Purpose of Budget Review

The purpose of our budget review was to determine whether the significant revenue and expenditure projections in the City’s proposed budget for the 2018-19 fiscal year are reasonable, and whether the City took appropriate action on our recommendations in the budget review letter issued in March 2017.

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

• Should the City require general fund money to cover $2.2 million of unresolved capital expenditures, virtually all of the general fund’s $2.5 million projected unrestricted fund balance would be depleted.
• Contingency appropriations of $200,000 in the general fund (1.3 percent of appropriations) and $75,000 each in the sewer and water funds (2.7 and 2.9 percent of appropriations, respectively) provide limited flexibility.
• The City continues to transfer unused contingency funds from the general, water and sewer funds to the capital projects fund at the end of the year to fund recurring expenditures, instead of providing for them in the budget.
• The City has not implemented multiyear financial and capital plans.
• The proposed budget omitted approximately $40,000 in general fund short-term debt that was included on the City’s debt schedule.
• The City did not implement the recommendations in our March 2017 budget review letter.
• The City’s proposed budget includes a tax levy of $7,217,523.

Key Recommendations

• Continue to consult with legal counsel regarding the funding options available to address capital expenditures.
• Restore the contingency appropriation to at least the previously recommended levels.
• Budget for recurring costs. Ensure money transferred from the general, water and sewer funds to the capital projects fund is properly accounted for and used in accordance with Council authorizations.
• 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.
• Add $40,000 to the proposed general fund budget and routinely review budget estimates in comparison with the debt schedule to ensure all debt is accurately reflected.