Thoughts on the Annual Financial Report

[council4_vaughan]

I have a commitment and will not be able to attend the council meeting on Tuesday, but I wanted to share some observations from the annual report.

1. In my review of the final draft report, I am disappointed to learn that the venue tax was not allocated between the general fund and golf course as we approved in the budget. It appears the actual split was $349,237 for the general fund and $1,312,000 for the golf course. In the budget we approved $550,000 for the general fund and $1,200,000 for the golf course. Unless there was an amendment to the budget that I am unaware of, this was not what we approved. I hope I am wrong and this is just an error in the report.

2. There continues to be areas where we are going over budget. Section 102.009b of the local government code (https://statutes.capitol.texas.gov/Docs/LG/htm/LG.102.htm_) states that "After final approval of the budget, the governing body may spend municipal funds only in strict compliance with the budget, except in an emergency." Yet, on pages 72-75 of the annual report, you will see several departments that went over budget. Article VI section 6.07d of our charter states that "At any time during the fiscal year the Manager may transfer part or all of any unencumbered appropriation balance among programs within a department, office or agency." However, any transfers between departments is reserved for council. A couple of the expenditures that caused overages were approved by council, but a budget amendment was not presented to council. This is a process that we should be working to cleanup. Management should be monitoring our budget to actual performance regularly and request amendments of council if necessary.

3. The general fund expenditures are continuing to grow at a very rapid pace. The graphic below shows you a comparison of the last 7 actual results from the annual report compared to the 2025 budget. The line in green is the total operating costs. These do not include the large one-time capital costs. You can see that they grew 12% in 2022, 8% in 2023 and 9% in 2024. The 2025 budget (if it occurs as approved) would be another 11% increase. In other words, general fund operating costs will increase from $12.3 million in 2021 to $17.9 million in 2025. As we head into this budget season, we should really be considering how we curb the growth. We keep hearing that we just need more revenue, but there are two sides to the coin.

4. The golf course ended 2024 with $2.7 million in working capital (current assets less current liabilities). This exceeds the 6 months we have in our fund balance policy. We should be implementing the recommendations from the forthcoming business evaluation of the golf course and removing the venue tax subsidy for fiscal year 2026 and beyond. The time has come to let it stand on its own.

 

[council3_rubal]

Thank you for your heads-up on being unable to attend.

 

[council3_rubal]

Fellow Councilmembers,

In reference to the above for discussion, please also note pages 28-29 line "operating income" column 5 there is an operating deficit of ($1,146,195) = 31.6% of operational expenses and this does not appear to include the change in employee net pension or OPEB expense (page 32-33). See auditor notes on page 28 regarding accounting practice in this regard. For all Business activities, "deferred" outflow for pensions and OPEB are present on pages 26-27 and reconciled on pages 32-33. Audit page 37 (1) Summary of significant accounting policies describes the "Government-wide and fund financial statements" beginning in the last paragraph and continues on page 38. Further delineation of fund types is provided by the auditor on pages Page 5: OVERVIEW OF THE FINANCIAL STATEMENTS and Page 6: Fund Financial statements.

I have reviewed City Audits from 2005 to the present. Early audits (which were reviewed in 2021) are only available in paper and archived by the City in cardboard boxes. Each audit complied met the Government Auditing Standards (GAS) of their time. However, these standards have evolved and are continuing to change to improve governmental transparency. In this FY23-24 draft audit, most elements are presented as a financial snapshot of accrual accounting for that fiscal year. Some elements are presented with longer financial implications and additional notes are included for pension and OPEB expenses. Most frustrating is the difficulty in tracking sources for fund transfers and nonearned revenue.

The Council should be cognizant that the audit primarily projects information about our past financial transactions and is without the context for our long-term City needs. I ask my fellow Councilmembers and staff to mentally add a line item to the audit page below. It would define the cost of our long-term infrastructure needs. When we do this our net position is less rosy and we would likely be more effective in future budgeting to make every dollar of property and sales tax revenue count.

Page 122-23: It is noteworthy for the General Services (man hours) for special events hours approaches or in some years significantly exceeded man-hours for street maintenance.