Mutter says phasing out surplus spending will be painful

Mutter says phasing out surplus spending will be painful

CUMBERLAND – The 2019-2020 budget is perhaps the most important one the town has seen over the past two decades, says Mayor Jeff Mutter, particularly as his administration looks to get away from spending surplus money to fill gaps.

Mutter’s goal as of now is to phase out current annual spending of about $1.7 million in surplus money currently covering the budget over a two-year period.

“We can’t keep doing it,” he said.

The move will be painful, says Mutter, but it’s clear the town should not continue to use money from its savings accounts to fund annual operational expenses.

Eliminating the $1.7 million in one year would simply be too much, Mutter said.

“There might be a revolt anyway,” he said.

To shift strategy this dramatically, the town will need to make up that $1.7 million in new revenue or reduced expenses, he said, and with revenue limited and expenses obligated to go up, that scenario presents a significant challenge.

Even a 4 percent maximum tax levy increase would only bring in about $2.4 million in additional revenue, Mutter said. If you took that $1.7 million out just to fill the gap from eliminating surplus spending, that leaves only $700,000 to pay for necessary new expenses.

Mutter isn’t giving too many hints about his budget, but says he is planning a town-wide forum once it is released to discuss the challenges facing the town. The town’s charter forces tough time constraints on town officials, he said, meaning the budget needs to be presented and approved all within a two-week time period.

The repeated surplus spending means the town has lost money each of the past three years, said Mutter, and this year might not be much different, with numerous unbudgeted expenses.

Due to Cumberland’s unsynchronized budget year, the budget projection approved this spring won’t become finalized until next year, when tax rates would be finalized based on what transpired over the previous months.

Mutter has said he isn’t exactly sure how much he believes the town should ultimately maintain in its savings accounts, but says it should be “as high as you can get it” without spending it down to pay for regular expenses.

There was $9,781,175 in unassigned fund balance as of June 30, 2018, meaning reserve money that wasn’t tabbed for certain spending.

After $1.7 million in fund balance was used in the 2018-2019 fiscal year, that total savings number was projected to be down to $8,060,023, according to a presentation made by Mutter to the Town Council earlier this spring.

Town ordinance requires 10 percent of operating revenues be put aside as fund balance, or a minimum of $7,573,481. That leaves a remaining sum of $486,542 left as an extra cushion, or as Mutter described it, “little or no excess of fund balance remaining.”

If the town keeps carving into that total, at some point it’s going to be a big problem, says Mutter, particularly when there’s an inevitable economic downturn.

In 2013, the unassigned balance was $8.4 million, in 2014 it was $11.3 million, and it was $12.9 million in 2015. The percentage on the 2015 number was 18.68 percent of budgeted revenues.

Mutter compares the practice of balancing the budget with surplus money to using a personal savings account to buy groceries.

Comments

Do you have a position on the Evergreen Bill that is being worked through the state legislature? If so, can you comment publicly and let Cumberland residents know your position and what you have done to influence our local Representatives and Senators support of this bill? This legislation could have critical implications on the town and its long term financial health. You are spot on that the town should keep a reasonable and healthy surplus and to achieve this we must look at expense management. Can you comment on what specifically you have done to curb expenses? Does it make sense to combine the Chief of Staff and HR Director position? Also, you remedied the severance payout for the Mayor going forward but why the delay in putting in place an accrual system for the other positions...that should have been a simple change to make and it has been several months since this issue was raised.

To prevent this situation going forward 2 new laws need to be passed by Cumberland:

1) In addition to a minimum surplus of 10% of operating revenues a law should be passed defining the maximum amount of the surplus ( say 11% of operating revenues ) so that tax rates are not raised to just build up excess cash.

2) A maximum dollar amount of excess surplus that could be used in any one tax year should be quantified. (say $500,000)
This figure then would be adjusted for inflation on an annual basis.

Had these laws been in place we would not be in the current predicament that emanated from years of operating deficits being covered up via using excess surplus in order to keep tax rates low. Although there would have been "pain" if these annual operating deficits had been eliminated on a year by year basis the pain to be incurred now will be much worse as
there is no choice as the excess cash reserves now have been exhausted.
The laws need to be restrictive enough so that no politician has the ability to game the system in the short term to his or her political benefit at the expense of future years where that politician will no longer be in office and thus not be held accountable for his or her actions. The best example of this abuse in RI is the current unfunded pension liability of the 35 city and towns that totals at least $2.5 billion with Providence's share totaling $1 billion of that amount. This $2.5 billion figure is just the reported number
of the 35 city and towns as the real number is much higher because the city and towns have used unrealistic assumptions
to keep the unfunded liability as low as possible. For example
Providence is using a 8% assumption for its investment return while, as an example, the total annual return of the S & P 500 from 2000 to now is about 5.3% including dividends. The magnitude of this problem is so large that the only question is when not if bankruptcy occurs especially in Providence.

this is the first time i noticed a political fundraiser in one of the few cumberland news items online

Have to read the Breeze more...almost every FR is advertised in the Breeze as an announcement.