Month: July 2020

Best practices for developing municipal and county fund balance policy and plans in New York

Developing and implementing sound municipal fund balance policy is crucial to any local government’s ability to plan for the ebb and flow of expenditures and revenue and to deal with unexpected events or expenses, even in the best of times.

A policy that sets out the amount of funds a municipality keeps in reserve, how those funds may be used, and how they will be replenished is a planning tool, helping to guide daily operations as well as longer-term strategies.

There are five categories of fund balance. In order of most restricted to least restricted in terms of use, they are non-spendable, restricted, committed, assigned and unassigned fund balance. The latter three categories comprise what is known as unrestricted fund balance according to Office of the State Comptroller guidance. Under New York State law, counties, villages, towns and fire districts may carry over “a reasonable amount” of unappropriated, unreserved fund balance from one budget year to the next. A municipality must follow proper procedures and legal requirements to transfer funds between these classifications.

Municipal revenues ebb and flow as a matter of course. In Orange and Dutchess counties, for example, most municipalities collect their property taxes, the main source of revenue, early in the calendar year. Sales tax and state aid supplement are other major sources of funds. However, the government body must have enough cash on hand to cover payroll and bills throughout the year, even in the months when revenues are not coming in. That requires a cash flow plan for the entire upcoming year.

Since property taxes are not received at the very beginning of the year, the cash flow plan should contain a provision to cover this temporary shortfall. The standard, according to the New York State Governmental Finance Officers Association, is to maintain enough unrestricted fund balance in the general fund to cover at least two to three months of regular general fund operating revenues or regular general fund operating expenditures.

In addition, government officials should assess their municipality’s unique circumstances and risks to determine what level is appropriate for a sound fund balance policy. If a town or village is vulnerable to natural disaster such as flooding which could generate unexpected expenses, or to an unpredictable revenue source such as state aid that could be cut, officials may need to keep higher levels of unrestricted fund balance in reserve.

A sound fund balance policy provides a framework to guide current budgetary decisions as well as those for the long-term. For example, a municipality’s capital plan should inform officials and taxpayers what needs to be done over the next five years, and how it will be funded. Planning major expenditures in advance allows a government to save funds, minimizing the need to borrow.

Fire districts often set up equipment or building reserves and budget transfers to those reserves each year, to allow them to save for capital purchases such as fire trucks, which can cost from $600,000 for a new engine to $1.2 million for a new aerial ladder truck.

There are consequences to insufficient fund balance. When a municipality with limited reserves finds itself in the throes of an emergency, officials may have to make painful budget cuts that deprive residents of needed services, or they may have to raise property taxes. A municipality may have to undertake short-term borrowings, which can raise costs and hurt its bond rating.

If a municipality carries too much fund balance, it runs the risk of angering taxpayers, who will perceive this as paying extra taxes now to benefit the future.

So what makes good fund balance policy?

According to the New York State Comptroller’s Office, an effective policy is written, formally adopted by the governing body with input from relevant officials, such as the municipality’s financial officer. The policy should be used to develop long-term plans, and should address how surplus balances should be used, as well as how and when to replenish fund balance that has been spent.

A sound fund balance policy provides a cushion against unexpected expenditures and revenue shortfalls, and ensures that government operations can continue even in difficult times.

Contact RBT CPAs, LLP with any questions you may have.

Municipal retirement incentives for employees in New York: What your local government needs to know

Municipal retirement incentives can be a solid strategy for a local government that seeks to generate revenues and cut expenses, but using this option requires research and planning to determine if it is right solution for financial circumstances.

Municipal retirement and separation incentives are making the news as county executives across the Mid Hudson region seek to trim budgets. In the wake of sales tax losses and delayed state aid during the COVID-19 crisis and shutdown, every dollar counts.

As an example, in late June, Dutchess County announced retirement incentives for employees who meet state pension system requirements, offering a bump to the county share of retiree health insurance premiums and either 10 years of fully covered vision and dental or a $10,000 incentive payment. Dutchess is also offering the option of a $20,000 lump-sum incentive to employees who retire, as well as to employees who opt for voluntary separation.

Dutchess expects the incentives to save the county between $8 million and $12 million.

The first step in determining whether a retirement incentive is right for a local municipality is to perform an analysis of your employee demographics. Once officials determine who is reaching or is at retirement age, they must consider the job and duties of the employees who might take an incentive. Is this a job where the employer will need to fill the vacancy, or it is a position that can be eliminated?

