Citizen fiscal watchdog John Marshall Lee, in his Monday address to the City Council, asserts “if we had to have a fire sale, we could not cover the liabilities on our balance sheet completely.” From Lee:
For years I have brought issues to your attention that have significance to the economic health of Bridgeport. To the surprise of many I continue my efforts to inform and to question. By so doing I learn more and share that learning with you for the intended good of all the citizens of this city.
Tonight I focus on the big picture. Keeping the big picture in mind at all times in budget decision making is critical to the nearly 150,000 people of the City. I want you to see the color RED. The Comprehensive Annual Financial Report as of June 31, 2015 shows the City balance sheet to be in the RED. It means that the value of City assets of all kinds is less than the value of all City liabilities per Government Accounting Standards Board rules. It means that if we had to have a fire sale, we could not cover the liabilities on our balance sheet completely. It also indicates that we have a truly unhealthy financial road to face. We are broke in the longer run. And most people are not aware of it. The media has not told them and they have not had sufficient interest to discover the info themselves.
City financial managers know this situation did not happen overnight. And it did not. It took time for different administrations to make promises that were not funded in a timely fashion that become obligations of future administrations. Promises are easy if someone else has to make good on your promise. The last administration was less than honest by kicking many obligations into future years by getting State approvals to defer certain pension funding and certain timely revaluations. Did the deferrals help us as we sit here today? I argue NO. You have to deal with the problems that others have ignored.
By the way this balance sheet can look even worse and may likely become much REDDER by next year’s CAFR because City property values will be newly measured by a likely decreased October 1, 2015 Grand List as well as actual pension plan earnings failing to perform at the relatively high assumed rates actuaries are currently using. Liabilities increase.
The color RED also affects our Operating Budget as confirmed by the City Finance Department and Office of Policy Management who have informed you of the $20 Million shortfall by June, 2016 they faced on taking office. They have modified and adjusted but only so much was possible in the seven months left to them before FY 2016 is complete.
That is the environment you face as you are provided budget proposals for FY 2017 in a couple weeks. Keep RED in mind, as you slowly but surely read and review each department, its mission and its expense. I have heard no one on the Council asked for the June 30, 2015 monthly FINAL financial report showing the City position after the audit. A master spread sheet showing FINAL June expenses in all categories, not just the summary format, for 2013, 2014 and 2015 will helpfully indicate for those without experience where money was budgeted but under spent regularly as well as those accounts that showed up negative year after year. A review of revenues especially in the past year will be a lesson in overoptimistic anticipation of revenues, a formula for putting us into the RED later in the budget year.
You will likely wish to see State approved City pension funding flows into the future as part of your work so that you will know we are at least current. Getting accurate figures on current and anticipated employment levels per department is important, and also getting an idea of how many departments receive Grants revenue year in and year out to maintain service levels.
Finally, you are required to have a Capital Budget public hearing per the Charter as the language directs that the City solicit views from a broad audience. When that hearing is held, how will you explain funding certain operating expenses in Police, Board of Ed and other areas with borrowed dollars that bear an additional interest cost to be paid over 20 years, but which the public receives no info about? Why is leasing not studied as an alternative that more suitably matches the years of service of purchases with years of payment? If you will defer this year, will you consider deferring EXPENSES? As fiscal stewards, isn’t this necessary for you to perform in an Open manner, with full Transparency to observers, and proper Accountability to taxpayers? Time will tell.
JML, thank you for the hard work you do for us!
Just wanted to note the differences in assets and liabilities does not equal red. Those are balance sheet items. The RED you are referring to as it relates to revenue belongs to the Income/Profit and Loss Statement.
I do agree though that having a council where few if any have any financial acumen is a scary situation.
Brick,
I am not an accountant. I attempt to be a communicator on City issues, particularly fiscal ones, and tell the story of what has been happening. Happy to have your attention for a moment.
Budgets like our Annual City Operating budget report expenses and revenues regularly and then finally at year end. Initial budgets are called to be balanced, though since judgement, projections and assumptions as well as experience and previous budget info are used, the reality usually is different from the numbers at the outset.
