November 9, 2009

Hood River audit finds $250,000 deficit

By RAELYNN RICARTE
Hood River News

     Hood River Mayor Arthur Babitz’ has been concerned all year that the city budget is in worse shape than suspected and he has been proven right.
     An independent audit of fiscal records for the past two years has revealed a deficit in the general fund of about $250,000. Babitz said the final numbers won’t be known until the audit is complete in December so the negative balance could rise even higher.
     “We haven’t slid back into a deficit because we never left,” said Babitz.
He said auditors have found that the fiscal year 2007-08 ending balance was erroneously stated as $387,000. He said that figure was based on anticipated revenue for ambulance receipts and parking meter collections that did not materialize.
     In reality, Babitz said the city had a $150,000 shortfall in the 2007-08 budget. He said the deficit increased another $100,000 in fiscal year 2008-09 due to lower-than-budgeted revenue collection and overspending appropriations.
     “Budgeting hopeful revenues just lets you spend money you’ll never have. Cutting expenses without cutting programs sets you up for failure,” said Babitz.
     He said revenues for fiscal year 2009-10 were budgeted conservatively because the financial situation was still unclear. The city’s budget committee will convene on Monday to determine whether the right steps have already been taken to keep the budget on track or if further reductions are necessary.
     For example, the city reduced its workforce by six individuals this year, froze wages for the remaining employees and reduced their benefits.
     “The budget committee is going to decide whether these cuts were enough,” said Babitz.
     “They will be answering the question, ‘Are we digging out of the hole fast enough or do we need to dig faster?’”
     The budget committee, which includes council members, will convene at 6 p.m. Nov. 9 in the municipal courtroom at the junction of Second and State streets.
     Lynn Rasmussen, the city’s new finance director, has been working to straighten out past recording practices that have made it difficult for the city to know exactly what lies in its fund balances.
     For example, she said the audit report for 2007-08 had not yet been inputted into the computer system that tracks financial data when she took the job in July.
     Rasmussen reported the situation to the city council and was given the go-ahead to make whatever changes she deemed necessary to remedy the problem.
     Even before taking office in January, Babitz was studying past city accounting records with a critical eye. He wanted to understand how the city ended up with a $1.2 million deficit by 2006. His goal was to get the city budget firmly in the black by build up reserve funds to ward off future shortfalls.
     “I think the city has been sending out the message, ‘Don’t worry, everything is under control,’” said Babitz in the fall of 2008.
     “I don’t think having everyone think the problem is solved (when it may not be) is in our best interest.”
     Although past city finance directors claimed the deficit was paid off in 2007, Babitz could never get the revenue and expenditure figures to reconcile. As an engineer, he was accustomed to mathematic equations that added up and found the accounting discrepancies unsettling.
     “It doesn’t much matter if the numbers are positive or negative if you don’t believe them,” he said.
     “It’s hard to do anything about a missed revenue or overspent appropriation if you don’t know about it for a year.
     “The work Lynn’s doing to get us timely and accurate reports gives us a fighting chance to get this under control.”
     Rasmussen has listed her overall accounting goals as follows:
     • Shift from a one-year budget model to a sustainable multi-year approach that better accommodates long-term planning.
     • Create user-friendly reports that foster openness and transparency in government activities.