Broome County - Financial Condition

Division of LocaL Government & schooL accountabiLity

o f f i c e o f t h e n e w y o r k s t a t e c o m p t r o L L e r

report of ExaminationPeriod Covered:

January 1, 2016 – February 23, 2017

2017M-187

Broome CountyFinancial Condition

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

EXECUTIVE SUMMARY 2

INTRODUCTION 4 Background 4 Objective 4 Scope and Methodology 4 CommentsofLocalOfficialsandCorrectiveAction 5

FINANCIAL CONDITION 6 Budget Estimates 6 Fund Balance 13 Recommendations 17

APPENDIX A Vehicles and Equipment Beyond Their Useful Life 18 APPENDIX B ResponsesFromLocalOfficials 19APPENDIX C OSC Comments on the Chairman’s Response 24APPENDIX D AuditMethodologyandStandards 26APPENDIX E HowtoObtainAdditionalCopiesoftheReport 27APPENDIX F LocalRegionalOfficeListing 28

Table of Contents

11Division of LocaL Government anD schooL accountabiLity

State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability

February 2018

DearCountyOfficials:

A toppriorityof theOfficeoftheStateComptrolleristohelplocalgovernmentofficialsmanagegovernment resources efficientlyandeffectivelyand,bysodoing,provideaccountabilityfortaxdollarsspenttosupportgovernmentoperations.TheComptrolleroverseesthefiscalaffairsoflocalgovernmentsstatewide,aswellascompliancewithrelevantstatutesandobservanceofgoodbusinesspractices.Thisfiscaloversightisaccomplished,inpart,throughouraudits,whichidentifyopportunitiesforimprovingoperationsandCountygovernance.Auditsalsocanidentifystrategiestoreducecostsand to strengthen controls intended to safeguard local government assets.

Following isa reportofourauditofBroomeCounty,entitledFinancialCondition.Thisauditwasconducted pursuant toArticleV, Section 1 of the State Constitution and the State Comptroller’sauthorityassetforthinArticle3oftheNewYorkStateGeneralMunicipalLaw.

This audit’s results and recommendations are resources for local government officialstouseineffectivelymanagingoperationsand inmeeting theexpectationsof their constituents. Ifyouhavequestionsaboutthisreport,pleasefeelfreetocontactthelocalregionalofficeforyourcounty,aslistedat the end of this report.

Respectfullysubmitted,

Office of the State ComptrollerDivision of Local Governmentand School Accountability

State of New YorkOffice of the State Comptroller

2 Office Of the New YOrk State cOmptrOller2

Office of the State ComptrollerState of New York

EXECUTIVE SUMMARY

BroomeCounty (County), located in the central southernportionofupstateNewYorkcommonlyreferredtoastheSouthernTier,hasapopulationofapproximately200,000andencompasses16towns,one city and seven villages. The County is governed by the Board of Legislators (Board) comprising 15electedmembers,oneofwhomservesastheChair.TheBoardistheCounty’sgoverningbodyanddeterminesCountypolicies.TheCountyExecutiveisthechiefexecutiveofficerandisresponsiblefor the County’s day-to-day operations and developing the County’s annual budget. The Director of theOfficeofManagementandBudgetistheCounty’schieffiscalofficerandisresponsiblefortheadministrationofallCountyfinancialaffairs.

TheCountyprovidesvariousservices,includinggeneralgovernmentsupport,roadmaintenanceandsnowremoval,economicassistance,lawenforcementandhealthandnursingservices.TheCounty’s2017generalfundbudgetedexpendituresaccountforapproximately$247.9million(65percent)ofthe$383.1milliontotalbudgetedexpenditures,fundedprimarilybyrealpropertytaxes,salestaxes,State and federal aid and user fees.

Scope and Objective

Theobjectiveofourauditwas toexamine theCounty’sfinancialconditionfor theperiodJanuary1,2016throughFebruary23,2017.WeexpandedourscopebacktoDecember31,2009toreviewtheCounty’s financial information and obtain a historical understanding of theCounty’s financialcondition.Ourauditaddressedthefollowingrelatedquestion:

• DidCountyofficialsmaintainsufficientlevelsoffundbalanceinthegeneralfundtoensurethesustainability of current and future operations?

Audit Results

Countyofficialshavenotmaintainedsufficientlevelsoffundbalanceinthegeneralfund.Asaresult,theCountyisatriskofdepletingavailablefundbalanceattheendof2017.Countyofficialsplannedforoperatingdeficitstotaling$7millionduringfiscalyears2014through2016,whichtheyfundedwithavailablefundbalance.Onaverage,Countyofficialsannuallyused$2millionofavailablefundbalancetofundoperationsduringthistime.AsofDecember31,2016,theCounty’savailablefundbalancewas$3million,ofwhich$2.7millionwasappropriatedtofundthe2017budget.Therefore,Countyofficialswouldhavetobe99.9percentaccuratewith their2017budgetestimates toavoiddepleting remaining fund balance.


WhiletheCountydoesnothavecontrolovercertainexpenditures,itcantakestepstoreduceothers.Forexample,Countyoperationsthatshouldbeself-sustainingarenotandrequireconsistentsubsidies(direct transfers and intergovernmental transfers) from the County’s general fund, including: theairport, two entertainment venues, the nursing home and the public transportation system. Thesesubsidiesaveraged$7millionperyearduringfiscalyears2014through2016.

