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Don’t misunderstand fund balances

November 1, 2012
By Michael Kilroy

As a resident and taxpayer in the town of Harrietstown for my entire life, I take exception to the letter printed in the Monday issue of this paper from Mr. Shapiro. I have worked for the town in a number of capacities (town justice, budget officer, bookkeeper) - the longest as budget officer, since 1989. I have never been on the town board, nor do I speak for the town board or supervisor or, for that matter, anyone employed by the town of Harrietstown.

That being said, my credentials speak for themselves. I have prepared numerous budgets for the town and the school district, in which I was the business manager for 16 years after teaching for 21-plus years. I and my work have been through numerous audits: both independent by CPA firms, by the Medicare system and by the state comptroller's office. I consider myself highly adept at what I do. I also am intelligent enough to realize that people are entitled to their opinions. However, not knowing or understanding the facts, or whatever they consider to be the facts, and using them to their advantage or to someone else's is not only misleading but dishonest.

The thrust of Mr. Shapiro's letter was spent on the "fund balance" and the use of it to reduce taxes. I attempted to explain to him and his wife the concept of "fund balance" at the public hearing on the budget on Thursday, Oct. 25. He has also has been in my office gathering information regarding fund balances several times. Whether or not he listened or just refused to be informed of the facts is anyone's guess. Either way, Mr. Shapiro does not understand the concept of fund balance and has misinformed the public.

The concept of "fund balance" can be confusing. The following is my explanation regarding this concept. The town has 15 different funds and/or districts, each with their own budget. Similar to a private business or a corporation, at the end of the each year, a calculation is made to see if you have a profit or loss. The terms used in governmental accounting are surplus or deficit. In a private business such as a single proprietor or partnership, profits are kept by the owner(s) as a reward for having a profitable year. In a corporation, profits and losses are kept in an account called retained earnings. Each year, corporations which are owned by stockholders determine how much, if any, of the retained earnings can be distributed as a dividend to the shareholders as their reward for investing in the corporation.

In government, the largest revenue source is the property tax. When preparing a budget, an estimate is made as to how much revenue will be received and how much will be spent during the year. This is no different than a household budget, which many families prepare. The only thing different is the amount of money involved. Similarly, budgets are just that - estimates. If governments don't spend all that they budget for and/or receive more than they estimated as revenue, a surplus occurs. On the other hand, if the municipality spends more, or they don't receive all they had estimated, a deficit occurs. An important thing to remember is that the tax levy (amount to be raised by property taxes) has already been set PRIOR to the new year, and if the municipality raised more than it needed, then the municipality needs to give back some of this money as a reduction to the levy for the following year. After all, taxpayers are the shareholders in a municipality. This principle is referred to as "appropriated fund balance" to reduce the subsequent year's levy. It is a fundamental principle used by municipalities to give back funds on the next year's levy. "Appropriated fund balance" is considered a revenue source, just as is state aid, federal aid, dog licenses, fines, bail and the like.

When preparing the budget, the most difficult part is estimating what the fund balance will be - three months before the end of the year! That comes with experience and knowing the municipality. It also involves the laws regarding how much fund balance a municipality can/should keep "unappropriated." Unappropriated fund balance is the so-called "rainy day fund" that Mr. Shapiro refers to. How much is enough? That depends upon each municipality. The suggested amount ranges from 5 to 15 percent of the budgeted amount of appropriations amount each year. For example, for 2012 the town's budgeted appropriations (amount to be spent) were $1,161,917 from the general fund. Using the suggested amount from above, our unappropriated fund balance should be approximately $174,287. As of Dec. 31, 2011, the town's TOTAL FUND BALANCE was $346,408. The town appropriated $135,000 toward the 2012 budget tax levy, which left approximately $211,408 unappropriated. We certainly had more than suggested, and I would argue that this is much better than saying we didn't have enough. Do I think that we will use the entire $135,000 appropriated? The answer is "NO." However, the budget must be balanced, and therefore appropriating part of the fund balance as revenue in the budget helps to accommodate this.

Again, I cannot stress enough that when preparing a budget, we are using our best estimates, and things can change very quickly to make the estimates inaccurate. A good example would be storm damage to buildings, a severe winter which would involve more salt, sand, overtime, etc. Also remember that like a business - and municipalities are businesses - the only thing you can control are expenses. Revenues cannot be controlled! Things like the aforementioned require an unappropriated fund balance to handle the unexpected.

The total debt service (principal and interest on loans) for the town of Harrietstown is approximately $158,000 covering all funds. How does your municipality compare? The tax rate for taxpayers of the town of Harrietstown owning property inside the village of Saranac Lake is $1.27 per $1,000 of assessed value. How does your municipality compare? The total amount of fund balance appropriated in all funds in the 2013 budget was $273,000. How much did your municipality appropriate?

In conclusion, the town of Harrietstown is in excellent financial shape, and tinkering with fund balances is NOT in the best interests of the taxpayer. As an employee of the taxpayers of the town of Harrietstown, it is my priority to first and foremost have your interest at heart, and I feel that the 2013 budget, as all of our budgets, are in the best interest of the taxpayers of the town.

As always, please feel free to stop in the town office in the town hall if you have any questions or want additional information. Know the facts; don't let someone else speak for you!


Michael Kilroy lives in Saranac Lake and is the budget officer for the town of Harrietstown.



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