Town of Bethlehem Comptroller Michael Cohen presented his annual preliminary budget outlook to the town board early this month. The early fiscal report, according to Cohen, was implemented following a $3.5M budget gap in 2013, “that should have been anticipated, publicly disclosed and prepared for earlier.” In response to the sudden shortfall, the town implemented a series of financial reforms, including: the development of a fund balance policy, better capital planning and multi-year financial projections. Additionally, every spring the comptroller reviews and reports on the budget outlook for the coming year and provides an early overview of any conditions, challenges and opportunities that are likely to be faced during the fall budget process.
“Each spring,” said Cohen to board members, “I come to you and provide an early look into the future.”
While it’s still early in the year, he said, the 2016 budget is “roughly on target,” with a few variations: decreased sales tax revenue (based on first-quarter projections) is likely to be mostly offset by increased mortgage tax revenue; hiring additional police officers may become necessary to offset long-term absences on the 39-member force; the Krumkill Road culvert project (expected to be complete next month) is projected to cost an additional $250,000 after sharing costs with Albany; and the new regional Computer Aided Dispatch system is projected to reduce the budget by an additional $240,000. “The new system,” said Cohen, “will save us roughly $70,000 a year.” All told, he said, the town would likely be dipping into its fund balance to compensate for nearly $500,000 in budgetary deficits, ultimately bringing the town’s unrestricted fund balance to a total of $7.9 million, from $10.9 million in 2015. The town’s restricted and “nonspendable” fund balance, however, is reportedly expected to increase—from $6 million in 2015 to $8.5 million in 2017.
“The fund balance policy suggests that we maintain an unrestricted fund balance as a percentage of how much was spent during the prior year,” said Cohen. “The policy says that we should maintain 15 to 20 percent—we’re roughly 19 percent.”
Assumptions for fiscal year 2017, said Cohen, include: no staffing changes; a 2 percent cost of living adjustment (COLA) for town employees; and an approximately 3 percent increase in water and sewer payments associated with increased usage, which, according to the report, is consistent with the town’s multi-year plan. The report assumes that property taxes remain under the state property tax cap, calculated to be about a half of a percent, and claims that unexpected capital expenditures have been accounted for. Cohen did his calculations, he said, assuming the same trends identified in the last fiscal year, with the addition of viable first quarter information from 2016.
When identifying potential hazards in the coming year, Cohen said, “Sales tax is 28 percent of our income, so it depends on how the economy is doing.” In 2009, he explained, after the financial crash of the preceding years, Bethlehem lost $700,000 in sales tax revenue. “That is a budget-buster,” he said, adding that the town was fortunately able to make up for some of that loss relatively quickly due to population growth. Mortgage taxes and water sales, he continued, are variable and hard to predict. Also, he said, the COLA for town employees and related benefit cost increases, which amount to approximately $600,000, will likely to exhaust the tax cap increase and other available resources. “The tax cap,” he said, “is at $66,000, so we’ll have to make that up in other ways.”
Finally, said Cohen, the town will need to find money for capital projects, or expenditures that help to maintain and/or improve the infrastructure of a municipality. A capital plan can be expected this fall, but Cohen mentioned several projects that are under consideration, including the purchase of a permanent facility for town EMS and ambulance services, which currently rent space for $60,000 a year. The project is anticipated to cost about $3 million and would require an annual debt service cost of $200,000 for 25 years (assuming a 4.5 percent interest rate), for an added budgetary total of $140,000 after the savings on rental costs. Additionally, the town is considering upgrading its court and police station facilities, “to improve safety and handling of prisoners,” for an expected cost of around $2.5 million and an annual debt service cost of $170,000.
Other capital improvements being considered, which Cohen said could prove to be expensive, include town pool maintenance, water infrastructure; and sidewalk improvements. Given increasing costs and municipal needs, the comptroller believes that debt service costs to the town will increase by anywhere from $200,000 to $500,000 in the next two years.
“All of these,” pointed out Supervisor John Clarkson, “are rough figures and are not fully defined projects. The reason that they’re being mentioned tonight in the context of this early review of the budget is that there’s a lot of news and it’s all for new expenditures so, when you put that together with looking at debt service expenditures and the baseline, you begin to get concerned. At the same time, nobody wants to ignore capital needs and not take care of them. So that’s part of the reason for this budget exercise.
“And,” he added, “we thought folks should know about these potential items, some of which are not going to be much of a choice.”
– Ali Hibbs