Further, the realproperty tax levyand theallocationof sales taxare thematerial revenue sourceswithinCounty officials’ direct control. Sales tax is the second highest revenue in theCounty (32percentoftotalrevenues).TheCountysharessalestaxrevenueswithlocalmunicipalities.TheBoardadopteda2017generalfundbudgetthatacceleratedthetrendtoincreasethesalestaxsharingrate,whichhasincreasedfrom31.5percentin2012tothebudgeted37.5percentin2017.The2017adoptedbudgetalsoincreasedtherealpropertytaxlevyslightly.HadtheCountynotincreasedthesalestaxsharingrate,itwouldhaveretainedanadditional$6.3millioninrevenuesfrom2014through2016.Thesefundingsourceswerereplacedwiththeuseoffundbalancetofinanceoperations,ratherthanoffsettingthedecreasednetsalestaxrevenueswithincreasestotherealpropertytaxlevy.Becausefundbalancehasbeendepleted,thispracticewillnotbesustainablefor2018.

From2012through2016,thetotalexpendituregrowthhasaveraged6.7percentandrevenuesarenotkeepingpaceat5.6percent.TheCountycannotcontinuetospendmorethanittakesinbecausefundbalanceisnolongeravailabletocoveranyshortfalls.Toavoidadeficitfundbalanceandaninabilitytopaybillsandpayrolls,Countyofficialsmustdevelopabalanced2018budgetandshouldalsoadoptalong-termfinancialplantoprojectfinancesgoingforward.

Comments of Local Officials

TheresultsofourauditandrecommendationshavebeendiscussedwithCountyofficials,andtheircomments,whichappearinAppendixB,havebeenconsideredinpreparingthisreport.TheChairmandisagreedwithcertainfindingsinourreport.OurcommentsontheChairman’sresponseareincludedinAppendixCofthisreport.


Background

Introduction

Objective

Scope and Methodology

Broome County (County), located in the central southern portionof upstate NewYork commonly referred to as the Southern Tier,has a population of approximately 200,000 and encompasses 16towns,onecityandsevenvillages.TheCountyisgovernedbytheBoardofLegislators (Board) comprising15 electedmembers, oneof whom serves as the Chair. The Board is the County’s governing bodyanddeterminesCountypolicies.TheCountyExecutiveisthechiefexecutiveofficerandisresponsiblefortheCounty’sday-to-dayoperations and developing the County’s annual budget. The Director oftheOfficeofManagementandBudgetistheCounty’schieffiscalofficerandisresponsiblefortheadministrationofallCountyfinancialaffairs.

TheCountyprovidesvariousservices,includinggeneralgovernmentsupport,roadmaintenanceandsnowremoval,economicassistance,law enforcement and health and nursing services. The County’s 2017generalfundbudgetedexpendituresaccountforapproximately$247.9 million (65 percent) of the $383.1 million total budgetedexpenditures, funded primarily by real property taxes, sales taxes,State and federal aid and user fees.

The objective of our audit was to examine the County’s financialcondition.Ourauditaddressedthefollowingrelatedquestion:

• DidCountyofficialsmaintainsufficientlevelsoffundbalancein the general fund to ensure the sustainability of current and future operations?

WeinterviewedCountyofficialsandexaminedtheCounty’sfinancialrecordsandreportsfortheperiodJanuary1,2016throughFebruary23, 2017.We expanded our scope back toDecember 31, 2009 toreview the County’s financial information and obtain a historicalunderstandingoftheCounty’sfinancialcondition.

We conducted our audit in accordance with generally acceptedgovernmentauditingstandards(GAGAS).Moreinformationonsuchstandards and the methodology used in performing this audit are includedinAppendixDofthisreport.Unlessotherwiseindicatedinthisreport,samplesfortestingwereselectedbasedonprofessionaljudgment,asitwasnottheintenttoprojecttheresultsontotheentirepopulation.Where applicable, information is presented concerningthe value and/or size of the relevant population and the sample selectedforexamination.


Comments of Local Officials and Corrective Action

The results of our audit and recommendations have been discussed withCountyofficials,andtheircomments,whichappearinAppendixB, have been considered in preparing this report. The Chairmandisagreedwithcertainfindingsinourreport.OurcommentsontheChairman’sresponseareincludedinAppendixCofthisreport.

The Board has the responsibility to initiate corrective action. Awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendations in this report should be prepared and forwarded to ourofficewithin90days,pursuanttoSection35ofGeneralMunicipalLaw.FormoreinformationonpreparingandfilingyourCAP,pleaserefertoourbrochure,Responding to an OSC Audit Report,whichyoureceivedwiththedraftauditreport.WeencouragetheBoardtomakethisplanavailableforpublicreviewintheCountyClerk’soffice.


Financial Condition

The County’s financial condition determines its ability to financeservicesonacontinuingbasis,maintainadequateservicelevelsandsurviveeconomicdisruptions.Amunicipality’sfundbalance(whichrepresents assets remaining from prior years) is a key measure of its financialcondition.Countyofficialsshouldensure that the leveloffundbalancemaintainedissufficienttoprovideadequatecashflowtohedge against unanticipated and anticipated expenditures and/orrevenueshortfalls.Acountyinsoundfinancialhealthcanconsistentlygenerate sufficient, recurring revenues to finance anticipatedexpendituresandmaintainsufficientcashflowtopaybillsandotherobligationswhenduewithout relyingon short-termborrowings.Acontinuous reliance on, and subsequent decline in, available fundbalanceindicatesadeterioratingfinancialcondition.

TheCounty’sfinancialconditionhasbeendeterioratingforthelastseveral years. This occurred because of planned operating deficitsand expenditures outpacing revenues, which ultimately consumedfundbalance.AsofDecember31,2016,fundbalanceinthegeneralfundwas2.7percentof2016grossexpenditures,whichwasamongthelowestforcountiesintheState.Atthisrate,theCounty’scurrentand future results of operations must be precisely as budgeted (or better)andspendingmonitoredtostaywithinbudget,orfundbalancemay be depleted at the end of 2017.

