So, I thought you might like to read what the city's Budget Director had to say in response to the CODE/FOP accountant's assertions. Also, remember that the court totally dismissed the two unions efforts to obtain a restraining order against the city based on their assertions about "found" money and their allegations that the City Manager was not being accurate in his assertion that we had a deficit.
The following is a response from Lea Erikson, the city's Budget Director, on October 23, 2009 to an inquiry from my office.
Here is my preliminary analysis on the accountant’s affidavits:
Burke & Schindler used flawed logic when developing a projection for items for which annualized appeared to be less than the 2009 budget amount.
- The City’s expenditures generally do not get expended throughout the year in a straight-line fashion (i.e. you can’t say that expenditures should be 50% of budget 50% of the way through the year). There are many reasons for this including:
- Many municipal operations have seasonal peaks and valleys with their expenses such as winter operations which is heavy early and late in the year or Aquatics which is heavy in the summer only.
- Personnel expenses are incurred 26 times through bi-weekly payroll, not 1/12th each month.
- Personnel expenses are not level from start to finish since there are contractual pay raises such as Fire’s 3% COLA which started in June and AFSCME’s 3% COLA which started in August.
- Contracts with outside entities are entered into throughout the year and so there is no way to generalize those expense.
- Supplies and other purchases do not happen in a straight-line fashion throughout the year.
- Other expenses may not occur until later in the year.
- Since the City’s expenditures do not get expended throughout the year in a straight-line fashion, the Burke & Schindler’s annualization technique was flawed.
- Since Burke & Schindler only compiled results of items which appeared to be under expending, they completely ignored items that may appear to be overspending. When using their same methodology of annualization with ALL line-items in the budget, the result shown that the City is projected to overspend its departmental General Fund Budget by $10,223,000. Obviously, since the methodology is flawed, the Office of Budget & Evaluation is not concerned that we are on track to overspend our budget by that amount. A proper budget monitoring activity looks at spending on all line-items and makes professional assumptions based on knowledge of operations when projecting spending for the remainder of the year.
- In the case of the statement: “total projected unspent amount within the Police Department is at least $1,000,000”, when you use actual Police Department budget report totals (versus only a few line-items) and use the same logic and the same annualization, the department now has a deficit of $4,866,695 rather than savings of a $1,000,000.
- While there is a budgeted amount with every line-item, departments have the ability to expense items less than or greater than the individual line-item budget. City Council approves the budget at the Agency level (not the program level) and at the higher level expense categories of Personnel, Other Expenses, Properties and Debt Service. City Council does not appropriate to the line-item detail. Therefore, in order to be flexible to meet departmental needs, departments can over spend on certain line-items as long as they under spend on other items to remain in balance within the appropriated budget amount. When there is a case where there is projected overspending in total within an Agency, since accounts must be balanced, the Administration with the approval of City Council adjusts the agency budgets in the Final Adjustment Ordinance that is presented in November of each year.
- In the case of the identified $998,000 in items with no expenditures to date, the same caveats above apply. Really a comparison could be made to the number of line-items and amounts that have already overspent their entire annual budget as of August 20, 2009. There are 1,310 expense line-items within departments that show a collective overspending of $32,586,890 as of August 20, 2009. Since there are other items which are under spent by this amount and more, this is not an issue of great concern to the Office of Budget & Evaluation.
Municipal budgeting and fund accounting are not simple and straightforward, and therefore, true projections of over or under spending require detailed analysis that looks at budgets within the context of departmental operations and financial procedures.
As to the numbers in the memorandum, the City also does not receive revenues in a straight line manner, so if you look at page 3 of the Net Revenue detail report attached to the memorandum, the better comparison is the current year to date ($208,915,846.23) versus the prior year to date ($218,915,846.23) which shows to date, we brought in $10,790,376.50 less revenue than last year at this time. When you factor in the fact that we were counting on growth in revenue this year compared to last year, it shows how Finance can say that we are $14.1 million behind forecast year to date in the July monthly finance report (available on council on-line). Based on Finance’s professional assumptions about how this carries out the rest of the year, that explains the projected $28 million revenue deficit by the end of the year.
In their memorandum, the unappropriated surplus calculation of $12,656,282.07 is not an actual YTD amount since two of the components that go into that calculation are projected expenditures and projected revenues. In this case, those amounts assume that we spend every penny appropriated in the budget in the General Fund and that we receive every penny “forecasted” in the general fund. Since the forecast has not been officially reduced to reflect the projected $28 million deficit, the $12.6 million is not true money. You can see the calculation of the $12.6 million and see what the revenue would have to be received to truly get $12.6 million by the end of the year. For comparison I showed what we projected in the original budget (see the General Fund appropriation ordinance last page) and the May Finance Report (available on council on-line). The reason for the big increase between May and June is that we cut the projected operating expenditure line by the June mid year General fund budget reduction approved by Council (revised plan A). When Finance officially lowers the revenue estimate through the amended certificate of resources the unappropriated surplus will be a negative number (discussed on page 2 of the July monthly report).
In their memorandum, the reference to page 172 of the Net Revenue Detail report of $885,960,242.33 this year compared to $844,171,567.95 last year is completely erroneous. They cited the TOTAL revenue amount which is really the total of all 172 pages of net revenue detail (keep in mind that the General Fund only represents the first three pages) and called it revenue from “investments”, when in fact it is the total revenue collected from all sources including General Fund, Enterprise funds, other funds, capital funds, grant funds, etc. My only guess why they thought it was revenue from investments was that the first revenue item listed on that page was titled Rents and Investments (notice the fund number is 980 which is our capital fund.)
This is just my preliminary analysis and this doesn’t represent the Administration’s official opinion on this. Since this is a court case, we have to be careful how information is presented, but I just felt that I had to give you comments per your request.
Thanks,
Lea Eriksen
Budget Director
City Manager's Office, Office of Budget & Evaluation
Suite 142, City Hall
801 Plum Street
Cincinnati, Ohio 45202
P 513-352-1578
F 513-564-1717
E lea.eriksen@cincinnati-oh.gov
www.cincinnati-oh.gov
