Read it and weep.....

The following is a verbatim transcript of what transpired after the public comment portion of the November 6, 2014 Special Meeting to review the 2015 Preliminary Budget:

Comptroller George Phillips:  “Let’s go to page 20 of the budget. The deficit in General Fund is not likely to be decreased, we had a $300K deficit at the end of last year, we’re holding our own throughout 2014 to continue to have a negative operating fund for our main general fund.  We have a $458K commitment for prepaid retirement because we have to pay a quarter of our retirement early in order to save on the cost of financing it and paying it in February so we pay on December 15^th a full year’s worth of retirement but a quarter of that payment ($114K)  is really a prepayment that, therefore, has to be a restriction of our fund balance in effect. Same thing with the Highway Fund, we have just under a $400K deficit to deal with.  These are the types of things that we have to turn around and make positive in the town by underspending our budget for spending and over earning our budget for revenue consistently for probably a number of years and before you can get a credit rating improved, you have to show the fiscal restraint and not allow those to go negative for two to three years.  Moody’s doesn’t want to hear that you got it done because you got a $5M casino payment and then you leverage yourself to the hilt and you’re in worse shape actually.”

Supervisor Langley: “Moody’s with the junk bond status that we currently find our self in took a while to get our self into and it’s going to take some time to get our self out because as you just mentioned, these fund balances have to remain at zero or at a positive state for a period of two or three years before you’re going to get a positive response out of Moodys and our rating. I also want to state, for my own benefit, that these negative fund balances are a reflection of the inter-fund borrowing that took place in previous years, right? This is what we’re trying to reduce down, this is not something that happened this year or last year, this is a collection of years of inter-fund borrowing and this is an actual accounting of it that we’ve never seen before.

George Phillips: “Right. We haven’t put this on our budget in prior years.  I actually had to go back to the source bank statements and checks and source documents of the town because the financial system is so broken beyond repair and transactions weren’t posted, the only way I could get to these numbers was essentially going back to bank statements and actually walking through checks and cross-checking.

Supervisor Langley: “So this is very admirable because I think this is evidence of transparency that has not probably existed in the past because we have not seen these numbers or been able to really get a handle on what the actual inter-fund debt was and it has bounced around, I’ve heard in the over two years that I’ve been here, I’ve heard numbers jump around dramatically and this is the first time that we’ve actually been able to see it.  I thank you for actually bringing it to a point where everyone can have a good look at what’s left to address.

Jeff Pangburn: “George, just a point of clarification. Is this an annual deficit or the actual total debt?

George Phillips: It’s the annual deficit. The total debt for the town if you want to talk in terms of amounts of money we owe for current provisions, you have to be talking in the tens and tens and tens of millions, at least 20 to 30 to 40 million dollars of different types of promises that have been made.  The actual debt page on the AUD if you pull it off on the Open Book will only list about $2.6M, but we have a Rensselaer County Water/Sewer Authority organization that’s issued approximately $20M worth of debt that we’re paying down at five or so percent interest.  We have another $13M worth of debt, which is with the waste water treatment plant, which the comptroller’s office had me back out of the AUD, they said I was being too transparent, so I had to take it out, but we know it’s coming, so it’s really there, we’ve issued it, it’s just, they’re holding it in trust, they said. “

Dave Gruenberg: “The $390M isn’t an annual shortfall, is it?”

George Phillips: “No, it’s the total cumulative debt.”

Dave Gruenberg: “So, it’s not like we’re going to run a debt of $390M every year?”

George Phillips: “Operationally, we should break even this year for both of those funds…that’s our goal.”

Supervisor Langley: “This is what’s left of the accumulation of the inter-fund borrowing that took place in years past.”

Jeff Pangburn: “This is a debt number?”

George Phillips: “This is not exactly a debt number.”

Supervisor Langley: “It’s a deficit number.”

George Phillips: “It’s a deficit number. Is that fair?”

Jeff Pangburn: “We’ll catch up later (laughter).”

Supervisor Langley: “It’s not a structured debt, it’s a deficit through inter-fund borrowing that took place over many years, and I’m not going to use the word mismanagement but monies were borrowed against these funds and not replaced.”

Jeff Pangburn: “So, there are holes we still have to plug but we’re not adding to it this year because we’re zero percent.”