The County’s operating budget is a primary tool in managing its financial condition. Developing realistic revenue and expenditureestimates based on known needs, resources and historical resultsshouldassistinmonitoringcurrenttrendsandfinancialissuessothatnecessarystepscanbetakentomaintainastablefinancialcondition.

From fiscal years 2014 through 2016, general fund expendituresexceededbudgetedamountsbyanaverageof$29.9million,or12.1percent,andrevenuesexceededbudgetedamountsbyanaverageof$30.3million,or12.4percent,resultinginanetvarianceof$326,000,or0.1percent(Figures1and2).Alargeportionofthesevarianceswere for unforeseen, reimbursed expendituresor similar “spend toget”programs(i.e.,healthandeconomicassistance).Assuch,thesewere subsequently reimbursed by additional revenues (i.e., federalaid).

Budget Estimates


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ConsideringtherelativeaccuracyofCountyofficials’budgetpractices,theirplanstousefundbalancecametofruition.Onaverage,Countyofficialsannuallyused$2millionofavailablefundbalancetofundoperations infiscal years 2014 through2016.AsofDecember31,2016,theCounty’savailablefundbalancewas$3million,ofwhich$2.7millionwasappropriated to fund the2017budget.Therefore,Countyofficialswouldhave tobe99.9percentaccuratewith their2017 budget estimates to avoid depleting remaining fund balance.

Expenditures – The County’s largest departmental expenditure istheDepartmentofSocialServices(DSS),at56percentofthetotal(Figure 3).


Social Services56%

PublicSafety15%

GeneralGovernmentSupport10%

Health7%

Education5%

Other7%

Figure 3: 2016 General Fund Spending CategoriesFigure 3: 2016 General Fund Spending Categories

DSSprogramsandoperationsarefunded,atvaryinglevels,byStateandfederalaid,andalocalsharethroughtherealpropertytaxlevy.However, total expenditures for DSS, and County residents’ netobligation,havedroppedeachofthelastthreeyears(Figure4).

Figure 4: DSS Net Expenditures Trend (in millions)2014 2015 2016

Expenditures $193.7 $191.0 $189.9

Program Revenues and Aid $123.1 $122.1 $126.6

Net County Share $70.6 $68.9 $63.3

WhileDSSnetcostsarestillaprimarydriverofCountyspending,the General Government Support1 and Public Safety expenditurecategories are also significant cost centers when compared toDSS net costs. Moreover, the County’s Public Safety and DSSnet expenditures per capita exceeded other counties’2 average net expenditurespercapitaineachofthepastthreeyears.TheCounty’sGeneral Government Support costs (net of sales tax distributions)are lower than other counties’ average net expenditures per capita(Figures5,6and7).3

1 GeneralGovernmentSupportincludesexpendituresforCountyfacilities,generalinfrastructureandadministrativeoperations.AlsoincludedaretheOfficesoftheDistrictAttorneyandPublicDefender.

2 Unlessotherwisespecified,weincludedallcountiesoutsideofNewYorkCityandLongIslandinourcomparisons.

3 Figures5,6and7excludeMadisonCountyandTiogaCountyfrom2016dataasthe data was unavailable.


Figure 5: General Government Support Net Expenditures Per Capita Comparison

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Figure 5: General Government Support Net Expenditures Per Capita

Comparison

Broome County Other Counties

Figure 6: Public Safety Net Expenditurs Per Capita Comparison

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Figure 6: Public Safety Net Expenditures Per Capita

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Figure 7: DSS Net Expenditures Per Capita Comparison

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Figure 7: DSS Net Expenditures Per Capita

Comparison



Employees’ salaries and benefits, including retiree benefits, comprised the majority of the General Government Support costs (between 66 and 70 percent from 2014 through 2016) and have increased by approximately 2 percent each year since 2013. The County jail operations comprise nearly half of the Public Safety expenditures, with personal services and employee benefits making up approximately 78 percent of those expenditures. The County’s 2016 DSS total gross expenditures were twice as high as the average of other counties.4 However, the County also had twice the amount of average monthly temporary assistance recipients in 2016 than other counties. This caseload is likely driven by the higher than average percentage of the County population living in poverty (11.4 percent compared to 9.5 percent for other counties). The County has been slightly above other upstate counties’ average unemployment rates over the last eight years and below the average weekly wages5 over the last four years, at least (Figures 8 and 9).

4 Excluding Madison County and Tioga County as 2016 data was unavailable.5 This includes people who are employed or are covered by unemployment

insurance or unemployment compensation for federal employees programs.

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Figure 8: Average Unemployment Rates


Figure 8: Average Unemployment Rates

Figure 9: Average Weekly Wages

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While DSS has required cost-sharing with the County, State andfederal sources, the County almost completely funds GeneralGovernment Support and Public Safety. Other County operationsthat should be self-sustaining are not and require consistent subsidies (direct transfers and intergovernmental transfers) from the County’s general fund, including: the airport, two entertainment venues, thenursing home and the public transportation system. These subsidies averaged$7millionperyearduringfiscalyears2014through2016(Figure 10).

