City Reports 2008 Operating Deficit

– By Arthur Stampleman –

The just-released City of Rye Comprehensive Annual Financial Report showed some negative turns in 2008, an outcome that was in line with expectations when the City Council approved the 2008 city budget.

The city recorded its first operating deficit since 2002 and several of its balance sheet measures deteriorated during the year. However, the deficit was less than had been budgeted because of control over expenditures and key balance sheet measures still bettered established city financial goals. Deputy City Comptroller Joseph Fazzino’s accompanying comments attributed much of the weakness experienced by the city to negative trends in the broad economy and noted it was concentrated in the last quarter of the year. A financial report on how these trends have impacted the beginning of 2009 is not yet available.

General Fund

The city’s accounts are kept in several funds of which the General Fund is the chief operating fund. General Fund revenues in 2008 totaled $28.8 million, $1 million less than in 2007. A 3.34% increase in the property tax rate generated tax revenues of $18.3 million, an increase of $423,000 or 2.4%, but this was more than offset by drops in “elastic” revenues. Decreases were recorded for mortgage taxes (off $512,000 or 23.9%) due to a declining real estate market and lower refinancing activity, interest income (down $429,000 or 52.4%) due to a dramatic fall in interest rates, a $310,000 or 15.4% decrease in revenues from licenses and permits, and lower Federal aid ($266,000). Increases were shown for fines and forfeitures (up $106,000 or 22.2%), charges for services ($48,000) and non-property taxes ($20,000).

Revenues were better than the forecasts for 2008, though just $32,000 above the year’s budget and $40,000 above estimates for 2008 when the 2009 budget was prepared last fall.

General Fund expenditures totaled $28.7 million in 2008, $3.3 million or 13% higher than 2007’s expenditures. Compared to the prior year, Public Safety program expenditures (police, fire, etc.) increased $1.6 million or 13.8%, General Government jumped $663,000 or 18%, Transportation increased $436,000 or 15.9%, Culture and Recreation programs were higher by $313,000 or 9% and Community Services increased $303,000 or 7.3%.

Expenditures in 2008 were $1.1 million or 3.8% below budget and $985,000 or 3.3% below the forecast for 2008 when the 2009 budget was prepared. Expenditures in all five major program categories came in lower than budget with the largest differences from budget $346,000 in General Government and $332,000 in culture and recreation. There were a few items, though, that saw significant increases between the original budget and the final budget including treasury (reflecting increased tax certiorari payments), law and Rye Town Park.

Salaries and wages across all expense categories totaled $12.4 million, up $719,000 or 6.1%% from 2007, largely determined by contractual arrangements. Employee benefits accounted for $6.6 million, up $1.9 million or 40.7% compared to 2007 mainly because of higher hospitalization and medical costs. In 2007 benefits had declined $819,000 so this can be a very volatile expense category. The wages and benefits increases were about $400,000 less than budget, but these expenditures continue to account for close to two-thirds of yearly expenditures.

Revenues exceeded expenditures by $41,000 in contrast to a $1.1 million deficit that had been budgeted. After considering various transfers to other city funds, an operating deficit of $3.5 million was budgeted for the General Fund for 2008 and a smaller 2008 deficit ($2.9 million) was forecast when the 2009 budget was prepared last fall. In contrast to the latter two numbers, the city did a little better than expected – it reported an operating deficit of $2.3 million for 2008. In 2007 the city enjoyed a surplus of $1.2 million. The last year the city reported a deficit was $356,000 in 2002.

Several General Fund balance sheet measures as of Dec. 31 showed decreases from the prior year-end as a result of the operating deficit. Unreserved Fund Balances were $7.7 million (down $2.1 million) or 27% of total General Fund Expenditures. Unreserved Fund Balances are available for spending at the city’s discretion. Total Fund Balances were $11 million, a decrease of $2.3 million. Cash and investments decreased $1.3 million but still totaled $11 million. Unreserved, undesignated Fund Balances in 2008 at $3.1 million or 10.8% of revenues were double the city’s policy guideline of 5% but below last year’s 17% and the lowest level since 8.84% in 2001.

Other Governmental Funds

In addition to the General Fund, there are several other funds for governmental activities, including the Capital Projects Fund which houses accounts for projects currently underway, and the Building and Vehicle Maintenance Fund. The former fund had a deficit fund balance of $1.6 million on December 31, 2008 from several road and sewer projects pending issuance of serial bonds authorized for the projects. Meanwhile $2 million in financing has been provided by a bond anticipation note. The Building and Vehicle Maintenance Fund reported a loss of $128,000 in 2008, which was more than covered by transfers from other funds totaling $895,000. Cash and investments in the fund were $3 million, up slightly from the prior year.

The Comprehensive Annual Financial Report also includes consolidated data covering all government activities and funds. The city’s consolidated working capital in all city accounts was $18 million, with a strong current ratio of 3.4:1, down from last year’s 4.5:1 but well in excess of the city's 2:1 goal. The major capital improvement expenditures in 2008 were $973,000 at the Marina (mainly dredging), $158,000 for golf club improvements, police headquarters improvements of $155,000, a fuel tank system costing $180,000, vehicle and equipment purchases of $367,000 and $2.1 million in street, bridge and sewer improvements.

City bonded debt ($19 million including the Golf Club) and other long-term liabilities totaled $30 million on December 31, up $2.2 million from 2007. The increase is because Rye, like all municipalities, must now record their obligations to employees for post-employment health benefits. Otherwise, long-term liabilities would have shown a decrease with bonded debt down $1.1 million. Rye still enjoys an Aaa bond rating, the highest assigned by Moody's Investor Service. A footnote in the 2008 report shows a potential liability of $2 million for tax certiorari refunds, up 11% from $1.8 million in the 2007 report.

Golf Club & Marina

The city’s golf club and marina are treated as business-type activities from an accounting point of view. They continue to stand on their own, their finances tracked in funds separate from other city activities. Rye Golf Club reported net income of $352,000 in 2008, down $25,000 from the year before. Golf Club cash and investments at the end of December were $3.9 million – up $700,000 in 12 months. The Marina showed net income of $325,000 or almost double 2007 results; an operating loss of $25,000 was more than offset by state and federal aid of $317,000 and interest income. Marina cash and investments were $1.4 million at year-end, down from 2007.

The city’s 2008 financial report is available on the city’s website and at the Rye Free Reading Room. In addition to city financial data, the report contains general economic data for Rye. The city's Finance Department again received professional awards for its financial reporting and budget presentation.