George Phillips: “With the exception of water and the ambulance district which are going to negative current year cashflow. Do you see the negative $50K and the negative $112K,  that means that we’re actually spending more than we’re bringing in. Now, let me go back to ambulance district because I have something we need to correct here. The Ambulance District, I need to correct that for the board and for the public in the sense that I thought we had about a quarter of a million dollars of fund balance there, but what I found out in working through and looking all the records through with Bruen, as far as their transactions, is that the prior comptroller in November did a transaction of just over a quarter of a million dollars of wire transfers to Bruen and never posted them, so when I was trying to post against bank statements, I didn’t have a check, I had a wire, I had a (inaudible) agency and a fund balance reconciliation and in looking at their books and comparing the two between us I have now concluded that we’ve got a fund balance most likely that’s dropping by a quarter of a million there.  I’m sorry to give you the bad news but I’d rather give it to you quicker, sooner, than later but that’s where we’re at on that one, and we’ll move forward.”

Dave Gruenberg: “So, where you’re showing a positive $226,629M, that’s not real.”

George Phillips: “That is not real.”

Tom Grant: “George, we’re looking at a negative fund balance?

George Phillips: “Yes, the Ambulance District has a negative fund balance at this point, and I don’t think we need to do an amendment to the budget to that effect. It’s an informational field. That was the best info I had at that point in time, but I owe you that it has substantially been updated after I had a chance to look at Bruen’s books and compare the wire transfers between the two because it was no longer a trust in agency miscellaneous fund, it was in their bank account. I wanted to add one other thing to answer Pete Stenson’s question on the contingency. We did have a field that takes care of contingency on page 8 of 10 for the general fund. It’s approximately $177, it’s the 962 and 827 accounts, those go into the tax levy and they don’t have specific claims to them. Obviously, we have union negotiations on going, we have a lot of issues to try and cut costs as the year progresses and to grow revenues, so we have some challenges to make that a higher number but $177 is what we have in that fund. If you look at the Highway Fund, which is on page 10, the same account has another $138K in contingency.  Relative to water and sewer, we do have some level of fund balances in those two funds.  Obviously, the Ambulance District that we’re hiring Bruen to do the service has a pretty serious challenge on our hands and we’re working that through with them at this point, and we hope to have better info over the next couple of weeks on that, so stay tuned.”

Supervisor Langley: “George, I’d like to, if I could, I want to address one of Pete Stenson’s concerns with regards to debt service associated with the waste water treatment plant. Going forward, the payments are going to begin to increase next year and the year after and for the foreseeable future. We are in the process now of addressing that and it’s going to come in the way of rate increases. Is that what we’re expecting to see, and it’s going to be done by resolution separate from this budget?”

George Phillips: “Correct, this budget merely states a revenue target estimate.  In order to increase the usage fees for water and sewer, we need to have the board approve resolutions to increase those rates. Then we have to provide notice to be courteous and appropriate, we have to tell people before they start drinking the water and using the sewerage, flushing the toilet if you will, that the cost of that is now higher at that point. So we’d like to give people advance notice within the billing cycle of when the increase is going to occur so that they can plan their usage patterns and budget their cash flow accordingly. So that’s something we’re going to be talking hopefully with the board at the next pre-board we’d like to get that on the agenda to talk with you folks about raising the water and sewer rates, and whether we want to do that or we don’t want to do that, we at least have to talk about that as a piece of the puzzle because when you look at $600K in debt service, we have to be aware of all of our options there. I appreciate, Pete, that the tax deductibility is a concern, it really is, I get that, I think we all do, but we also are living in a tax cap world, and with that structure saying that we have to stay under $1.5 or do a tax cap over-ride, it opens up the door of a lot of public ill-will feelings and then you’re breaking the cap and once you break the cap who’s to say you might not break it by more, so we have to look at the usage and I’m thinking that’s probably something we’re going have to seriously consider, so I appreciate the tax thing. I know there are people who don’t pay the water and sewer bill, pay the 10% penalty in January and then deduct it but that’s not appropriate to do, so I’m not encouraging anyone to do that but… (laughter)”.

Supervisor Langley: “It’s done though.”(more laughter)”

Dan Fiacco: “How do you increase taxes when certain people aren’t on sewer. They’ll have to pay for…”

Supervisor Langley: “Usage fees.”

George Phillips: “If you’re on sewer or water, you’re going to have to pay the usage fee that will hopefully deal with the negative cash flow with water and the future negative cash flow, if we don’t address it, with the $600K debt in 2017 coming at us from the waste water treatment plant.”