Figure 10: General Fund SubsidiesCounty Operation 2014 2015 2016 Average

Airport $598,637 $549,773 $565,584 $571,331

Arena & Forum $1,127,475 $1,004,348 $660,581 $930,801

Public Transportation $1,935,235 $2,288,543 $1,847,558 $2,023,779

Nursing Home $4,115,846 $3,215,000 $3,000,000 $3,443,615

Total $7,777,193 $7,057,664 $6,073,723 $6,969,527

Revenues – The majority of County revenues are driven by expenditure-based reimbursements and State and federal aid. In2016,Stateandfederalaidaccountedfor39percentoftheCounty’stotalgeneralfundrevenues.Moreover,in2015,theCounty’srelianceonfederalaidasapercentageof total revenues(25.2percent)wassignificantlyhigher than theaverageofothercounties6 in the State (10.8percent).Of theCounty’s total federal aid, 74.1percentwasrelated to social services programs – also higher than the average of other counties (63.7 percent). The County’s heavy reliance on federal aid,coupledwithpotentialcutstofederallyfundedsocialserviceandotherCountyprograms,makesitallthemoreimportantforCountyofficialstoproperlymanagetherevenuesourceswithintheircontrol.

The real property tax levy and the allocation of sales tax are thematerial revenue sources within County officials’ direct control.Sales tax is the second highest revenue in theCounty (32 percentoftotalrevenues).TheCountysharessalestaxrevenueswithlocalmunicipalities, based on a formula.Historically, the percentage ofsalestaxrevenuessharedwithlocalmunicipalitieswithintheCountyhasbeensignificantlyhigherthantheaveragesharedbyothercounties(Figure 11).7

6 ExcludingSt.LawrenceCounty,asdatawasunavailable.7 Figure11excludesMadisonCountyandTiogaCountyfrom2016data,asthe

data was unavailable.


Figure 11: Sales Tax Distribution - Broome County vs. Average of Other Counties

Net sales tax revenues and the County’s general fund real property tax levy8 comprise the two largest portions of the County’s revenue, creating a significant operational reliance on these two revenues (Figure 12):

8 The County budgets for real property taxes in the general fund, including the allocations of the taxes that are budgeted to be transferred to other funds.

9 The County has a gross sales tax rate of 8 percent of applicable sales, of which 4 percent goes to the State and 4 percent belongs to the County. Of the County’s 4 percentage points, the County’s 2017 budget calls for retaining 1 percentage point and distributing half of the remaining 3 percentage points to the city, towns and villages within the County. For example, the 2017 budget indicates expected gross sales tax revenues of $124,317,736, with the County retaining $77,698,585 and distributing $46,619,151 to the local municipalities.

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Figure 12: Real Property Taxes, Sales Tax Revenues and All Other Revenues (Excluding Transfers)

Real Property Taxes Gross Sales Tax Revenues All Other Revenues (Excluding Transfers)

Figure 12: Real Property Taxes, Sales Tax Revenues and All Other Revenues (Excluding Transfers)

The Board adopted a 2017 general fund budget that accelerated the trend to increase the sales tax sharing rate, which has increased from 31.5 percent in 2012 to the budgeted 37.5 percent in 2017.9

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According to the Board resolution increasing the sharing rate for2017, County officials anticipated the County would “continue toexperienceeconomicgrowth”andthatthe(prior)CountyExecutivedeterminedtheCountyneededtoreturnto“atrue50/50splitofthe3 percent collected over a period of time.” The 2017 adopted budget also increased the real property tax levy slightly. Had the Countynot increased the sales tax sharing rate, itwould have retained anadditional$6.3millioninrevenuesfrom2014through2016.Thesefundingsourceswerereplacedwiththeuseoffundbalancetofinanceoperations,ratherthanoffsettingthedecreasednetsalestaxrevenueswithincreasestotherealpropertytaxlevy.Becausefundbalancehasbeendepleted,thispracticewillnotbesustainablefor2018.

County officials may retain a "reasonable amount" of unassignedfundbalance,consistentwithprudentbudgetingpractices,necessaryto ensure the County’s orderly operation and continued provision of services.10AnysurplusfundbalancecanbeusedtofinanceCountyexpenditures.However,sincefundbalanceisnotarecurringsourceoffunding,astructurallysoundfinancialplanshouldonlyusefundbalance to fund one-time, or non-recurring, expenditures. Fundbalanceshouldnotbeusedasaroutinefinancingsourceforoperations.Apolicythatestablishesanintendedleveloffundbalancetomaintainforcashflowandunanticipatedeventsisaprudenttoolforensuringlong-termfiscalhealth.While fundbalancecanbe appropriated inthebudgettohelpfinanceoperations,consistentlydoingso–insteadof planning to use recurring revenue sources – can deplete the fund balance to levels that are not sufficient for contingencies and cashflowneeds.

County officials have continued to use fund balance to financeoperations, resulting in the depletion of the amount of availablefund balance11 to levels that put continued service levels at risk if no substitutefinancingsourceisemployed(Figure13).AsofDecember31,2013,thegeneralfundhad$12.2millionintotalfundbalancethatcouldbeused to fundensuingyears’operations, reserve for futureexpendituresormaintainforunexpectedoccurrences.Approximately17 percent of this balance was appropriated in the 2014 budget to coveraplanneddeficitof$2.1million.The2014actualresultsendedwith a $4.6millionoperatingdeficit (more than twice theplannedamount).TheBoardthenplannedtouse94percentoftheremaining$5.2millioninavailablefundbalancetofinanceoperationsfor the2015budget.12

Fund Balance

10CountyLawSection355-1(g)11Forthepurposesofthisauditreport,wedefined“availablefundbalance”asthe

County’s appropriated fund balance and unassigned fund balance combined.12No fund balancewas appropriated for the 2016 budget and $2.7millionwas

appropriated for the 2017 budget.


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Figure 13: Fund Balance Levels

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Figure 13: Year-End Fund Balance Levels

Insummary, theBoardadoptedbudgets in2014through2016thatplannedtouseatotalof$7.0millioninappropriatedfundbalanceasafundingsource.Duringthistime,theCountyexperiencedoperatingdeficitstotaling$6.0million.AvailablefundbalanceasofDecember31,2016wasdowntoapproximately$3.0million,ofwhichallbut$255,096wasappropriatedtofinancethe2017budget.Thisshowsaconsistentpatternofappropriatingsignificantamountsofavailablefundbalancetofinanceoperations,deterioratingfundbalancelevels.

