The Clintonville City Council learned that the city’s undesignated fund balance wasn’t as robust as they were led to believe during budget discussions.
At a special council meeting, Monday, Nov. 24, interim City Administrator Chuck Kell told the council the fund balance has $488,000 less in it than first thought. He said based on the auditor’s report from the past year, the city’s fund balance was listed at a little over $1.7 million dollars. He said in reality the fund balance is a little over $1.2 million.
He said that during the budget process the city’s capital project funds were a concern going into 2016 because there was just a little over $200,000 left. He said typical budgeting for capital projects is for $400,000 to $500,000.
Kell did express his concerns about the capital project funds when the council approved the 2015 budget.
Since that meeting, after looking through more of the city’s past financial records, Kell said something didn’t look right. He said Alderman Mark Doornink also told him to look at the financial reports from when the police department was improved.
Kell said he then had Clerk/Treasurer Peggy Johnson call the city’s auditors.
Based on information from the city’s auditors, Kell said the police department project was charged to the capital project fund, sending it into the negative. The city had also received $488,000 as a loan to support the police department project, and that was placed in the general fund by the auditors.
“There is no money missing, you don’t have to worry about that,” Kell said.
Kell added that he wanted to have the special council meeting because he wanted to make sure all council members were aware of the change in the fund balance.
“Your fund balance really isn’t in as good of shape as it looks, and secondly, your capital is in much better shape than what it looks,” Kell said.
Another reason for having the special council meeting was to give the council an opportunity to make changes to the tax levy and tax rate for the 2015 budget if it chose to based on the new information. That couldn’t be changed if the council waited until its December meeting.
“I am recommending that the city council do nothing at this point in time and that we wait for the 2014 audit to be prepared and analyzed before we decide to start moving funds between accounts and making decisions to spend money on items that were cut from the 2015 budget,” Kell stated in a prepared report he presented to the council.
He said the audit is usually done in May.
The funds don’t have to be immediately moved from the fund balance to the capital project fund, Kell said.
Delaying these decisions would give the council time to make decisions in the first quarter of 2015 as to what actions it wants to take to eliminate or reduce the $176,000 that was used from fund balance to balance the 2015 budget, Kell said.
If the entire $176,000 is taken from fund balance that would leave the fund balance at just under $1.1 million. That is assuming no funds are taken from fund balance to fund the city for 2014.
At a previous council meeting, Kell stated he was comfortable with the city the size of Clintonville having a $1 million fund balance. At a prior council meeting Doornink, who is also the chairman of the Finance Committee, said he thought at least $20,000 would have to be taken from fund balance to fund the city in 2014.
Doornink, who was not at the special council meeting because of a previously scheduled business trip, wrote a memo that was available to Kell and all council members.
In the memo, Doornink again expressed his concern with using money from the fund balance to overcome shortfalls in the 2015 budget.
“It is fiscally irresponsible to use fund balance to correct a deficit in the operating portion of the budget,” Doornink stated in the memo. “It was stated that we have a robust fund balance and that we can do this at no financial risk to the city. Now, that statement is no longer true.”
Doornink urged the council to reconsider the tax levy numbers it had previously approved, in addition to other cuts it had not approved. He asked the council to raise taxes, consider adding employee contribution to the HSA account, and consider taking less pay as a council member.
“None of these options are pleasant or nice. I don’t think any of us like increasing taxes or taking less pay. However this is something that we have to figure out and make better for the future of Clintonville,” Doornink said in the memo.
Kell told the council that more errors might be found. That was another reason for his recommendation to not act at this time. It would give him and the council more time to see if there are more errors. He also recommended the city’s auditor present its report to the council on an annual basis.
Council member and acting Mayor Jeannie Schley asked how this mistake happened.
Kell said it was acknowledged by the auditors that it was an error.
“As I understand, they made the actual fund transfer, it didn’t go through anyone [in the city],” Kell said.
He said it appeared that Johnson and the city administrator at the time were not informed by the auditors about the transfer.
No council members made any motions to amend the 2015 city budget it had approved the prior week.