Despite projected $618,000 deficit, Crestwood officials optimistic budget will balance
Though recent revisions to Crestwood's fiscal 2004 budget approved by the Board of Aldermen project a deficit of roughly $618,000, city officials are optimistic the budget will balance by the end of the fiscal year.
An ordinance containing three revisions to the fiscal 2004 budget was unanimously approved last week by the Board of Aldermen.
The revisions project total expenditures for fiscal 2004 at $12,913,381 with total revenue of $12,295,331 — a shortfall of $618,050. The revenue shortfall primarily can be attributed to a $582,000 reduction in the amount of revenue projected for merchant licenses.
Despite the projected deficit, City Administrator Don Greer and Director of Finance Diana Madrid told aldermen Feb. 24 that they are optimistic revenues will come very close to equaling expenditures by the end of the fiscal year.
Even though sales tax revenue is $250,000 less than projected at this point, total revenues are slightly more than anticipated and expenditures are running about 6 percent less than projected, Greer told the board. Furthermore, while the general fund is experiencing difficulty, the capital-improvements fund and the parks and stormwater fund are healthy.
A major factor in determining the financial health of the city will be the amount of sales-tax revenue the city receives from the holiday shopping season, Greer said. The city will receive that sales-tax check on March 10.
Besides receiving sales-tax revenue from the holiday shopping season this month, the city will receive the fiscal 2003 audit from Brown Smith Wallace. Given the restatements of 2001 and 2002 that recently were approved by the board, city officials anticipate the fiscal 2003 audit will show a negative fund balance in the general fund.
During a discussion of the ordinance, Ward 3 Alderman "Bernie'' Alexander expressed concerns about approving the measure, noting that the proposed budget revisions would lead to a projected deficit of more than $600,000.
That projected deficit, she said, made her "uncomfortable.''
"... I'm not comfortable doing this and what makes me very uncomfortable is the fact that we're now eight months into the budget year and I'm not complaining to city staff at all, I'm just saying is there anything we can do that we haven't already done?'' Alexander said.
Resident Roger Anderson interjected, "Close it down.''
Alexander said, "I'm trying for a change to be positive.''
Anderson, a member of the Crestwood Smart Growth Alliance, is the "chief petitioner'' for the state audit of Crestwood's finances. The state audit, now under way, will cost city taxpayers $16,000 to $24,000.
Referring to a Feb. 6 memorandum that she had written, Ward 4 Alderman Tom Fagan said to Madrid, "So what you're saying to us in your memo is that we are truly in a deficit position with this revised budget.''
That's correct, Madrid said, adding, "... The intent of this revision was to do what the board approved in the original budget document. So it was more of a housekeeping matter and then what we had planned on doing after we received the fiscal year '03 audit at the beginning of March was to then analyze those results and then bring to the board again a request for revision ...''
Fagan said, "OK and I guess my follow-up question is and I know you're not going to be able to give a definitive answer because you don't have the audited numbers, but is it your opinion that when this, when the revised budget comes before us that the total revenues and the total expenditures will be equal or that the revenues will be greater than the expenditures?''
Madrid said, "It's my opinion that at this point in the fiscal year that they will be very close. Our revenues, we will know more in March when we receive the March sales-tax check. However, expenditures are 6 percent lower than as projected at this point in time ... So between receiving the fiscal year '03 audit and the receipt of the March sales tax, we'll be better prepared to bring to the board what we think the projections will be for the rest of the fiscal year.''
Greer said, "Our revenues are currently ahead of projections in every area other than sales tax and sales tax I think I've reported to you is about a quarter-of-a-million dollars behind ... on our projection as to where we think we should be. The March sales tax is the large sales tax. We have, the finance director and I, have projected what we consider to be a worst-case scenario and are developing a method to work within that. At the current time if we're able to hold the expenses at the 6 percent, then we will offset the reduction in revenue. The change — and remember when you adopt a budget, you adopt expenses — the change in the revenues (is) based upon the discovery that the finance director had with regard to the history of fictitious revenues in the merchant license fees. If you don't adopt this, then those original revenues stand.
"To say today that we are going to balance is premature. To say that we're making every effort to balance would be accurate and the department heads have done a tremendous job of holding the line on expenses. Every revenue other than sales tax is doing well, is doing better than what we had projected in terms of getting us to where we think we need to be at this particular point in time. Yes, it was a tremendous shock to see the actuals when we internally audited those merchant license fees, but that's an accurate number or what we anticipate is an accurate number based upon an audit of a couple years of history of exact numbers. The reduction or the holding of the operating expenses should be sufficient in order to offset the reduction of the revenues,'' the city administrator added.
The Board of Aldermen had adopted a balanced fiscal 2004 operating budget last June. But during the preparation of an end-of-the-year budget adjustment ordinance designed to close out the city's fiscal 2003 books, city officials discovered that fiscal 2003 general fund expenses were slightly more than anticipated, while revenues, particularly those from merchant licenses, were far less than projected.
The discovery of the discrepancy in merchant license revenue last July triggered an internal investigation into the accounting practices used by former City Administrator Kent Leichliter and former Finance Officer Robert Wuebbels, and the Board of Aldermen hired Brown Smith Wallace to perform a forensic audit of the city's finances for fiscal 2001 and fiscal 2002.
The forensic audit, released Nov. 1, alleged that Leichliter and Wuebbels violated the City Charter, numerous ordinances and their duties as fiduciary officers in their handling of the city's finances. Less than three weeks later, the city filed a lawsuit against Leichliter and Wuebbels alleging they breached their fiduciary duties by manipulating financial records to misrepresent the city's true financial condition to the Board of Aldermen.