AsofDecember31,2016,thegeneralfundhad$255,000remainingin available fund balance after the adopted 2017 budget planned to use$2.7millionasafinancingsource(Figure14).

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AssignedUnappropriatedFundBalance AssignedAppropriatedFundBalance Unassigned Fund Balance

Figure 14: General Fund Year-End Unreserved Fund Balance

WhiletheCountyExecutiveandBoardareresponsiblefordeterminingthe amountof fundbalancedeemed reasonable to retain, adoptingbudgetsthatleave$255,000asacushionforageneralfundoperationin excess of $247million (as was adopted for 2017) provides nomargin of error.As ofDecember 31, 2016, the County’s reportedassignedandunassignedfundbalance(excludingappropriatedfund


balance)inthegeneralfundwas2.7percentofgrossexpenditures,oneofthelowestofallcountiesintheState(Figure15).13

13AllcountiesexcludingNewYorkCity,LongIsland,MadisonCountyandTiogaCounty.Weobtainedthisinformationfromcounties’financialreportssubmittedtotheStateComptroller’sOffice.

14 2013 M-224, Broome County: Financial Condition,October2013

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Figure 15: All Counties' December 31, 2016 Fund Balance (Excluding Appropriated Fund Balance) in the General Fund as a Percentage of

2016 Gross Expenditures

Other Counties Broome County

Figure 15: All Counties’ December 31, 2016 Fund Balance (Excluding Appropriated Fund Balance) in the General Fund as a Percentage of 2016 Gross Expenditures

If theCountywasin linewith theaverageamountoffundbalanceretained by other counties (17.1 percent of gross expenditures), itwouldrequireanincreaseofapproximately$56millioninassignedand/or unassigned fund balance. Such an increase is equivalent to 95.2percentofthegeneralfund’s2017realpropertytaxlevy.

Countyofficialshavenotadoptedanyspecific fundbalancepolicythatstatesminimumlevelsoffundbalancesthatshouldbemaintained,despite us making that recommendation in our last audit.14 Legislators told us that they purposefully try to keep fund balance low so as not toraisetaxeshigherthannecessary.Whilethisapproachhasmerit,onceareasonablecushionisaccumulated,itwouldtakethesametaxlevy to maintain that level as it would to maintain zero fund balance.

As the County’s financial condition worsens, cash flow becomeslimitedandofficialsuse short-termdebt to fundcashdeficits.Thisis,inpart,causedbytheCounty’shighamountofrealpropertytaxesreceivable,which,in2015,was53percentoftheCounty’sensuingyear’srealpropertytaxlevyascomparedto25percentfortheaverageofothercounties.AlthoughtheCounty’slong-termcollectionrateisalmost100percent,theCountytypicallyonlycollects95percentofits realproperty tax levy in theyear it isdue. In2016, theamountnotcollectedfromthe2015and2016leviesofapproximately$8.7million represents 12 percent of the 2016 levy.


The County is one of only seven counties in the State that have issued short-termdebt toaddresscashflowneedsover thelastfiveyears,andithasissuedshort-termdebtaveraging$12.5millionineachofthelastfiveyears.WhilewerecognizethattheCountyhasdecreasedtheamountofshort-termdebtoutstandingfrom$20millionin2011to $10 million in 2016 (50 percent), it should be able to financeoperations and address any cash flow issues with available fundbalance.

In addition, to contain expenditure growth, County officials havedeferred needed investments intoCounty infrastructure.While theCounty has replacement schedules for its equipment and fleet,wefound132outof289piecesofequipmentreviewed,whicharestillinuse,haveexceededtheirusefullifeaccordingtotheCounty’sownestimates(AppendixA).TheCountyhasnotreplacedequipmentdueto the lackof available funds. If fundbalance is depleted,Countyofficialswouldmost likelyhave todecidewhether tocontinue theservices with increasing future costs or eliminate the service.

Therateofgrowthinexpendituresisoutpacingthegrowthinrevenues,which continues to deplete the amount of fund balance in the general fund.Atthecurrentrateofgrowthinrevenuesandexpenditures,weproject the County will deplete its fund balance by the end of 2017 if trends continue (Figure 16).

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Figure 16: Projected Results of Operations and Impact on Fund Balance

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Figure 16: Projected Results of Operations and Impact on Year-End Fund Balance


From2012through2016,thetotalexpendituregrowthhasaveraged6.7percentandrevenuesarenotkeepingpaceat5.6percent.Whilethesepercentagesseemsmall,thetotalamountofmoneyrepresentsmillions of dollars in losses each year. The repeated losses have eroded fund balance.

The County cannot continue to spend more than it takes in because fund balance is no longer available to fund any shortfalls. To avoid a deficitfundbalanceandaninabilitytopaybillsandpayrolls,Countyofficialsmustdevelopabalanced2018budgetandshouldalsoadoptalong-termfinancialplantoprojectfinancesgoingforward.Inaddition,Countyofficialsshoulddevelopacapitalplantoreplaceequipmentasneeded,maintainroads,bridgesandotherinfrastructureandtoresolvethe deferred capital spending that has already occurred.