Dan Fiacco: “Well, we don’t want to pass that cost on to someone who doesn’t use …”

George Phillips: “Even if we use the property tax, we wouldn’t be passing it on to users who don’t use sewer and water because we’d only be increasing the property tax in the sewer districts or water districts involved for the particular projects. So, in that sense, it would still be charged to just people in those districts. Approximately, 20 to 30% of our residents aren’t on a sewer or water district at all and to the extent that they are they would be seeing the usage fee or the tax increase to pay for that cash flow issue relative to going forward.”

Tom Grant: “George, do you have a rough estimate of how much the fee increase might be on your average use of water?”

George Phillips: “Okay, typically we do this every three years, I’m going to say this number, and just, you’re all sitting, okay? Every three years we’ve been doing this as I’ve gone back in time, we’ve been doing a 20-25% increase. The reason you guys haven’t noticed it in the pocket book as substantially as that sounds like it should be is because we’ve never had the courage to actually increase the minimum [monthly payment]. So, we’ve been basically helping the fixed income senior citizens and individuals who have minimum usage to not really see any increase for the last forever. We may have to address that. That is a very painful thing for the board to be increasing because a lot of those people don’t have a way to find the extra funds. So, first of all you need to communicate it really clearly to them as clearly as you can if you’re going to do that and you have to think it through very, very carefully relative to how it’s going to play out.  It’s going to be painful regardless but we have to do the best we can if we want to raise the minimum. At some point we do have to. We’ve kind of not bitten the bullet for quite a few number of years so far.”

Tom Grant: “But for people who are over the minimum, you’re talking, you know, rough, 20-30%?”

George Phillips: “You’re minimum is still the same price so until we do the increase you don’t have the full impact of the 25% increase. Now you see why it hasn’t felt like a 25% increase every three years. We have to increase because the City of Troy is doing full increases on us every year like clockwork. We also have kind of a tenuous relationship with the City of Rensselaer where they are supposed to pay for part of the water debt with the Rensselaer County Water/Sewer Authority and they kind of want to have a cheeseburger today and maybe they’ll pay for it someday and they also want us to pay for half of the maintenance on the shared assets between us and we don’t really bill them for our half of the shared assets so we have some challenges there.”

Supervisor Langley: “But that’s something we’re trying to work through to see exactly what those costs are that have not been addressed. We’ve just assumed the debt and George has brought it to our attention that we may want to take a closer look at a more accurate division of costs between Rensselaer and East Greenbush with regards to the pump station and the storage facility up on the hill and the costs associated with them.

Pete Stenson (former Comptroller): “I just want to say that the reserves that you pointed to, the first time they were used, they were created by the former CP Matters, CP Danaher, and CP Cristo to pay down the debt from inter-fund borrowing. So, if you’re using that to support the contingency, then you’re not paying down the inter-fund borrowing.”

George Phillips: “We are looking at all of our expenditure lines within the funds to drill down to lower them and try to under-spend and over-earn everywhere we can. Not an easy task, agreed, but that’s what we’re focusing our energy on to find that. So, we have to make that happen anyway.”

Supervisor Langley: “From a legal standpoint, I think that’s the only process by which you can eliminate a deficit that has been incurred from inter-fund borrowing.

George Phillips: “That’s what I heard from the Comptroller’s office, that if you’re really planning to solve the problem, you have to out-earn and under-spend. You could argue it’s sandbagging but it’s not necessarily sandbagging if you’re changing to try to figure out how to do with one person what you used to do with two and get it done as well or better or at least willing to accept the compromise of what less staffing will or can accomplish for the public. What can we afford for what we want to do?”

Supervisor Langley: “None of this is an easy task but it’s being addressed as opposed to being neglected and allowed to grow as it has in the past previous administrations. That’s what got us into this situation. So, while it’s uncomfortable to pay the fiddler now at some point we have to do it and now is the time, and I’m prepared to do what we have to do to get it done.”

Pete Stenson: “The $600K debt service, that’s gross on the $12 to $14M.”

George Phillips: “That $600K in sewer debt is going to be added in 2017 as a gross amount.”

Pete Stenson: ”So that doesn’t reflect any refinancing of current debt?”

George Phillips: ”No, that’s just the principle and 1% interest at that point in time.”

Pete Stenson:  “Mary Beth from Delaware Engineering said that the intent after the treatment plant was structurally finished and the PFC issues the debt, is that you’ll be able to include principle at issuance to refinance the existing sewer debt.”