Whether a job’s duties are essential or non-essential factors into the decision. Police officers who retire, for example, may need to be replaced to maintain public safety. For other positions, departments may be able to combine duties to accommodate trimmed staffing, or find ways to automate services, such as online bill paying.

The analysis must be realistic and consider which retirees’ or open positions must be filled to continue providing needed services to taxpayers.

Local governments looking to offer incentives must also examine labor contracts and work out details with unions if bargaining-unit positions are affected.

Although retirement incentives are thought of as a near-term money-saving measure, their effects make them a longer-term measure.

Once officials have analyzed the workforce and weighed all of the information, they can then extrapolate potential savings versus the cost of incentives that will entice a sufficient number of employees to accept the offer.

Savings depends on the employee’s salary and when he or she accepts the incentive. For example, if workers retire effective July 1, the municipality will still have half of their annual salaries and benefits in the budget, helping to offset the cost of the incentives. Offering an incentive earlier in the year maximizes savings.

Officials must be sure that the savings created by the retirements or separations exceed the funds paid out to secure them.

The most obvious incentive is a cash payout. Orange County, for example, offered voluntary separation incentives of $10,000 for employees with 10-20 years of service, $12,500 for those with 20-30 years of service, and $15,000 for workers with more than 30 years. Orange coupled its separation incentives with a two-month voluntary layoff program that allows workers to collect unemployment.

Municipalities can also offer perks such as bonus payouts of unused sick or leave time, continuation of benefits, or reduced contributions towards benefits.

To offer incentives, the municipality must spend money. Optimally, a municipality will have cash savings from unexpended salaries and/or sufficient fund balance to pay out incentives. Otherwise, officials must take a hard look at the current budget, to look for efficiencies.

In determining the best course for using municipal employee retirement incentives, local officials must take a larger view of personnel and government functions. That assessment will determine how a government can most economically and efficiently provide the services constituents need and expect.

Safe Manufacturing During the COVID-19 Crisis

The coronavirus (COVID-19) pandemic has forced American businesses to adapt quickly to a radically new economic and operating landscape. If your company sells, manufactures, delivers, distributes or otherwise facilitates goods considered “essential” you may need to operate at full (or overtime) capacity. On the other hand, manufacturers whose goods aren’t deemed essential may be forced to idle their machines and close their doors indefinitely. (In many cases, state guidelines specify which businesses are essential and which ones aren’t.)

Both situations are challenging. But if you’re up and operating, here are four considerations to help you do so safely and productively:

1. Keep Workers Safe

The health and safety of workers has always been a priority for manufacturers. Now you must contend with the threat of COVID-19. If some of your employees can work from home, enable them to do so successfully by ensuring they have the technology and other resources they need. Even as states “open for business” again, consider keeping remote workers at home, if possible, until COVID-19 treatments or a vaccine are available.

For workers who must be on-site, consider scheduling skeleton crews in shifts and try to keep the same workers on individual crews to limit potential exposure. Also limit the number of managers working at any one time in production areas. Even if you normally operate nine to five, the transition to 24-hour operations may be easier than you think. Exercising flexibility helps lower the risk that the virus might spread. And if an employee does become sick, fewer coworkers will be required to self-quarantine.

Positive cases of COVID-19 exposure should be treated seriously. In addition to quarantining workers, you must thoroughly clean all production and office areas before allowing operations to resume.

2. Embrace Innovation

Doing things the way you always have may not be the best course right now. Instead, be ready to adapt and innovate whenever the situation calls for a different approach. For example, most manufacturing workers don’t work from home. But 3D printers may make it possible for some employees to produce goods while social distancing.

Or consider how your company might repurpose goods to meet new demands. As has been well-publicized, some companies are redeploying resources to produce ventilators and other needed medical equipment. In many cases, manufacturers may find it relatively easy to pivot to new production modes and goals. For instance, some distilleries are converting alcoholic beverages into disinfectants. Paper producers might ramp up production to meet increased demand for shipping boxes. And manufacturers already producing cardboard could redesign templates to make more “to-go” boxes for restaurants that have been forced to close dining areas.

Be sure you heed federal and state government mandates. Some companies may be asked to modify their operations so they can produce in-demand medical or cleaning products. Even if you aren’t required to change your operations, look for opportunities to address the current situation. Slight alterations could mean the difference between your products being deemed essential vs. non-essential. If you’re a link in an important supply chain, you may be able to make the case for continuing operations.