Ultimately,iftheCounty’sfinancialconditioncontinuestoworsentothepointofsignificantdeficitfundbalances,oneoptiontheBoardmaybe constrained to consider is a request for the State Legislature to enact special legislationauthorizing theCounty to issuebonds tofinancetheaccumulateddeficits.Such special legislationwould trigger theoversight requirements of Local Finance Law Section 10.10. These include the State Comptroller’s certification of the amount of thedeficitsbeforetheCountymayissuebondsforitsliquidation,annualreview of theCounty’s proposed budget by the StateComptroller,quarterlybudgetreporting,anannualthree-yearfinancialplanandanopportunity for the State Comptroller to review and comment on the affordability of subsequent County borrowings. The County would be required to make adjustments to its proposed budget consistent with anyrecommendationsmadebytheStateComptrollerorexplain, inwriting,anyrecommendationsthatarerejected.

Countyofficialsshould:

1. Ceaseusingfundbalancetofinancerecurringexpenditures.

2. Develop a fund balance policy that establishes a reasonable amount of fund balance to be maintained to meet the County’s needs,provide sufficient cashflow, and reduceor eliminatereliance on short-term borrowing.

3. Adoptalong-termfinancialplan.

4. Adoptbudgets that includefinancingrecurringexpenditureswith recurring revenues.

5. Updatethecapitalplanandtakestepstobringtheirlong-termassets and infrastructure in line with the capital plan.

Recommendations


APPENDIX A

VEHICLES AND EQUIPMENT BEYOND THEIR USEFUL LIFE

Thefollowingvehiclesandequipmentwerebeyondtheirusefullife,accordingtotheCounty’sownestimates:

• 57of126fleetvehiclesreviewed

• Sixof2610-wheeldumptrucksreviewed

• Threeofsixloadersreviewed

• Two of two pavers reviewed

• 12 of 20 airport vehicles and equipment

• 27of55piecesoflandfillequipment

• 25of54buses.


APPENDIX B

RESPONSES FROM LOCAL OFFICIALS

Thelocalofficials’responsestothisauditcanbefoundonthefollowingpages.



Edwin L. Crawford County Office Building

Government Plaza / P.O. Box 1766 / Binghamton, New York 13902 / (607) 778-2131 / Fax (607) 778-8869

Office of the Broome County Legislature

Daniel J. Reynolds, MPA®

, RHU®

Chairman, & 5th District Legislator

Email: [email protected]

October 13, 2017

Office of the New York State Comptroller

Division of Local Government and School Accountability

110 State Street, 12th floor

Albany, NY 12236

On behalf of the Legislature, I would like to thank New York State Comptroller Thomas DiNapoli and his

staff for their time, effort and energy reviewing Broome County's financials and completing the audit for the

period from January 2016 to February 2017. The staff was extremely professional and were routinely

accessible during the audit process.

When the Legislature agreed to jointly request the audit with the Administration, we did so with the

understanding that the audit was supposed to be an independent review of our financial operations. However,

as is evident in the Comptroller's narrative, the report appears to be less about the fiscal operations in Broome

County and more a political statement on fund balance.

Additionally, we find the Comptroller's narrative regarding Broome County's fiscal condition

significantly lacking in context, as it fails to account for the fiscal realities and historic facts that have taken

place over the last several years. As a result, some of the observations and recommendations are diminished

by a failure to account for and reconcile this information in their analysis.

In the 2012 budget, Broome County began repairing the fiscal damage that was done by previous

administrations, including $10 million dollars from unrealistic and speculative gas-lease receipts. The County

was saddled with nearly $20 million dollars in short term debt, a situation that was tantamount to buying

groceries with a credit card. Additionally, the County's credit rating had been lowered, and property taxes

increased. The County had several million dollars in bad debt at Willow Point Nursing Home that went

uncollected. County roads and facilities were left in disrepair with no plan or resources set aside to remedy the

emerging problems. The County had also previously concocted and implemented a plan in 2009 to take

significant sales tax revenue away from the City, towns and villages rather than make difficult budgetary

decisions, which in turn caused significant financial problems for those municipalities.

Over the last five years, Broome County has made significant strides both financially and structurally

that were not factored into the Comptroller's narrative. Since 2012, Broome County has spent millions of

dollars repairing and upgrading County roads, increasing road patrols by the Sheriff's Department, creating a

modern short-term rehab unit at Willow Point Nursing home, fixing the bad debt collection problem at the

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nursing home, eliminating $10 million dollars in short-term debt, reducing the County's long term

indebtedness, establishing new fiscal controls; investing in economic development projects at our corporate

parks and airport corridor, and working on several other projects and initiatives.

During this time, the Broome County Legislature also restored the original sales tax agreement with

local municipalities, which has allowed them to cut taxes, invest in their infrastructure and provide essential

services to their residents. Additionally, Standard & Poor's and Moody's have both significantly improved their

credit ratings of Broome County, which saves significant dollars by lowering the cost to borrow money. We

also rebounded from one of the most devastating floods this community has ever seen, and we did all of the

abovementioned while keeping tax increases to an average of less than 1.13% annually, well under the tax

cap.

The Legislature has not historically supported tax increases with the purpose of taking money away

from taxpayers to simply place it in the County's bank account. Although the Comptroller highlights a need for

increasing the fund balance, the report offers neither a suggestion on the appropriate level of fund balance

nor the method for achieving an increased level.

In fact, the report seems to contradict the notion of building the fund balance, by giving the impression

that Broome County needs to spend significant funds to replace an aging fleet. An interesting side note to this

topic that was excluded from the report, was the Legislature’s request from the current and previous

administrations for a more rigorous standard of evaluating fleet replacement including: mileage, annual

maintenance costs, time out of service, estimated re-sale value, performance, condition, actual use, and age.

The Comptroller instead opted for a more simplistic standard of evaluating the County’s fleet by utilizing the

expected use of service schedule that factors in age, but does not account for the other important variables to

determine fleet replacement. That replacement strategy is a flawed method that fails taxpayers and does not

extract the maximum value from the County's fleet, in an era where replacement costs of vehicles has

skyrocketed for taxpayers.

