State audit will look into Elkharts rainy day fund policy
Posted: 01/29/2013 at 7:16 pm
By: Dan Spalding
Some Republicans on city council contend the city has failed to follow its own ordinance that requires leftover money from the end of the year be moved to the rainy day fund.
The dispute is more about bookkeeping and at no point has anyone suggested money is missing from city coffers.
Republican city councilman David Henke, though, claims the city has ignored the policy since Mayor Dick Moore arrived in office five years ago and that as much as $16 million should have been moved to the account.
Moore and other administration officials have expressed confidence that the monies are being handled correctly.
Henke has raised the issue for nearly two years and has alerted the State Board of Accounts, the Department of Local Government Finance and the Indiana Attorney General’s office, which he said may eventually issue an opinion.
Charlie Pride, office supervisor for the state board of accounts, said he’s familiar with the dispute.
“Our field office has been made aware of the disagreement and they plan to look into it in the next audit,” Pride said. “It’s an interesting debate.”
The annual audit will occur sometime this winter, he said.
Pride said he has not reached any conclusions about the circumstances, but added: “It would be part of our audit if a local unit of government was not following their own adopted policy,” Pride said. “It could result in an audit comment in a report.”
Pride also said the office’s attorney has been informed about the dispute and would work with the board of accounts on the matter.
Henke said he hopes if the state audit includes a comment on the issue that it would spur city officials to change the practice.
Told of the state’s plans to look into the dispute, Moore said, “The city’s financial records are audited annually and procedural matters are part of the audit.”
The dispute boils down to this: Henke contends the city is not following its own ordinance, which reads in part: “On or before December 31 of each year, the city controller shall transfer the unused and unencumbered funds remaining from the general or special tax levy to the Rainy Day Fund plus 25 percent of each year’s ambulance fees fund.”
The city contends it follows the state-required use of fund accounting practices in which leftover monies are kept in their original fund.
“Because the unspent funds are returned to the fund they came from, they are easier to track, are there for future council appropriations and are used for purposes as dictated by state law,” Moore said in a written statement to The Truth.
The state supports the use of rainy day funds for state and local taxing units to serve as an emergency source of money and as a way to stabilize the funding process from year to year. For example, if a city foresees a shortfall while waiting on tax distributions from the state, it could use money from the rainy day fund instead of seeking a bond.
“The current administration does not feel we have had a rainy day emergency. We watch our funding very closely and always with the thought of what tomorrow may bring,” Moore said.
He said they view the rainy day fund as a source in the event of catastrophic events such as significant loss of infrastructure. He also agrees it is a good backup if state tax distributions intended for the city are delayed.
Pride said he was not aware of any advantage the city would see by not using the rainy day fund more substantially.
City Controller Steve Malone, in a letter to Moore earlier this month, suggested the state statue specifies that money raised by the property tax levy that is unused must be sent to the rainy day fund.
Malone argued that since the city spent about $32 million out of the general fund in 2012, including about $19 million in tax revenues, there was no part of the property tax levy that was unspent — and therefore — nothing that had to be moved to the rainy day fund.
Malone’s letter said in part: “obviously no part of the property tax levy remains unspent, and since no part of the property tax levy is unspent at the end of the year, there is no money from the property tax levy in the General Fund to transfer to the Rainy Day Fund.”
Dan Jones of the department of Local Government Finance questioned that interpretation.
“That’s kind of a strange way of classifying that,” Jones said. “Property tax is just another general revenue that goes into a fund. There may be a hundred other sources going into the general fund. What is deposited there, it loses its identity. Just because they spent more than they had in property tax, I don’t think you can say you spent all of the property tax, you just spent money.”
The dispute will likely be discussed Monday when the city finance committee meets to discuss the proposed appropriation of money left over from last year to fully fund salaries after the city decided not to carry out planned furloughs of all city workers. The city council meets at 7 p.m. and could very well continue the debate.
When the dispute came up earlier this month during a city council meeting, Moore declined to defend the practice other than to say he was confident of the procedure.
That lack of dialogue roils Henke.
Henke, in an email, said “I have traveled to meet with State officials, made numerous calls, involved anyone that wanted to be involved, yet not once has the mayor or anyone from his staff reached out and asked how we can improve the process,” Henke said.
Henke questions how Malone and Moore have reached a conclusion while state agencies are still trying to sort it out.
“Why then is Elkhart different on interpretation, again? Why is this administration reading it differently than the last but with the same controller? Why is Dick only comfortable with taking money out but not putting it in other than ambulance fees? ... that is why a higher interpretation is necessary in my opinion.”