FILE PHOTO
Derby Mayor Richard Dziekan
DERBY — The City of Derby’s fund balance in June 2020 was a healthy $3.7 million, according to audit results highlighted in a press release Monday from Derby Mayor Rich Dziekan’s office.
That dollar amount represents 8.35 percent of the city’s operation budget, a percentage that places the fund balance “squarely in the recommended range” by financial experts, according to Mayor Dziekan.
The mayor pointed to the latest fund balance data as further proof that the city has emerged from a budget crisis revealed to the public in the spring of 2019.
“The City saw a (negative) $1,794,466 fund balance in FY19 turned around and restored to a positive balance by the end of FY20,” according to the statement from the mayor’s office.
“With the financial crisis behind us, the City’s leaders are focusing on responsible economic growth and development,” the statement reads toward its conclusion.
The mayor’s office full statement is posted toward the bottom of this post.
The info comes from the city’s 2020 audit, which was released Monday. Click here to read it.
Derby Democrats said this week the information provided in Monday’s press release is from an audit that was completed more than 200 days after its deadline, and that the city needs new leadership.
Mayor Dziekan pointed out a budgeting error that started before he took office — along with a history of weak financial controls — contributed to Derby’s economic crisis. Dziekan said his administration is tackling and turning the problem around, and that the effort is bipartisan.
Downgrades
The fund balance (sometimes called a ‘rainy day’ fund) is important because bond ratings agencies look at it (along with a number of other factors) as a way to gauge the fiscal health of a municipality.
Specifically, a bond rating affects interest rates and how much a city will pay on debt.
Derby’s bond rating was downgraded in 2019 because of bookkeeping mistakes the city government made while creating annual budgets, and the lack of certain internal controls, according to S&P Ratings Direct.
“The rating action reflects our view of the city’s reduction and restatement of fiscal 2017’s available fund balance from $1.2 million to a negative $1.4 million and subsequent weak budgetary performance in fiscal 2019,” S&P Global Ratings credit analyst Anthony Polanco wrote in 2019.
The bond rating report stated the fund balance depletion was because of several factors, including “over-budgeting of revenues, lack of certain internal controls, and understatement of prior-year expenditures that were not previously fully realized and accounted for.”
Derby’s bond rating was also downgraded in 2017. The city’s low fund balance was cited as one of the reasons.
The Big Budget Blunder & The Recovery Plan
In Derby, the elected Board of Apportionment and Taxation (BOAT, or tax board) reviews budget requests, and votes each year to set the budget (expenses and revenue) and the mill rate.
During tax board meetings held in the spring of 2019, the public was told that Derby city government had mistakenly budgeted school grant money ($1.7 million a year) it was not scheduled to receive. This happened because the city misinterpreted grant info from the state.
The mistake caught the attention of the state, and eventually landed Derby government in front of the Municipal Finance Advisory Commission, an eight member body that works with communities in financial trouble.
Cities and towns are referred to the commission by the state’s Office of Policy and Management.
According to minutes from the September 2020 meeting of the Municipal Finance Advisory Commission, Keith McLiverty, the city’s former long-time treasurer who was, at the time of the meeting, interim finance director, explained Derby’s mistake to the commission. He said the mistake originated in the city’s finance department.
The grant money error was made in fiscal year 2016 – 2017, fiscal year 2017 – 2018, and was “identified sometime during fiscal year 2017 – 2018,” according to testimony provided by McLiverty summarized in the official meeting minutes.
Meeting minutes from 2020 between Derby and Municipal Finance Advisory Commission
The timeline from the minutes shows the city was aware of the mistake at some point during 2017 – 2018 fiscal year, but the public wasn’t told until the spring of 2019.
Andrew Baklik, the mayor’s chief of staff, said city staff saw a mistake but its impact wasn’t clear until the auditors tracked it.
“The word “identified” in this case refers to when City staff realized an error had taken place. The impact of that error and the negative effect on the fund balance was not realized until the Auditor indicated it with a restatement of the fund balance. This information was shared publicly the minute it was known,” Baklik said in an email.
According to the meeting minutes, McLiverty said the mistake was made by the city’s finance department (when he was treasurer, prior to his appointment as head of the department).
At a tax board public hearing in June 2019, McLiverty said the mistake should have been caught by the various groups that put together a budget each year. Click this link and fast forward to the 1 hour, 9 minute mark to watch McLiverty review the problem.
The budget mistake forced the city to revise its previously passed budgets, resulting in a negative fund balance of $1.7 million.
McLiverty authored an eight-point “recovery plan” to get Derby out of the hole. The plan included selling assets, restructuring debt, a tax increase and the consideration of future tax increases, and temporarily contributing less money to the city’s pension, among other measures.
The fact the city’s just-completed 2020 annual audit shows Derby had $3.7 million in its fund balance is proof the recovery plan worked, according to Mayor Dziekan, who credited McLiverty and the city’s tax board for their efforts.
“Mayor Dziekan is proud to announce that the City of Derby’s Audit for FY20 confirms the Eight-Point Plan was a success,” Monday’s statement reads.
Historic Deficiencies
In addition to the budget blunder, the City of Derby’s financial recording methods — for several administrations — were below standards.
The city’s auditor laid out the problems in clear terms during a 2020 meeting with Municipal Finance Advisory Commission, according to minutes:
“The City’s auditor, John Accavallo, indicated that the City had not been fulfilling the basic duties required of any municipality.” See the image below for more info.