If the actual expenses exceed the actual revenues at year end the budget is said to be IN THE RED, calling back to a time when RED INK was used to display the negative and call attention to the facts of the situation. Within budgets are line items of revenues and appropriations which when too low or too high relative to initial projections are also negative or IN THE RED.
What I have done to your critique is to call the Annual Balance Sheet to public attention. We get to look at it only once a year within the CAFR. No public meeting. No City announcement. No investigative journalism. But subject to GASB form and content as well as CT statute. It adds up everything of value the City owns, showing depreciation where appropriate as well as potential receivables. From this number is subtracted the liabilities, short term and longer that are appropriately to be posted “on the City books” rather than be kept “off the books” and other responsibilities and obligations for which some but not all funding may be present.
Were you to subtract the Liabilities from the Assets you would have a NET WORTH value to claim as a taxpayer. If you find the Assets total is less than the Liability total you have a “situation” that in some cases is called “bankruptcy.” What color would you ascribe to this situation? I have chosen RED again because the simple situation is short of BANKRUPTCY we will need to work our way towards GREEN, something I pointed out to the last administration but which was not their favorite GREEN subject.
The City of Bridgeport balance sheet went negative last year by $380 Million dollars IN ONE YEAR so in June 2015 the Governmental Activities balance sheet had sunk to NEGATIVE $149 Million. A $380 Million swing represents more money than we raise in taxes in the City in one year. It also represents about 70% of our Operating Budget passed by the Council each year but which also depends on significant State dollars for schools.
So if you are scared by well-meaning citizens, hopefully mature taxpayers themselves, facing financial statements every year of which they have little knowledge but great responsibility, what might you conclude and form as a question? Why don’t they get help? Why don’t they use help that is offered at no expense and with no expectation other than to help the City? What holds them back from seeking the greater good? I am glad you find it scary. Talk to your Council persons. Our budgets and other CC decisions like WPCA have turned into life and death decisions for many homeowners. Our continued trend to lesser financial strength needs to stop somewhere, sometime. How about this year, Council members? You have a budget. Ask your questions in private. Get educated. Ignorance is not the issue. Continued ignorance in the face of great challenges is an intolerable situation. Changes? Time will tell.
It’s not a shock that Bridgeport is in the RED. THERE IS ABSOLUTELY NO WAY Bridgeport can pay for itself. It’s as simple as that.
Frank,
Dave Walker has simply stated the way. GROW THE NET TAXPAYING GRAND LIST FASTER THAN YOU GROW THE BUDGET, then live within that conservative budget. Maintain the flow of outside revenues at the same time. We can move from the RED into a kinder color. No one is asking the City to pay for all expenses on its own. At least no sane person expects that. Time will tell.
BUT JML, that has been the ISSUE for the last 30-40 years.
Bridgeport is in the red to the tune of several hundreds of millions of dollars. That is why I feel all this talk about a 20 million dollar deficit is disingenuous. Our deficit is $20 million times 20, AT LEAST.
The problem of a deteriorating Grand List began in the 1960s as the city developed the Lafayette Mall downtown because the slide had already begun. The situation we are in did not happen in the last eight years.
Frank,
Now you should understand what Brick was saying. We track dollars in two ways basically for record-keeping purposes. One method is like a photograph where we add up all values for everything we own, and a similar list of what we owe. Own less owe equals net worth. That is called a balance sheet.
The other way we track dollars are income and expense statements of varying kinds. Basically this is a “motion picture” that takes into consideration all the activities occurring between one date and a later date, often one year later. That would be an Annual Income and Expense report. In business if the Income exceeds the Expenses it is called a Profit and smiles abound. If a business reports expenses exceed revenues, they may close the business down or severely limit further investments.
For more than 20 years the City Council (in recent years guided by Tom Sherwood) failed to ask for and consider the ACTUAL INCOME-EXPENSE REPORT for the previous year. Has any Council member called for its preparation post 2015 Audit? They are different measures of different activity. The first is about WHAT ARE WE WORTH as a City. And the second is WHAT ARE WE EARNING and SPENDING AS A CITY. To the extent our tax payments are City earnings and that commitment by taxpayers is strenuous and difficult, we pay more attention to the PROFIT-LOSS. However, after all the difficult paying of taxes every year, when we cash in and find the City property and our own is worth less than what we thought, we face a poor situation. Time will tell.