We appreciate the Comptroller’s notion that elected officials are expected to make informed and

conscientious financial decisions regarding municipal operations. However, one of the most curious parts of

the document stems from the lack of inclusion of even the simplest of requests to aid the Legislature in its

responsibility of fiscal oversight. The Comptroller states that their goals of an audit are:

• Enable and encourage local government and school officials to maintain or improve fiscal health by

increasing efficiency and effectiveness, managing costs, improving service delivery, and accounting

for and protecting assets.

• Promote government reform and foster good governance in communities statewide by

providing local government and school officials with up-to-date information and expert

technical assistance.

During the audit, a member of the Comptroller’s team requested monthly financial reports that the

Administration was supposed to provide to the Legislature. They discovered, in their review, that the financial

reports were not being produced or provided by the Administration. Seeing that the Legislature is tasked with

oversight of County finances, we had requested the Comptroller include in the report a recommendation to

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the Administration to provide additional financial reports to the Legislature on either a monthly or quarterly

basis so that proper oversight and decisions on finances can be made in a timely manner. Unfortunately, that

suggestion was rejected as not being germane to the audit. The rationale does not appear to be consistent

with either the goals of the audit listed above or any documentation on the Comptroller's website that

addresses fiscal accountability.

I truly believe the audit represents a missed opportunity by the Comptroller’s Office to help Broome

County establish additional fiscal controls and financial reporting that would have benefited the Executive’s

Office, the Legislature and the people of Broome County. Although the Comptroller’s report is non-binding in

nature, the inclusion of additional financial reporting and the standardization of information would have

helped ensure Legislators have the best available information when carrying out their governmental and

fiduciary responsibilities, which is a goal that everyone regardless of party affiliation should be able to agree

upon.

Sincerely,

DANIEL J. REYNOLDS, MPA, RHU

Chairman and 5th

District Legislator

Broome County, New York

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APPENDIX C

OSC COMMENTS ON THE CHAIRMAN’S RESPONSE

Note 1

Theprimaryfindingofourauditreport is theCounty’strendofunstructuredbudgetfinancingthatreliesheavilyon fundbalance thathasdiminishedsignificantly.Theobjectiveofourauditwas todeterminewhetherCountyofficialsmaintainedsufficientlevelsoffundbalanceinthegeneralfundtoensurethesustainabilityofcurrentandfutureoperations.Weofferrecommendationsbasedonsoundbusinesspractices.Asourauditreportindicates,theCounty’sfundbalanceisdecreasingandisoneofthe lowest in the State (when compared to other upstate counties). These are statements of fact.

Note 2

WhilethecausesoftheCounty’sfiscaldeclinearemanyandhistoric,becauseofitsrecentuseoffundbalance,ahighriskremainsofinsolvencyinthenearfuture.CreatingapositivefinancialtrendforthecurrentandensuingfiscalyearsshouldbecomeanurgentpriorityfortheCountyadministration.

Note 3

TheCounty’staxlevywaskeptartificiallylowwiththerepeateduseoffundbalance,anon-recurringfinancingsource,tofinancerecurringoperations.Withthedepletionoffundbalanceandthereductionofnetsalestaxduetotheincreasedsharingwithlocalmunicipalities,theCountywillbeforcedtosignificantlyincreaserealpropertytaxesorreduceservicelevels.

Note 4

Asnotedinthisresponse,theLegislatureseemstorecognizethatunexpectedandunplannedsituationsarise.AreasonableleveloffundbalanceshouldservetoshieldtheCounty,anditstaxpayers,frombearingdramaticincreasesinrealpropertytaxesorreductionsincurrentservicelevels.TheLegislatureshould determine the amount of fund balance that is reasonable to serve as such a safeguard. Our report providesrecommendationstoachieveappropriatelevelsoffundbalance,suchasceasingtheuseoffundbalancetofinancerecurringexpenditures,establishingareasonableamountoffundbalancetobemaintained,reducingrelianceonshort-termborrowingandadoptingbudgetsthatincludefinancingrecurringexpenditureswithrecurringrevenues.

Note5

The County’s aging equipment is an unavoidable liability caused by the decision to defer maintenance and/orreplacementthatonlyworsenswithtime.WereviewedtheconditionoftheCounty’sfleetandstatusofitsreplacementschedulestodeterminewhetherthereweresignificantinfrastructureneeds.WefoundthatnearlyhalfofthepiecesofequipmentreviewedwerebeyondtheirusefullifeaccordingtotheCounty’sownestimates.Whileamorerigoroussystemtodeterminereplacementpointscouldbeutilized,itwouldonlyprovideabenefitifequipmentwereactuallyreplacedinaccordancewiththeplan,whichisnotcurrentlythecase.


Note 6

WerecommendCountyofficialsupdatethecapitalplanandtakestepstobringtheirlong-termassetsand infrastructure in line with the capital plan. For the purposes of evaluating the County’s equipment andfleet,weutilizedtheusefullifeoutlinedontheCounty’sreplacementschedules,whichwedeemedwere reasonable as compared to theNewYork StateOffice ofGeneral Services useful life table.Again,while amore rigorous system to determine replacement points could be utilized, itwouldonlyprovideabenefitifequipmentwereactuallyreplacedinaccordancewiththeplan,whichisnotcurrently the case.

Note 7

Weagreethatmorefinancialinformationwouldprovidemoreopportunityforoversight.However,ourcomparison of actual results of operations to budgeted amounts indicated the budgets were relatively accurate.Theproblemwasnotthatbudgetswerenotfollowed,butratherthatthebudgetsprovidedtoomuchrelianceonfundbalance,whichhasdepletedmostofthefinancialcushion.Asaresultoftherelativecompliancewiththebudgets,wedidnotincludearecommendationforadditionalfinancialreports,andinsteadfocusedonthecontentofthebudgets.


