Town Special Reserve Accounts--a riddle, wrapped in a mystery, inside an enigma

 

Via E-mail and US Mail

PO Box 130

West Shokan, NY 12494

October 1, 2011

Supervisor Berndt Leifeld

PO Box 180
West Shokan, NY 12494
845-657-8118
FAX 845-657-6117

Dear Supervisor Leifeld:

At the recent Town of Olive budget workshop several citizens raised the question of balances in special reserve funds being used for emergencies such as the recent tropical storm devastation.  Your response was that money in reserve funds cannot be used for purposes other than those designated in the accounts.  Your claim is false because special reserve accounts can be reduced or dissolved.  I located a policy statement of the New York State Comptroller’s Office located  at: http://www.osc.state.ny.us/localgov/pubs/lgmg/reservefunds.pdf .   The report states:

When conditions warrant (subject to legal requirements), the board should reduce reserve funds to reasonable levels or liquidate and discontinue a reserve fund that is no longer needed or whose purpose has been achieved.

The report implies that different reserve funds are subject to different methods of dissolution or reduction.  As well, the report states:

Because of the complexity of some of the legal requirements relating to the establishment, funding, expenditure, and dissolution of reserve funds, we encourage local officials to consult with their municipal attorney.

I assume that you have done so and can produce letters to and from lawyers as to the statuses of the various special reserve funds.  As well:

(R)eserve fund(s) should be established with a clear intent or plan in mind regarding the future purpose, use and, when appropriate, replenishment of funds from the reserve. Reserve funds should not be merely a “parking lot” for excess cash or fund balance.

The report also gives some guidance as to prudent oversight of reserve funds:

Reserve funds can be excellent financial planning tools when combined with a realistic analysis of future financial needs and obligations. All too often, however, reserve funds are established and substantial cash is accumulated without due diligence in monitoring the reasonableness of reserve fund balances. To help ensure that reserve funds are being properly established for an authorized and needed purpose, and the balances in existing reserve funds are not accumulated excessively or unnecessarily, governing boards should answer the following questions:

• ·         Has legal counsel provided guidance on the authority to establish new reserve funds?

• ·         Has the financial need or purpose served by the reserve been identified?

• ·         Does the reserve fit within or complement the long range financial or capital plans of our locality?

• ·         Has a written reserve fund plan or policy been developed?

• ·         What events and obligations is the board planning for?

• ·         Is cash being accumulated for the purchase of a major piece of equipment or to help finance other major capital outlays?

• ·         Is cash being sequestered to help mitigate the impact of other large, nonrecurring expenditures?

• ·         Are there risks that need to be protected against?

• ·         Does the board’s policy address replenishing depleted reserve balances, as appropriate?

• ·         Is the board provided with periodic financial reports on reserve fund activity?

• ·         Are reserve balances at an appropriate level?

• ·         Has the board reviewed all reserve funds currently established and determined if the balances are necessary and reasonable?

• ·         Is there a limit on the dollar amount to be accumulated?

• ·         Is the reserve serving the purpose for which it was established?

• ·         Are the best interests of the taxpayers being met?

• ·         Any governing board that is planning to establish and finance reserve funds on a regular basis should develop a written policy that communicates to taxpayers why the money is being set aside, the board’s financial objectives for the reserves, optimal funding levels, and conditions under which the assets will be utilized. Boards should also periodically assess the reasonableness of the amounts accumulated in their reserves.

• ·         When conditions warrant (subject to legal requirements), the board should reduce reserve funds to reasonable levels or liquidate and discontinue a reserve fund that is no longer needed or whose purpose has been achieved.

The last three bullets address questions that citizens asked you and that you failed to answer.  Surely you have addressed all of the concerns listed in the above bullets, and I now request you to apprize the public of your deliberations, due diligence, and thoughtful planning at the next town meeting.  Alternatively, I can send an additional freedom of information law requesting documentation of your compliance with the Comptroller’s guidelines and take the information to the media.  As a local gadfly, I anticipate your response with interest.

Sincerely,

Mitchell Langbert, Ph.D.

