is meaningful if compared to other similar Boroughs. The following ratios are calculated by dividing the Debt value by the Fund Balance Value. High numbers are reason for concern in a mature municipality that does not have expectations of significant growth in housing developments and/or commercial businesses. A value of 1.00 is a safe haven. A very low value or zero permits a municipality to fund its own major capital projects without loans. Or without loans they would have funds to invest in growth opportunities if they exist. Ridley Park’s ratio of 7.12 shown below, with little or no unrestricted cash reserves, is an unsustainable ratio.
The Auditors’ report for Ridley Park is not available until the middle of May. I estimated the 2009 deficit by subtracting the 2009 year end bank balance of $237,350 from line 100-120 Cash and Investments Total, $275,724, shown in the 2008 Auditors’ Balance Sheet. In the report for 2009 the Auditors’ will adjust this number for receivables, other assets and debits and liabilities and credits. The $38,374 is only a preliminary estimate.
I included the estimate so I could make the following point. Aqua paid $615,000 to the borough to repave the streets after AQUA installed the new water mains. After paying the paving contractor and other small charges, there was about $120,000 remaining in the Liquid Fuels account. This is a one-time bonus revenue that was not part of revenues from taxes or fees. This suggests that the “Structural Operating Deficit” for 2009 is the sum of the deficit that will be reported by the Auditors’ and the $120,000 from the Liquid Fuels surplus or approximately $158,374.
The root cause of Ridley Park’s unsustainable high Debt to Fund ratio is a condition described in Episode 3 as a “Structural Operating Deficit”. This condition develops when tax increases have not kept up with expenditure growth.
Ridley Park has all the symptoms of “Structural Operating Deficit”
· After several years of deficit spending a very Low Fund Balance
· High Debt
· High Debt to Fund Ratio
· Continuing persistent year to year Deficits
To address the problems faced by Ridley Park requires:
· Eliminating the “Structural Operating Deficit”
· Restoring a reserve fund that is sufficient to deal with short-term emergencies.
· Reducing the Debt
· Developing a plan to achieve a Debt to Fund Ratio of 1.00 in 8 years
This will require a carefully formulated program of cost reductions and Tax increases.
Approach to Eliminating the “Structural Operating Deficit”
Ridley Park’s first priority obligations are to provide the level of Public Safety, Public Works, General Government and Debt Service that maintains the integrity and vitality of the borough.
Second priority is to provide levels of amenities that tax payers are willing to pay for. These include Culture and Recreation and Community Development.
Suggested Priority Actions
· Scale back, postpone or cancel discretionary projects funded by borough funds for 2010.
· Only take on projects that are funded by grants
· As stated in the letter I sent to council on March 4 2010, for 2010 and following years maintain a Cash Flow Forecast with month-to-month estimates for revenues and expenditures to the end of the year for all budget line items. Make monthly adjustments to the budget plan line by line to assure that:
· the total of expenditures to date plus forecasted expenditures to year-end do not exceed
· the total of revenues to date plus forecasted revenues to year-end.
This is a very large task to set up unless it is a feature of the financial software package the borough is using. Otherwise there are spreadsheets on line that can do the job.
In the letter I sent to council on of March 4, 2010 I suggested the following:
www.businesslink.gov.uk/Finance_files/Cash_Flow_Projection_Worksheet.xls There may be better packages available.
The start up workload for cashflow forecasting is far beyond what the borough manager and staff can accommodate. Possibly the Planning Commission would take on this project. One person knowledgeable in budget matters with a volunteer high school or college student adept at inputting data to an Excel spreadsheet could accomplish the start up task. A manageable workload could be defined by detailed month-by-month estimates for 20% of the budget line items that represent 80% of the budgeted revenues and expenditures. The remaining low value line items could be estimated at a constant value.
· In 2011 begin to restore a prudent level of year-end reserve funds. 2009 demonstrated that the year-end unrestricted reserve is very low. In 2010 it may be necessary to allow payables to increase to an uncomfortable level and schedule the TAN for the first business day of 2011.
Pay down the gross long-term debt that at the end of 2008 was $2,441,888. Except for emergencies, do not add significant long-term debt for the next 8 years. After 2018 the following debt balances shown in the 2008 Auditors’ report will be paid off:
· $407,395 in 2015 for the $577,722, 1995 Ridley Avenue Sewer.
· $118,306 in 2013 for the $348,000 1995 Storm Sewer.
· $380,843 in 2018 for the $500,000 2003 LaFrance Ladder Fire Truck.
· $98,544 in 2018 for the $150,000 2003 PEMA – LaFrance Ladder Fire Truck.
· The $1,400,000 for the 2007 Police station will not be entirely paid off until 2023.
Reduce expenditures and increase Taxes to a level that is required to restore the reserve to a prudent level. The total increase in Real Estate taxes for 2011 should accommodate the following needs:
· Correct the existing “Structural Operating Deficit”
· Apply reasonable increase for cost growth in all accounts.
· Cover year-end deficit spending.
· Begin a three-year program to restore a prudent reserve fund that is sufficient to deal with short-term emergencies.
· Formulate a long-term plan that achieves a Debt to Fund Balance Ratio of 1.00 in 8 years.
In 2010 there are many ways to improve the financial health and stability of the Borough and they all take a concerted effort involving all the Stakeholders:
Form a Residents’ Finance Oversight Committee
A citizens’ group should be formed to review and revise the suggested priority actions. This group should include a Certified Public Accountant who is willing to offer some hours of pro bono services.
The goals should be:
If the community wants to rein in the growing tax burden then they must communicate this requirement to the council and the council must respect the wishes of the community.
Ridley Park is nowhere near bankruptcy or even the need of using Pennsylvania’s Municipal Financial Recovery Act – Act 47. Ridley Park is not close to but is approaching the conditions of the fiscally distressed Borough of Norwood. On the current path, Ridley Park could reach the level of the Norwood problem in the not too distant future.
Ridley Park is headed for a tax increase speed bump in the road. The longer the delay in taking corrective action, the bigger the bump. If no action is taken the Norwood brick wall will rise up and it will not be pretty.
Ridley Park is a very nice “Mayberry” like town. Let’s work together to keep it that way.