Purpose of Budget Review

The purpose of our budget review was to determine whether the significant revenue and expenditure projections in the City's preliminary budget for the 2017-18 fiscal year are reasonable, and whether the City took appropriate action on our recommendations in the budget review letter issued in March 2016.

Background

The City of Olean, located in Cattaraugus County, issued debt totaling $4,300,000 to liquidate the accumulated deficit in the City's general, water and sewer funds as of May 31, 2007. Local Finance Law requires all local governments that have been authorized to issue obligations to fund operating deficits to submit their tentative budgets for the next fiscal year to the State Comptroller for review while the deficit obligations are outstanding.

Key Findings

• We identified that certain sources of revenue and expenditure categories in the preliminary budget are not reasonable and, at current rates, could potentially contribute to a depletion of the general fund balance within three to five years.
• The City appropriated $600,000 of fund balance to offset general fund expenditures in 2017-18, all of which will be used for recurring expenditures.
• Contingency appropriations of $200,000 in the general fund (1.2 percent of appropriations) and $75,000 each in the sewer and water funds (2.5 percent of appropriations) provide limited flexibility. The City's ability to pay any liabilities that could arise from contract agreements settled during 2017-18 is diminished.
• The City has not implemented multiyear financial and capital plans.
• The City did not implement the recommendations in our March 2016 budget review letter.
• The City's preliminary budget complies with the property tax levy limit set by statute.

Key Recommendations

• Incorporate recurring costs into the annual operating budget, to be funded with recurring revenue sources rather than appropriated fund balance.
• Develop and adopt a fund balance policy to guide the City's accumulation and use of fund balance.
• Include potential salary increases within department line items or restore the contingency appropriation to previously recommended levels.
• Create, adopt, use and annually update both a multiyear capital plan and a multiyear financial plan, and make both plans an integral part of the budget process.