New York Valdez: The Tragedy Begins

I just received this e-mail from Governor Patterson (D-NY) (h/t Cindy Johansen). This is only the beginning. The drunken sailors are crashing into the rocks, the oil tank is broken and they know it, but they are chronic alcoholics and blame everyone else for their drinking, crashing and the leaking oil.

The tragedy begins.

Subject: Fwd: GOVERNOR PATERSON CALLS FOR IMMEDIATE ACTION ON BUDGET DEFICIT
--------------------------------------------------------------------------------
From: governorpaterson@chamber.state.ny.us
To: maine5752@aol.com
Sent: 11/24/2009 12:40:03 P.M. Eastern Standard Time
Subj: GOVERNOR PATERSON CALLS FOR IMMEDIATE ACTION ON BUDGET DEFICIT

GOVERNOR PATERSON CALLS FOR IMMEDIATE ACTION ON BUDGET DEFICIT

Outlines Consequences of Inaction in Open Letter to Legislators

Earlier this week, Governor David A. Paterson sent an open letter to every New York State legislator calling for immediate action to address the State’s budget deficit. The full text of that letter appears below:

November 22, 2009

Dear Legislators:

One month ago, I presented a responsible $3.2 billion Deficit Reduction Plan that contained reductions across every area of State spending, including health care and School Aid. I proposed this series of difficult choices to help address the State's severe revenue shortfall, which could threaten to delay State aid payments to school districts, health care providers, and local governments.

Since that time, we have worked together to try and craft a final agreement, but have not yet been successful. Unfortunately, this failure to act has put New York at risk for a number of dire fiscal consequences and raised serious questions among independent financial monitors.

On Friday, the Office of the State Comptroller issued a report titled: “New York State’s Cash Flow Crunch”. In it, Comptroller DiNapoli states: “The State's continuing failure to address its worsening structural budget imbalance have combined to create a severe cash flow crunch.” Put simply, the State is running out of money. In my conversations with the Division of the Budget, we have begun to discuss a number of options for this eventuality, including delaying payments to school districts, non-profit providers, and local governments, among others.

On Thursday, Moody's Investor Services also issued an analysis of the State's finances, saying that, “If there is no action taken by the State to close the gap, or if action is taken but is largely-one-time in nature (therefore increasing the structural imbalance in the outyears)” our strong credit rating will be in danger of a downgrade. The Comptroller has echoed these concerns, imploring the State Legislature not to resort to “fiscal gimmicks or debt, which would only push the State’s budget problems into the future at a higher cost to taxpayers.”

Above all, Moody's and Comptroller DiNapoli have indicated that we must focus our efforts on reducing spending. Moody's warned that one of our State's credit weaknesses are “high-recurring expenditure demands” and “spending pressures that contribute to chronic projected structural imbalances.” The Comptroller has also indicated that “New Yorkers understand difficult spending choices must be made . . . one-time revenue [does] nothing to address the State’s structural imbalance.”

It is clear that failure to address our deficit responsibly could have very real and serious potential consequences for taxpayers across New York. Time is running out and the costs of inaction will be felt in every corner of our State.

Payment delays could create a trickledown effect on local governments and service providers in every region of New York as those organizations continue to face similar revenue shortfalls of their own. A credit rating downgrade means it will be more expensive for the State to borrow money. As a result, more of our limited resources will be dedicated to paying back bondholders, rather than providing critical services.

There is only one path to avoid these unacceptable consequences – responsible, recurring spending reductions across every area of the budget.

I believe that any final Deficit Reduction Plan must include actions that are at least 40 percent recurring. Additionally, any consensus agreement must include reductions to health care and School Aid.

No one wants to cut health care or education. These are priorities for which I have fought my entire career. But given that they make up more than half of the entire budget, we simply have no other choice but to make reductions to health care and education if we want to demonstrate that we are serious about putting New York on the road to fiscal recovery. As other states that are now grappling with unmanageable deficits learned far too late, it is better to cut now, than gut later.

We must put politics aside and put the people of our State first -- not the special interests. We must reach a responsible final agreement that protects our State's finances and embodies the principles I have outlined above. The warnings are clear and those who choose to ignore them do so at their own peril. In the days ahead, I look forward to your cooperation as we make the difficult choices that are necessary to put New York's fiscal house in order.


Sincerely,


David A. Paterson