Councilmember Barron's First Budget Workshop Update
“State of city finances presents some unpleasant surprises”
1) We’re $16 million in debt
2) Have an unplanned $460,000 expense on our water treatment plant
3) Have no firm numbers to begin next year’s budget
Hello, My Friends,
I promised that you would know what I know about the "state of the city" so here we go. Yesterday was the first budget workshop and it wasn't good news. Although our auditor was pleased with our reserve balance, he glossed over one VERY IMPORTANT fact: the city has NOT complied with GASB (Government Accounting Standards Board) Standards for years. Our city’s Chief Financial Officer believes this goes as far back as 2014. These standards are like generally accepted accounting principles (GAAP) used by businesses. GASB standards are set to ensure consistent, transparent, and comparable financial reporting. These standards also make sure that local governments comply with state mandated financial requirements under the Texas Local Government Code. So, what are some of the basics of these standards?
First, they require "fund" accounting. Your tax dollars and other revenues are placed in very specific "barrels" or funds. Each fund has certain functions, and accounting of each must be done individually to be sure the monies are being used appropriately as specified by these standards and the local government code and the budget set by the Council. We, as the City Council, cannot do anything we want with certain funds, there are laws that govern how we are able to spend.
Let's just stick with the three main "barrels". First is the General Fund. This fund contains tax dollars (property, sales, etc.), permit fees, and other revenue sources for the city. It is used to provide the general operating costs for the town (police, streets, administration, etc.). The second BIG fund is the Enterprise Fund. This is established when a city provides services for which it charges its citizens. In Blanco, that is our water/wastewater systems. This fund is operated like a business. The rates that are charged should be adequate to provide the services (clean drinking water, sewer service and garbage pick-up) AND should allow for necessary maintenance and improvements in the infrastructure needed to furnish those services. Additionally, the rates should produce adequate income to cover any debt service incurred in order to provide those services (loans to build the WW treatment plant and now the new drinking water treatment plant). Speaking of city debt, the final "barrel" is the Interest and Sinking Fund (I&S). This fund ensures that the city can meet its debt payment obligations. I'll come back to debt a little later.
As I mentioned, for years, the city has not followed GASB and done accurate fund accounting. Additionally, it appears that certain expenses were paid out of the inappropriate fund for those expenses. So, what does that mean for us now? First, IF the city needed to borrow additional dollars or issue bonds it is unlikely that we would qualify unless the bonds were backed by the Texas Water Development Board. Because of our past accounting practices, financial organizations would find it impossible to accurately assess our ability to manage more debt. Also, because of poor practices, the current council is having to craft a budget with less than accurate numbers. In fact, we are having to make some generous "assumptions" based on the numbers staff can figure out.
As for debt, the city is currently carrying just over $16M in debt. Our debt service "barrel" (I&S) should be primarily funded through the Enterprise Fund (water/wastewater) since this is the origin of the debt. Remember when I said rates needed to be adequate for the service, the infrastructure maintenance, and the debt service? Well, ours may not be. I say this because I want you all to be prepared that in the near future, we will need to evaluate water/sewer rates to ensure they are adequate to do all the things I mentioned above.
Okay, so that was government finance 101---are you still with me? Now the worst news. In an attempt to save taxpayer dollars, it was decided that in building the new water treatment plant a very key and expensive piece of equipment called a clarifier would be refinished and repurposed to avoid the expense of purchasing a new one. Well, it didn't work. So now that we have discovered the old clarifier can't be used, the city must buy a new one to the tune of about $460,000 and it won't be available for delivery for an estimated 28 weeks putting us behind schedule for completion. This will cause overage charges from the construction contractor as well as additional money to continue purchasing our water from Canyon Lake Water Supply. Here is the bottom line from my perspective. I will do all I can, as I am sure other council members will as well, to be careful stewards of your money, BUT we need your support when making expenditures that seem large in the short-term but will pay off in the future by avoiding these kinds of mistakes.
We are investing in knowledgeable, seasoned personnel now to clean up our books, put professional practices in place in our city government and develop best practices for budgeting and planning in our future. I hope you will support these investments so we can move ahead in the most efficient, cost-effective manner to protect and preserve our community and provide the quality of life we all enjoy and want to sustain in Blanco.
Written by Councilmember Connie Barron on July 21, 2021.