From 2020, Derby’s auditor talking about a lack of sound practices going back years.
During a public hearing in front of the Derby tax board in 2019, Andrew Baklik, Mayor Dziekan’s chief of staff, said some of the weaknesses in Derby’s financial recording procedures go back 10 to 15 years.
Click this link to a video and fast forward to the 1‑hour, six-minute mark to hear Baklik’s remarks.
Historically, Derby didn’t have enough money or staff to address the issues pointed out in previous audits, Baklik said.
“We’re at the point now where we don’t have a choice,” he told the tax board in 2019.
Finance Department Overhauled
The Dziekan administration, working with its auditor and under the eye of the Municipal Finance Advisory Commission, has a long, “corrective action plan” it is chipping away at to deal with long-standing audit issues.
Part of the plan included an overhaul of the Derby finance department, which is happening.
In May, the Aldermen/Alderwomen unanimously voted to hire Agata Herasimowicz as finance director. She started earlier this month.
Herasimowicz worked for Tolland Public Schools as a financial accountant. Her previous municipal finance gigs include separate stints as the director of finance in the towns of Rocky Hill and Killingly. From 2007 to 2017 she was the assistant finance director for the Town of Tolland.
In order to attract better qualified candidates to run the city’s finance department, elected officials agreed to raise the salary for the position.
Herasimowicz is being paid $110,000 annually, the Dziekan administration said in May.
Previously, the finance director’s position paid in the neighborhood of $70,000, far below the state average. The old salary was a hurdle to attracting qualified candidates, Derby officials said.
In addition, Herasimowicz signed a three-year contract with the city, a move that could take some of the drama out of what has been a somewhat politically-charged position in city government over the years.
The city is also in the market to hire an assistant finance director.
The Dziekan administration last met with the Municipal Finance Advisory Commission in June. Click here for a Valley Indy story.
The commission acknowledged that Derby is moving in the right direction, and liked the fact Derby had hired a director of finance with training and job experience relevant to municipal finance. At the same time, a member of the commission said the city still had a long way to go in terms of the city’s lengthy corrective action plan.
Reaction
Democrats nominated Joe DiMartino, at podium, to run for mayor.
Last week Mayor Dziekan was formally endorsed by Derby Republicans for a third, two-year term as mayor. Derby Democrats just nominated Joseph DiMartino, the president of the Board of Aldermen/Alderwomen, to challenge Dziekan.
Election Day is Nov. 2.
The Valley Indy reached out to Derby Democratic leaders Tuesday for reaction to Monday’s press release from the mayor’s office.
The Democrats pointed out that the press release referenced the 2020 audit, a document completed long after it was due.
”So the audit got issued yesterday. Woo hoo!,” Linda Fusco, DiMartino’s campaign manager, said in an email Tuesday. “It’s only 209 days late, and late for the fourth year in a row, as pointed out by the Office of Policy and Management in their 6/3/21 memo.”
Fusco said Dziekan praises McLiverty for coming up with a recovery plan while failing to explain the former city official played a key role in Derby’s budget process for years — and was voted out as city treasurer in 2019, only to be immediately brought by Dziekan to be interim finance director.
“I believe the voters of Derby sent a very strong message to our Absentee Mayor and his administration as it relates to the lack of attention to the finances of the City, when in the 2019 election, they reelected the Mayor by only 50 votes and voted out City Treasurer Keith McLiverty,” Fusco said.
Derby Democratic Committee Chairman Aniello Malerba III also brought up McLiverty’s role in Derby’s finances.
“Everyone knows that Rich Dziekan gave complete control of the City finances to Keith McLiverty, and the voters responded to that in the 2019 election,” Malerba said. “In the 2021 election, the voters of Derby will have the chance to send another message to the Absentee Mayor and his fiscal policies. The one question he has never answered is: Who should be held accountable for the financial crisis? But, perhaps, a more important question is: Why won’t Mayor Dziekan tell us the truth?”
In response, Dziekan said fixing the financial crisis was more important than party politics. He noted efforts such as hiring a new finance director at a competitive salary received bipartisan support. The mayor pointed out the tax board has also worked together to tackle Derby’s financial issues, regardless of party affiliation.
“Financial issues in Derby started long before my election in 2017. Unfortunately, they were carried forward for more than a decade, but the story here is that our fund balance is healthier than it has been for a very long time,” he said.
Dziekan acknowledged the city’s latest audit was very late, but that the city is on-track to have the 2021 audit completed on scheduled.
In March 2020 testimony to the state panel watching Derby’s finances, McLiverty said the 2016 budget mistake originated in the Derby finance department. McLiverty was not finance director then.
Dziekan said McLiverty should be applauded for authoring the city’s recovery plan, the plan that has the city in good shape.
“In terms of Mr. McLiverty, as stated in the initial press release, he was the architect of the 8‑point plan that put us in this position. That is a fact and it cannot be argued,” Dziekan said.
McLiverty took a job in Virginia, officials confirmed in November 2020.
“I have never politicized the issues in the Finance Department, and I never will, which is why the City embarked on a comprehensive search for a Finance Director with the help of other well-respected folks from within the State Finance community. Derby made a joint, bi-partisan decision to hire Agata Herasimowicz, and we look forward to the future with her at the helm,” Dziekan said.
PRESS RELEASE FROM THE MAYOR’S OFFICE:
Derby Fund Balance Press Release 7-26-2021 by The Valley Indy on Scribd