APPENDIX D

AUDIT METHODOLOGY AND STANDARDS

TheobjectiveofourauditwastoreviewtheCounty’sfinancialcondition.Toachieveourauditobjectiveandobtainvalidauditevidence,weperformedthefollowingauditprocedures:

• We interviewedCounty officials and reviewed theCounty’s charter and code, resolutions,financial documents and censusdata togainunderstandingofCountyoperations, officials’responsibilitiesandoversight,andpoliciesandproceduresforbudgetaryandfiscalcontrol.

• We conducted various analyses of the County’s financial records and audited financialstatementstogainafullunderstandingofitsfinancialcondition,revenuesandexpenditures,and to verify fund balances and identify trends.

• Weanalyzedtrendsintotalrevenuesandexpenditures,netofsalestaxdistributionsandnon-cashassistanceadjustments,from2012through2016toprojectfutureoperatingresultsandpotential effects on future fund balances.

• WegatheredfinancialrecordsfromothercountiesintheStateandconductedvariousanalysestocomparetheCounty’sfinancialcondition,fundbalances,revenues,expenditures,short-termdebt,salestaxdistributionsandtrendstoothercountiesintheState.

• We compared budgeted revenues and expenditures to actual revenues and expenditures todetermine the accuracy of County budgeting practices.

• WecompiledfederalcensusandStatelaborstatisticsdatafortheCountyandothercountiesinthe State to compare and analyze their economic conditions.

• WeinterviewedofficialsandreviewedresolutionsandfinancialrecordstoanalyzetheCounty’ssalestaxcollections,realpropertytaxleviesandcollectionsandsalestaxdistributionstolocalmunicipalities.

• Wereviewedourpreviousaudits’findingsandcomparedthemtotheCounty’scurrentfinancialconditionandoperationstodeterminewhetherofficialsaddressedthefindings.

• We interviewed officials and reviewed County-adopted capital replacement plans andequipmentlistingstodeterminewhetherequipmentexceededitsusefullife.

• Wedocumentedconditionsfacedbyanothercountywithdeficitfinancingtoillustratepotentialimplicationsoffilingfordeficitfinancing.

WeconductedthisperformanceauditinaccordancewithGAGAS.Thosestandardsrequirethatweplanandperform theaudit toobtainsufficient,appropriateevidence toprovidea reasonablebasisforourfindingsandconclusionsbasedonourauditobjective.Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusionsbasedonourauditobjective.


APPENDIX E

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

OfficeoftheStateComptrollerPublicInformationOffice110StateStreet,15thFloorAlbany,NewYork12236(518)474-4015http://www.osc.state.ny.us/localgov/

Toobtaincopiesofthisreport,writeorvisitourwebpage:


APPENDIX FOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerTraceyHitchenBoyd,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

BINGHAMTON REGIONAL OFFICEH.ToddEames,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Suite170244 Hawley StreetBinghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313Email:[email protected]

Serving:Broome,Chenango,Cortland,Delaware,Otsego,Schoharie,Sullivan,Tioga,TompkinsCounties

BUFFALO REGIONAL OFFICEJeffreyD.Mazula,ChiefExaminerOfficeoftheStateComptroller295MainStreet,Suite1032Buffalo,NewYork14203-2510(716)847-3647Fax(716)847-3643Email:[email protected]

Serving:Allegany,Cattaraugus,Chautauqua,Erie,Genesee,Niagara,Orleans,WyomingCounties

GLENS FALLS REGIONAL OFFICEJeffreyP.Leonard,ChiefExaminerOfficeoftheStateComptrollerOneBroadStreetPlazaGlensFalls,NewYork12801-4396(518)793-0057Fax(518)793-5797Email:[email protected]

Serving:Albany,Clinton,Essex,Franklin,Fulton,Hamilton,Montgomery,Rensselaer,Saratoga,Schenectady,Warren,WashingtonCounties

HAUPPAUGE REGIONAL OFFICEIraMcCracken,ChiefExaminerOfficeoftheStateComptrollerNYSOfficeBuilding,Room3A10250VeteransMemorialHighwayHauppauge,NewYork11788-5533(631)952-6534Fax(631)952-6530Email:[email protected]

Serving:NassauandSuffolkCounties

NEWBURGH REGIONAL OFFICETennehBlamah,ChiefExaminerOfficeoftheStateComptroller33AirportCenterDrive,Suite103NewWindsor,NewYork12553-4725(845)567-0858Fax(845)567-0080Email:[email protected]

Serving:Columbia,Dutchess,Greene,Orange,Putnam,Rockland,Ulster,WestchesterCounties

ROCHESTER REGIONAL OFFICEEdwardV.Grant,Jr.,ChiefExaminerOfficeoftheStateComptrollerThePowersBuilding16WestMainStreet,Suite522Rochester,NewYork14614-1608(585)454-2460Fax(585)454-3545Email:[email protected]

Serving:Cayuga,Chemung,Livingston,Monroe,Ontario,Schuyler,Seneca,Steuben,Wayne,YatesCounties

SYRACUSE REGIONAL OFFICERebeccaWilcox,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Room409333E.WashingtonStreetSyracuse,NewYork13202-1428(315)428-4192Fax(315)426-2119Email:[email protected]

Serving:Herkimer,Jefferson,Lewis,Madison,Oneida,Onondaga,Oswego,St.LawrenceCounties

STATEWIDE AUDITSAnnC.Singer,ChiefExaminerStateOfficeBuilding,Suite170244 Hawley Street Binghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313

Broome County - Financial Condition

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