3. Plan for Financial Challenges

Your factory may be busy now, but there’s no guarantee that will be true in a few months. The financial ramifications of COVID-19 could be long-lived — and dire — for many businesses. Plan so that work slow-downs don’t sneak up on you.

Federal and state authorities have introduced various tax breaks, particularly for companies that keep workers on the payroll. The Families First Coronavirus Response Act made certain employers eligible for tax credits so long as they provide paid sick leave to COVID-19-positive employees or workers who have to stay home to care for sick family members.

The subsequent Coronavirus Aid, Relief, and Economic Security (CARES) Act authorized several provisions, including:

Delays for payroll tax obligations,
An employee retention credit,
Favorable tax provisions for businesses incurring losses, and
Expanded unemployment benefits for workers.

The CARES Act also launched the massive Paycheck Protection Program (PPP) that offers qualified businesses forgivable loans and other forms of relief for keeping employees on the payroll. After the available money ran out, Congress approved a second round of funding for the PPP in late April.

State and local support levels vary depending on the municipality. For example, your state may have removed some restrictions for businesses producing essential products.

4. Get Professional Advice

Your manufacturing management team doesn’t have to tackle the many challenges of the COVID-19 crisis alone. We have up-to-date information on federal and state benefits available to manufacturers. And we can help you navigate the lending landscape. For example, we can help identify appropriate lenders and prepare the calculations and statements required to apply for PPP loans. Don’t hesitate to contact us.

Municipalities Can Build Financial Resilience in the COVID-19 Era and Beyond

The COVID-19 pandemic and the accompanying shutdown have brought financial challenges to municipal governments throughout New York State.

Sales tax revenues declined steeply across the state in April and May compared to 2019, and state aid will be cut or delayed. Unemployment rates may affect residents’ ability to pay property taxes, creating further worries about revenue as we head toward the fall budget season.

There are strategies that county, city, town and village governments can undertake to mitigate the effects of the crisis: finding alternate ways to generate revenue and to cut costs to address short-term needs in the next 12 to 18 months; and making the budgeting process and financial practices more resilient to address long-term goals for the next three to five years.

The starting point can be a two-part analysis: First, a short-term analysis of cash flow to ensure the municipality can keep running in the next few months. Then a long-term forecast can determine if an economic upturn will resolve issues, or if there are deeper problems that need repair.

The COVID-19 pandemic has caused immediate fiscal pain around the state.

A survey by the Association of Towns of the State of New York (AOT) found that in the month of March, towns in New York lost roughly $215 million in revenue between drops in sales tax, mortgage recording taxes, license and permit fees and justice court fines. AOT noted in its survey findings that businesses in the state were operating as normal for the first half of March. Sales tax made up the largest portion of the loss, according AOT.

The New York State Comptroller’s Office has reported that April sales tax revenues in New York’s counties and cities dropped by 24.4 percent compared to April 2019. May’s sales tax collections fell 32.2 percent compared to May 2019.

State tax receipts for May fell by 19.7 percent compared to May 2019, a drop of $766.9 million, the Comptroller reported. Personal income tax withholding revenues dropped 9 percent in May compared to May 2019.

In bad times, the Government Finance Officers Association recommends taking a financial diagnostic review of operations and the budgeting process to provide officials of a financially distressed municipality with an in-depth look at their budgeting and fiscal practices. This helps to assess financial health and to identify areas for strategic cost savings and alternative sources of revenues.

In such a climate, it is crucial that local governments find a way to create what the GFOA calls “culture of frugality,” and find responsible, cost-effective solutions

Short-term measures, meant to affect 12 to 18 months out, are cost-cutting and alternate-revenue strategies, such as dipping into reserves to bridge a budget gap. With each measure, a government must consider whether the move will be a sound long-term strategy, or if a cut today could lead to increased costs down the line.

A number of school districts in the Mid-Hudson region used a variety of these tactics to get through the 2020-2021 school budget season, avoiding deeper cuts to teaching staff or academic programs by leaving jobs unfilled after employee retirements, and using fund balance to offset tax levy increases to spare taxpayers and keep the budget under the statutory tax cap.

Longer-term planning for recovery after crisis requires a data-based approach that addresses root causes of financial stress. This means requires studying the economic and social environment of a municipality, analyzing budgeting processes and reforms, and creating an operational plan.

Now is the time for government leaders to look for ways to mitigate the crisis, to build resilience through 2020 and beyond.

Over the next several articles, we will discuss these approaches in more depth, with recommendations for concrete steps that local governments can take.