WIKIMEDIA COMMONS
Derby City Hall.
DERBY — City officials Tuesday clarified how an accounting error could trigger a steep tax increase next year.
During a presentation to the Derby Board of Apportionment and Taxation, City Treasurer Keith McLiverty said the current Derby spending plan mistakenly counted $1.2 million in “alliance district” money twice as budgeted revenue.
The $1.2 million was identified in the budget as “alliance district” money — but the $1.2 million was also included within $8 million in school aid from the state. That $8 million number should have been about $6 million, McLiverty said.
So now, as the fiscal year draws to a close, the city will not be getting $1.2 million in budgeted revenue, McLiverty said. That also impacts next year’s budget, which the tax board is currently trying to put together.
City finance officials and tax board members estimated it could take an increase of 3.8 mills in the mill rate to just to correct the problem.
Alliance district grants are state education dollars that can only be used for reform efforts in under-performing school districts. It goes to the city and gets passed to the school district in Derby.
The current budget was approved in the spring of 2018, and is valid until the end of June. Officials refer to it as the 18 – 19 budget.
The way the alliance districted was recorded by the city on paper may have also been problematic in past budget years, McLiverty said.
The tax board is scheduled to meet again 7 p.m. May 29. At that time McLiverty said the tax board will be given options on how to address the budget problem, review the status of the city’s fund balance, and explain whether any additional mistakes exist in prior budgets. The tax board could adopt a preliminary budget during that meeting.
He’s working on the issue with Derby Finance Director Sal Coppola and the administration at Derby Public Schools.
The problem with Derby’s budget and how the city tracked alliance district money was revealed to the public at a tax board meeting May 14.
At that meeting, officials said the city had been categorizing the alliance district money as revenue, but not including the grants as a separate line item on the expenditure side of the budget.
Article continues after the audio clips, in which public officials first explained the problem on May 14:
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Here’s tax board chair Judy Szewczyk introducing the issue to the tax board May 14 (press play to listen, and headphones help):
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And here’s McLiverty first explaining the problems during the May 14 tax board meeting:
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Three days after the May 14 revelations, Coppola (the city finance director) discovered the “double booking” of the alliance money in the Derby budget, McLiverty told The Valley Indy.
City officials reiterated May 21, as The Valley Indy reported May 14, that the school district has been receiving money to cover all programs — so there’s been no direct impact on the classroom, as the money eventually makes its way to the school district.
No one’s “stealing” alliance funds from the schools, Szewczyk said.
But the way the city reported the alliance grant has stalled the budget process, confused public officials, apparently drained city reserves — and could result in the aforementioned tax hike.
“The bottom line is we gave the school all their money. We didn’t assess our taxes correctly to cover that on our side, and it came out of our fund balance,” Szewczyk said during Tuesday’s meeting. “It’s that simple. And we didn’t realize we were doing that.”
Underlining the budget conversation is an audit dated April 26 that pointed out a series of problems with Derby’s bookkeeping.
The audit was for the fiscal year ending June 30, 2018.
Among the findings:
- The city significantly overestimated grant revenues
- ECS-Alliance grant monies that were received in the 2017 – 2018 fiscal year were not given to the school board until June 30, 2018
- The board of education and the city were not performing monthly reconciliations to ensure that the city and school ledgers were in agreement
- The Board of Education was maintaining one cash account for operations and grants. “The co-mingling of operational and grant monies makes it difficult if not impossible to reconcile with the City,” according to the audit.
Those issues are being addressed, officials said.
To add insult to injury, according to McLiverty: the medical expense line in the Derby budget went over-budget to the tune of $1 million due to an increase in claims and medical expenses. That’s further drained the city’s fund balance.
The problems under discussion during the last two tax board meetings have been confusing and surprising, even to seasoned members of the Derby tax board, as the audio from a conversation between Szewczyk and McLiverty below demonstrates (click play):
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In fact, due to the problems, the tax board may miss the end-of-May deadline to adopt a budget.
Tuesday’s meeting kicked off with a question from tax board member Jim Butler.
The audio is posted below.
“After I left our meeting (May 14) I was totally confused on several issues,” Butler said.
“The Board of Education over-extended its budget by $2 million over the last two years? Yes, no?”
“No,” McLiverty said from the back of the room.
“No, I don’t know,” Szewczyk replied. “We’re still digging into this to figure out what happened. As of last week it just kind of came to a head. We realized we were all on different pages. They (staff) have been doing a lot of work to figure out where we do stand. We’ll have some information tonight but mostly it’s going to be a little later on. It’s a very complex accounting issue, unfortunately.”
Butler continued to express his dismay with the situation.
“Last week it looked like we were going to be going up around 5 mills,” he said. “That’s one heck of a shot to be paying, and there should be enough, managers, should I say, overlooking these funds so that the Board of Education and the Superintendent’s office, and the city, knows what is grant money, what is tax money to run the school system and they should not be commingled so there is this confusion.”
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Audio: Jim Butler gives his impression of information conveyed at the May 14 tax board meeting:
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The situation also frustrated tax board member Shirley Miani, who spoke up as McLiverty and Szewczyk debated (see clip below) which dollar amounts comprise the school district’s operating budget and how to account for alliance district money.
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Note: the edited audio below features a short clip from a longer conversation McLiverty and Szewczyk had about what dollar amounts to include in the school’s operating budget. The clip gives a sense of the frustration and struggle the city is having this year.
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Miani’s comments echoed Butler’s perspective to some extent. Miani asked how the mistakes slipped past the city’s professional financial staff. The tax board are elected volunteers.
“We have a financial director. We have a manager of money. We have the board of ed and we have you,” she said, referring to McLiverty, an elected official. “And this is what a mess it is. It’s a shame. It really is. It’s so convoluted it’s unreal.”
That touched off a response from McLiverty, which can be heard by pressing play below.
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Audio: Shirley Miani, an elected official on the Derby tax board, expresses her frustration over an accounting mistake that could trigger a tax increase in the City of Derby.
City Treasurer Keith McLiverty then responds.
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Szewczyk said the situation is complicated, and they’re trying to sort it out to understand what went wrong and how to prevent it from happening again.
“It’s only now we’re starting to understand it, in the last 48 hours,” Coppola, the city’s finance director, said toward the end of Tuesday’s meeting.
