Citing Growing Deficits, Auditor Warns Bunnell Is On an Unsustainable Course

For several meetings running, Bunnell City Commissioner Bill Baxley has been warning that the city has been flirting with bankruptcy. On Monday, Baxley’s fears were confirmed by the bleakest audit report the commission has heard in recent years. No new revenue is expected to brighten the picture.

Tom Reilly, the city’s auditor with Holland and Reilly, told commissioners that the city’s finances were on an unsustainable course of repeated deficits, year after year, that the means the city has used to fill those deficits will not always be available, and to top it off, that the city’s books have been kept dismally, with “myriads” of errors, and dysfunction between the finance and grants departments. Remarkably, the mayor and the city commissioners received the news with barely a word, accepted the audit, and moved on.

The deficit in all governmental funds in 2013 was $844,802. “That’s five years in a row now that there’s been an excess of expenditures over revenues in the governmental funds,” Reilly said, “and you simply can’t continue to do that.” The city’s debts stand at $3.8 million, Reilly said.

The general fund yielded the worst numbers, with an $805,000 deficit. “That includes $198,000 that was transferred from the enterprise funds as well as the capital project funds, otherwise there would have been an actual deficit of over $1 million in the general fund,” Reilly said. In other words, the million-dollar deficit was masked through influx from other funds.

“Over the years the city has relied a lot on transfers,” Reilly said. That’s when money from one fund is shifted to another. It’s government’s equivalent of robbing Peter to pay Paul, though it’s legal, up to a point. For example, the water and sewer fund is designed to produce a surplus, which can then be used to cover debts in other areas of the city, and to keep property taxes down. Palm Coast uses its very lucrative water and sewer fund to do just that (Palm Coast at least has used the fund to borrow against, though it hasn’t transferred money from it to the general fund outright). Bunnell and the county acquired the Plantation Bay utility in hopes of producing just such a cash cow, though the utility’s debts are making that difficult at the moment.

“So when you add the transfers in, operating with the revenues, it doesn’t look as bad, but operating by itself, expenses versus revenues, we have a big disparity here, and that definitely needs to be addressed. It can’t continue that way. In the general fund, we have cash and cash equivalents. There’s a big drop from 2012 to 2013. In 2012 we had $1.7 million, and now it’s down to $887,000.” Much of that drop is attributable to Bunnell losing a contract with the Florida Department of Transportation.

Another reason for the decline is because of a booking change: in the past, solid waste dollars were run through the general fund. When the city took over solid waste, it created its own fund, which is supposed to be self-sustaining. That took dollars out a chunk of revenue out of the general fund, but not out of city revenue in total. On the other hand, the city’s bet that taking over the solid waste operation would pay dividends failed in 2013. The city charged $587,627 in solid waste services but had expenses of $631,854, running a deficit of $44,227.

The water and sewer funds are brighter, with a $750,000 increase in revenue there. The city increased rates 5 percent over the year. Each year revenues have exceeded expenses, with the rate increase only managing to keep that trend going this year. That does not bode well for subsequent years, as the profit margin has been narrowing each year.

But the city’s unrestricted funds are at their lowest in the past five years, falling below $2 million for the first time. The general fund’s revenue has been falling every year for five years, with declining property taxes accounting for a significant portion of the drop: property taxes generated less than $1 million in the city for the first time since 2006, down from a peak of $1.5 million in 2009. That’s what’s led to a recurring and growing deficit in the general fund.

Reily then turned his attention to problems with the city’s books.

“There really needs to be better coordination between the finance department and the grants department and make sure that those funds are properly identified within the general ledger,” he said, echoing the audit’s findings, which were a repeat from last year’s findings.

“Secondly,” Reilly went on, “the bank reconciliation had a myriad of mistakes at the end of the year,” Reilly said. He attributed the errors to turnover and the joint venture with the county involving the Plantation Bay utility. “I understand that that’s been worked out.”

There were some explanations behind the recurring issues. “We had a few challenges this year, probably the most significant one had to do with the turnover in staff,” Reilly said. The city manager, the city clerk and the finance director all turned over during the year. The city and the county jointly bought the Plantation Bay utility, but reconciling information between the county and the city got so confusing that the auditors had to meet with county officials to figure out who was responsible for what in the joint venture. They finally decided to conduct two separate audits: one by city auditors, one by county auditors. The debt load on that utility is $5.7 million.

The commission, stunningly, had no questions, no comments. Commissioner Elbert Tucker moved to accept the report as soon as Reilly was done. Only then Commissioner John Rogers asked City Manager Larry Williams if “loopholes” had been closed between the grants and finance department—something that had been done, Williams said. The commission approved the audit unanimously.

Later in the meeting, Mark Langello, the developer and owner of the Atlatis strip mall on U.S. 1—where the city declined to buy space for its new city hall, opting instead to buy the old Heritage charter school downtown—asked the commission to develop a budget for the purchase of the new city hall for $600,000. He asked for detailed costs, including construction, improvements, maintenance and operating expenses. He wondered whether that bottom line can be afforded in light of the audit just heard. “Apparently we have a lot of debt, is what the audit said, and I’m really concerned,” Langello said. “It wouldn’t be prudent if you continue to go forward with the purchase if there’s any questions concerning the fiscal responsibility of the city.”

“I’d like to echo exactly what Mark just brought up on the purchase of the building,” Charles Gardner, the appraiser and a member of the city’s planning board, then told commissioners. “I still believe that the meeting and decision was made hastily, and I too would like to see the figures, and to know where those figures come from. I think it’s especially important after listening to the audit report.”