Projected surplus rises to $2 million

Town officials are now projecting a surplus of about $2 million for the 2016-17 fiscal year, up from earlier expectations of a surplus in the vicinity of $1.5 million.

“Expected surplus of $1.5 million used in our April calculations actually came in over $2 million. Wow!” Finance Board Chairman Dave Ulmer said in an email to Controller Kevin Redmond shortly before the Aug. 29 Board of Finance meeting.

Basically, the town and schools spent about $775,000 less than they expected to, on the $139-million budget for 2016-17. And revenue collections for 2016-17 were about $1.3 million above what was budgeted, despite about $900,000 in cuts by Hartford to revenue expected from the state under various programs.

Much of the extra revenue was income generated by last fall’s tax sale, organized by Tax Collector Jane Berendsen-Hill.

“We did well in expenses. The tax sale and Jane drove the bus,” Controller Kevin Redmond told the finance board meeting.

A tax sale generates revenue from putting delinquent properties on the block, but also from people paying-up to avoid being part of the sale. Ulmer said revenue related to the tax sale was about $1.7 million.

In the tax collector’s report to the Board of Finance on Aug 29, Berendsen-Hill showed “prior year collections” for 2016-17 were budgeted at $900,000, but came in at about $1.8 million — so collections on past year’s taxes were 198% of budget.

Similarly, interest and lien fees from the tax collector’s office were budgeted to produce $500,000 in revenue, but came in at $800,000 — 186% of budget.

The 2016-17 fiscal year ended June 30, but getting all the accounting done and checked and reviewed takes time. The final numbers on 2016-17 won’t be known until the independent auditors make their report, expected in December.

Redmond cautioned that the analysis projecting a $2-million surplus isn’t the last word.

“Numbers will change as we are still paying bills that get charged to fiscal year ’17,” he told The Press.

There is “still a lot of reconciliation work to do” with the Board of Education for the year,” Redmond said, adding that the year-end transfers needed for internal balancing of accounts would be sent to the selectmen and finance board of approval in the fall.

Unfilled vacancies

Of the town’s $775,000 budgeted but not spent for 2016-17, about $94,000 had been allocated for use by the schools as part of the Board of Education’s $94-million budget, but returned to the general fund at year’s end.

The rest was savings by town departments — police, fire, highway, parks and recreation, town hall offices — in the $35-million town-side budget for 2016-17.

“We did a good job staying under, expense-wise,” Finance Board Chairman Dave Ulmer said at the Aug. 29 meeting.

“We did have some unanticipated vacancies in various departments,” Controller Kevin Redmond said. “Sometimes we don’t fill them.”

He later explained that economies can be achieved three ways: when positions are left unfilled in order to save money; when positions sit empty for a while because it takes time to fill them; and when experienced employees are replaced with new people lower on the salary scale. He added that there can also be savings when people are out on short term disability or workers compensation.

Fund balance

The surplus money that will be returned to the town’s ongoing “fund balance” — a stash of unspent money that functions a little like a savings account or rainy day fund. There’s a couple of ways of looking at how much that will be — it’s either about $2 million, or about $100,000.

The annual town budget is mostly financed directly by property taxes, but there are other revenue sources — state programs, fees for service, interest income. There’s also a “use of fund balance” line on the revenue side of the budget. Under this line, the $139 million budget for 2016-17 called for $1,950,000 to be siphoned out of the town’s $14-to-$16 million fund balance and used as revenue to support spending.

Things appear to have gone well enough for the town in 2016-17 that none of that $1,950,000 will have to be used. It is, in theory, returned to the fund balance — even though it never really left.

“Bottom line is, we’re not going to have to use fund balance,” Ulmer told his finance board colleagues.

That produces an interpretation in which the fund balance is getting fattened by about $2 million.

But this “use of fund balance” is something the finance board does most years — the current year’s budget calls for $1.8 million from the fund balance to be used as revenue during fiscal 2017-18.

And, most years, not all of what is budgeted for use is needed, and the funds are returned to the fund balance — or, rather, not taken out for spending.

Budgeting a small portion of fund balance to be used as revenue to support spending allows the finance board to propose a lower tax rate — in essence, there was $1,950,000 in 2016-17 that the town and schools were authorized to spend, that wouldn’t have be supported by that year’s taxes — it would come out of fund balance — meaning that the tax rate could be a little lower.

The finance board sees this as a way of returning money to the taxpayers, so they’re not overtaxed. Municipal budgets generally don’t cut budgets so close that they risk running in the red, which is illegal. So there’s nearly always something left over, and it builds up year after year. This build-up is the “fund balance.” The finance board’s “use of fund balance” as revenue in the budget is a way giving some of that build-up back.

Over guideline

The finance board has a policy guideline to keep the fund balance at about 8% to 9% of the annual budget, and the “use of fund balance” is also a way of knocking it down when it starts to build up too much and get above the guideline.

The fund balance is currently about $16 million or $14.2 million — depending on whether the $1.8 million assigned to be used as revenue under the “use of fund balance” line“ in the current year’s 2017-18 budget is counted as in, or counted as out.

Basically, the total of money in the fund balance is about $16 million, but since the current budget calls for $1.8 million to be used as revenue to support this year’s spending, the “unassigned” fund balance — with $1.8 million not counted, since it’s “assigned” for use — is about $14.2 million.

“That’s over our 8-9% guideline” Ulmer said of the $14.2 million unassigned fund balance. “That is almost exactly 10% of fiscal year 2017-18 budgeted expenses/revenues of $142 million.”

This stretching of the finance board’s policy guideline was deliberate, he added, with board members figuring that given the state’s budget woes, and the likelihood of more state cuts — or orders for towns to help with things like the teachers’ pension fund — it would be good to have a little extra in the town’s financial cushion.

The finance board  “wanted it to be over our guideline in anticipation of issues related to state funding” in fiscal year 2017-18, Ulmer said.

For the completed 2016-17 fiscal year, thanks to the $775,000 in under-spending by town and schools, and the extra revenue from the tax collector’s office, even after the $1,950,000 “use of fund balance” revenue goes unused, there is currently projected to be an additional $150,000 or so that will flow into — and fatten — the “unassigned” fund balance.