The city of Troy’s financial condition deteriorated because of poor budgeting, the overuse of rainy day funds to finance day-to-day operations and insufficient funding for capital costs, according to an audit released today by State Comptroller Thomas P. DiNapoli. DiNapoli applauded the city’s new mayor for agreeing to take immediate steps to remedy the multitude of problems identified in the audit.

Auditors noted recent combined operating deficits in the city’s general, water and sewer funds have approached 1 percent of combined expenditures. Based on legislation establishing the Troy Supervisory Board, such operating deficits can risk triggering increased oversight of city finances by the Board.

“City officials were repeatedly cautioned by my office about adopting unbalanced and unrealistic budgets,” said DiNapoli. “Troy’s chronic operating deficits and dangerously low levels of rainy day funds are due to the continued reliance on reserves and non-recurring revenues as a means to finance routine expenditures. Moving forward, I urge the mayor and city council to develop a sound multi-year financial plan that addresses the findings and recommendations contained in our audit. While Mayor Madden is new to his position, he is acting decisively to prevent the city from falling back into an unmanageable position, although this will be a significant challenge.”

DiNapoli’s audit revealed the financial condition of the city’s general and water funds declined over the last three fiscal years because the city council adopted budgets for the general fund that were not structurally balanced and for the water fund that were not realistic and contained increasing amounts of interfund transfers to the general fund.

Total fund balance in the city’s water fund has decreased by more than $6.1 million, or 67 percent, over the last three fiscal years because officials made repeated transfers to the general fund to subsidize the city’s operations. Without these subsidies, the general fund would have experienced operating deficits during this period totaling more than $8.3 million.

In addition, auditors found the water fund budgets did not include interfund transfers that were made to the capital projects fund totaling $6 million. As a result, the water fund realized operating deficits of $4.8 million and $1.3 million during 2013 and 2014, as well as declining fund balance and cash balance from 2013 to 2014.

According to the audit, many of the city’s issues during the audit period resulted from overestimated revenues. For example, the city’s 2015 general fund budget included revenues for payments in lieu of taxes, mortgage taxes, and interest and penalties on real property taxes that were overestimated by a total of $225,000. In addition, the city again budgeted revenues for the sale of real property totaling $650,000. This is the same property that the city anticipated receiving revenue from in 2013 and 2014, but no revenue was realized.

Auditors also questioned the reasonableness of certain budgeted appropriations. For instance, the city budgeted for equipment and capital outlays totaling $122,219, even though the city’s capital plan included the purchase of vehicles and equipment totaling $419,750. Also, all six of the city’s collective bargaining agreements are expired and the 2015 budget did not contain provisions for any potential increased costs associated with settling these contracts.

DiNapoli’s audit also uncovered:

• Cash balances in the city’s sewer fund were not sufficient to repay the amounts owed to the general or water funds at the end of the last three fiscal years;
• Budgets for the city’s water and sewer funds were not realistic because revenue estimates could not be realized based on the water and sewer rates in effect;
• Officials failed to maintain individual accounting records for each capital project and the city council did not monitor the financial activity of projects;
• Independent audits of the city’s financial statements from 2012 through 2014 were not completed in a timely manner;
• Annual financial reports for the 2012 through 2014 fiscal years were not filed with the Office of the State Comptroller within the required time frame; and
• The city council has not developed a multiyear financial plan or comprehensive capital plan.

DiNapoli made a series of recommendations to the mayor, city council and city comptroller to help improve Troy’s declining financial condition. These include:

• Adopt general, water and sewer fund budgets that include realistic estimates for revenues and expenditures based on historical data and supporting documentation and are structurally balanced;
• Ensure that all outstanding amounts that are owed to other funds and projects are repaid;
• Develop a comprehensive financial plan and a capital plan that includes all of the elements required by the city charter, and frequently monitor and update the plans;
• Maintain individual accounting records for all projects;
• Provide periodic reports that compare actual revenues and expenditures to the amounts budgeted for each project to enable the council to monitor projects to ensure that funds are available and expenditures are kept within the limits of each project’s authorization;
• Maintain accurate and timely financial records to enable the city to file annual financial reports with the Office of the State Comptroller in a timely manner; and
• Hire an independent auditor to audit the city’s financial statements in a timely manner and verify that the financial statements can be relied on to report the city’s complete financial position, including the impact of capital project activity.

For a copy of the audit and the city’s response, visit: http://www.osc.state.ny.us/localgov/audits/cities/2016/troy.pdf

For access to state and local government spending, public authority financial data and information on 50,000 state contracts, visit Open Book New York. The easy-to-use website was created by DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.