WALLINGFORD — The town finished the 2016-2017 fiscal year with a $1.4 million deficit, according to a recent financial audit.
As a result of the shortfall, the town’s general fund balance, or so-called “rainy day fund,” fell from $29.2 million on June 30, 2016, to $27.8 million on June 30, 2017, according to the annual audit, prepared by the BlumShapiro accounting firm of West Hartford.
Town Council Chairman Vincent Cervoni said the decline in reserves concerns him as the town begins preparing the 2018-19 budget.
“In light of the fact that we’re going into this budget year with a less-than-perfect certainty about what funding we will get from the state, it leaves me concerned,” said Cervoni, a Republican.
Cervoni added he believes the $1.4-million deficit based on generally accepted accounting pricinciples, or GAAP, is small compared to the town’s overall budget of around $160 million.
“It's unfortunate, but still relatively insignificant,” Cervoni said about the size of the deficit. “It's the kind of thing that makes having an unallocated reserve important.”
Mayor William W. Dickinson Jr. also expressed concern about the decline in reserves.
“We certainly don't have the money we've had in the past, and what that spells for the future is troubling, given the state’s problems,” Dickinson said. “It's a good reminder of the tightening of revenues and we’ll have to be very mindful of that as we go into another budget season.”
Democratic Councilor Vincent Testa said that while the council needs to be conscious of the lower reserves when budgeting, “I dont think alarm bells have to go off.”
“I just think we need to be a little more careful about how we’re putting together our budget and continue to reconsider and be more creative about how we’re funding capital expenses,” Testa said.
Comptroller Jim Bowes said there are two ways of measuring the town’s financial performance in a given year. One measurement is GAAP, which are pracitces established to ensure that accountants are using the same standards to promote transparency and allow for comparison between financial statements of public or private entities.
This method considers additional line items, such as payments made in the current fiscal year for expenses originally incurred in past years. The second measurement to determine a surplus or deficit, called budgetary standards, only looks at expenditures and revenues budgeted for a specific year, and doesn’t account for costs that might roll over from past years.
According to the audit, the town’s budgetary, or “non-GAAP,” expenditures of $155.6 million exceeded non-GAAP revenues of $155.2 million, indicating the town had a budget deficit of $430,000 last fiscal year.
The difference between the $1.4 million GAAP deficit and the $430,000 non-GAAP deficit shown in the audit is created by $801,000 in costs from purchase orders from past years that were not received and liquidated until 2016-17, and $227,000 in accrued wages from the previous year.
Bowes, however, wrote in a memo last week that the town actually recorded a budgetary surplus of $314,000. He arrived at this number by subtracting $744,000 of “appropriations-in-force” from the town’s total expenditures for 2016-17, which the audit did not do. Appropriations-in-force are items that were budgeted for in past years but paid for last year.
“You have to extract that out if you want to do a true budget analysis on amounts approved for in the fiscal year,” Bowes told the Record-Journal this week. The full 180-page audit can be viewed online through the state Office of Policy and Mangement’s electronic audit reporting system.
This is the first year the town’s general fund balance has decreased since fiscal year 2009-10, according to past audits. From fiscal year 2010-11 to fiscal year 2015-16, the town recorded an average GAAP surplus of $1.19 million, with surpluses ranging from $671,000 to $2.1 million. The town’s general fund balance grew by $7.1 million in that time.
Wallingford has one of the largest general fund balances among Connecticut municipalities of similar size, according to data from the state Office of Policy and Management.
Bowes said the GAAP deficit in 2016-17 can be partly attributed to reductions in the town’s state grant revenue, which totaled $1.3 million in fiscal year 2016-17, according to Bowes.
Mayor William W. Dickinson Jr. said he doesn’t consider the audit’s findings a true deficit because the town still holds a positive balance in its general fund.
“I don't see that as a deficit,” Dickinson said. “Deficit to me means that you're less than zero. We aren't in the minus, we just have a lesser amount than before” in the general fund balance.
Among the $27.83 million the town held in reserves at the end of last year, only $2.4 million is unreserved and undesignated, according to Bowes. His memo stated that $7.2 million of the $27.82 was designated to balance the 2017-18 budget, $1.69 million was previously appropriated for different items and carried forward from past years, $135,000 is assigned to purchase orders that were not yet complete as of June 30, 2017, $143,000 is prepaid for gasoline and fuel and the town chooses to retain the remaining $16.2 million for credit rating purposes.
The town finished the 2015-16 fiscal year with $6.6 million in unreserved and undesignated reserves, according to a memo Bowes sent to the mayor in December 2016.
In recent years, the reserve fund has been a subject of debate, with some arguing it has become too large and is a sign of overtaxation.
Cervoni said he hopes this recent audit will change the way people look at the reserve fund.
“If you think we've been overtaxed you really need to rethink that based on the last audit,” Cervoni said.