George Phillips: “Oh, in theory, we could go after the $8M of Rensselaer County five percent debt.  The problem with that, Pete, is that debt is issued over something like a 35 or 40 year term, typically when you go to the EOC for a refi on that they’re going to step it down to 20 or 25 years but they won’t give us zero percent financing because you folks make too much is what they tell me, so Rensselaer they can do it for but they can’t do it for us.”

Supervisor Langley: “On the balance of the money that was there on that bond that we just satisfied half with Rensselaer, is that the one you’re referring to?”

George Phillips: “There’s another half of it. There’s $7M that’s water and $8.5M that’s sewer. That $8.5M in sewer, we could go after refinancing but we would be cramming down more principle instead of a 30 year down to 20 year and we’re not getting zero percent financing, we’d be going from five to market rate and right now market rate could be, even with the FC subsidy, could be anywhere from 2 to 4 to 5 by itself.”

Supervisor Langley: “Are you saying we could add that debt to the existing EFC financing for the waste water treatment plant?”

George Phillips: “Once we’ve taken care of the $13M at the 1%, we could then go out and try to take the $8.5M through refinancing. I don’t think we’d get the same 1% interest though.”

Supervisor Langley: “So, it wouldn’t be under the same package?”

George Phillips: “No. I don’t think so. She did confirm that it could refi but not at the 1%ish rate.  It would be another refi with EOC is what I heard.”

Pete Stenson: “I just did some quick calculations on page 4 of the “other” revenue in the sewer line and it looks like it’s about $1.3M, so it’s a $600K increase, about 50%.”

George Phillips: “Wait a minute. $600K increase, what do you mean?”

Pete Stenson: “$600K in sewer (waste water treatment plant) debt service that’s going to come down the pike in three years.”

George Phillips: “Oh, I’m not sure where you’re going with that. These are…”

Pete Stenson: “The other option if you’re not going to do a tax increase…”

George Phillips: “We haven’t decided that yet. We’re trying to work that through. We’re going to have a discussion with the board.”

Pete Stenson: “I’m looking at some of these revenues or mitigation fees that you could increase but we’re looking at almost a 50% increase.”

George Phillips: “Okay. I get you. So what’s your point?”

Pete Stenson: “Well, that’s something you have to take into consideration.”

George Phillips: “We are. We are taking that into consideration. If we are using a usage fee there rather than trying to deal with a 50% increase since we don’t need a 50% increase, we need money in 2017, one thing we have to realize is that we have $60K of it this year, that $60K is already in the budget, already worked into the cost for the taxes, the tax levy for January. The increase that we adopt for 2016 let’s say really needs to help us soften the blow about $180-$200K of debt service increase. Then, it ramps up another $400K in 2017 so we could stage those increases, we could split them into taxes and usage, there are a number of ways to skin the cat, we have to start talking about how to skin that particular cat and that’s why we’re going to try to get it on the board agenda for next week.”

Pete Stenson: “I’m just saying that at the end of the day it’s roughly a 45% increase if it were all non-tax revenue.”

George Phillips: “If it were all non-tax revenue over the two-year period.”

Pete Stenson: “At the end of the day (2017) when you start paying the $600K debt service.”

George Phillips: “It is what it is.  That’s the math.  You’re right.”

Supervisor Langley: “George, anything else?”

George Phillips: “I think that’s it unless anybody else…(someone who came in late raised his hand)

Supervisor Langley: “We’ve concluded the public comment but go ahead…”

Phil Vecchio: “Just a question, you were talking about the accumulating fund balance, negative fund balances, and that was one of the points that was raised in the audit reports that the comptroller has issued in past years. How many years back did you have to go back to reconstruct? You were saying that we haven’t had fund balances in the past several years.”

George Phillips: “Unfortunately, the records in the accounting system is so broken beyond repair that I really had to go back to current source starting documents and work from them.”

Phil Vecchio: “For several years?”

George Phillips: “I really started with 2013 end of year bank statement and I tried to gleen through transactions. One of the things I pointed out, one of the things I just found out today, literally, to confirm, is that the fund balance for the ambulance district where I had a transaction going out of the bank statement for last November didn’t get posted so when I looked at the comptrollers input transactions for Nov 2013, a 

quarter million dollars, I didn’t have a place to match the wire transfer to.”

Phil Vecchio: “I guess my point is that you had to reconstruct the original entries?”

George Phillips: “Yeah. I really did. There really wasn’t any other way to go.”

End of meeting.