Audit Cites Town’s Financial Stability, Favorable Practices

By John Voket

Typically the word “audit” strikes fear or at least trepidation into the hearts of those targeted for the financial vetting. But both First Selectman Pat Llodra and Finance Director Robert Tait are extremely pleased about the outcome of the latest municipal audit.

The document was the product of several weeks of work on the part of Kostin, Ruffkess & Company, LLC, to detail specific financial practices, policies, and the status of virtually every tax dollar, grant, expenditure, liability, and account tied to the business of running Newtown’s government.

The 127-page document (available in the Board of Selectmen folder in the “Source Files” online at NewtownBee.com ) covers the period from July 1, 2010 to June 30, 2011.

“This audit gives me the impression that Newtown is very solid, and it communicates a real sense of stability,” Mrs Llodra told The Bee this week. “The incremental growth we are seeing reflects that our overarching financial policies are working.”

The first selectman said the audit reflects that the town and its policymaking leaders are “being very good fiscal managers,” and she and Mr Tait were both happy to see the town’s undesignated fund balance growing at a rate that was slightly greater than anticipated during a year where the fallout from a national recession was being felt from Wall Street to Newtown’s Main Street.

Formally identified as the “unassigned general fund balance,” the audit shows an increase in that account that grew from 6.9 to 7.4 percent of the overall budget, according to Mr Tait.

“We call it that because the overall fund balance actually decreased from 9.2 to 8.1 percent,” Mr Tait said. He explained that in the 2010-11 fiscal cycle, the town took $1 million to offset the pending increase in taxation.

But that will mark the last year the town uses that maneuver, which is frowned upon and could contribute to a community seeing its municipal bond rating lowered by rating agencies who do not like to see towns using fund balance savings sanctioned for emergencies to reduce the amount residents pay in taxes to cover the cost of municipal services and personnel.

And while the town did permit the use of up to $1 million last year to offset taxes, Mr Tait said only $494,000 was used for that purpose, with the balance being applied to cover outstanding prior year purchase orders.

“We’re happy about the fund balance,” Mr Tait said.

Pension Loss Reversed

The finance director also pointed to the auditor’s information about the municipal and police pension plans, noting that a $2.7 million loss to the town in 2009, has been reversed. That plan, which cover all eligible town and school personnel except police officers, saw a $2 million gain in 2010, and a $3.9 net increase in assets last year.

“There’s still more to make up to fully fund the pensions [at 100 percent], but the upcoming pension contribution is budgeted roughly the same as last year,” Mr Tait said. Currently the town/school pension is funded at 97 percent, although in 2008, that pension was funded at 107 percent.

Conversely, the police pension dropped from being 98 percent funded in 2008, to being 89 percent funded last year. But Mr Tait said the drop is only a reflection on how well or poorly the pension investments performed, not an indication that the fund could not sustain its contractual requirements if all eligible personnel chose to, or were required to, retire at the same time.

“If the town contributes the recommended amount [from its pension actuary] it is always projected to maintain a fully funded plan,” Mr Tait said. “I’m not sure there are many towns that are 100 percent funded.”

The finance director said while he hopes pension assets continue to grow, the increase noted in the new audit shows an upward trend.

“I don’t have any concerns about the pension,” Mr Tait added.

The Board of Finance will be taking up a review of the audit in January, according to board member John Kortze. Mr Kortze said the information in the audit, particularly about the fund balance increase and status of the pension fund, is all good news.

Mr Kortze observed that the positive changes to those key accounts directly corresponded to what one of the two local bond rating firms, Moody’s Investor’s Service, noted in its reviews of the town in consideration of maintaining or increasing Newtown’s bond rating in recent years. He also noted that while Newtown’s financial situation is improving incrementally, it is in direct contrast with many other towns in Connecticut that are tapping, not adding to, their fund balance — and are reducing or declining to fund pension accounts.

“This document will be a focal point for all the elected officials and the finance director,” Mr Kortze said. “It shows that Newtown is improving where many other [municipalities] are declining. And we’re going to try and keep it that way.”

Mr Kortze said by allocating resources properly, making the right choices as a community, and continuing to learn about and control expenses, Newtown continues to perform positively.

“I think from a taxpayer perspective,” Mr Kortze said, “if you make the right choices, we can do what we need to do and then some.”

The audit also illustrates that tax collections were at 99.1 percent, which equaled what the budget called for, and concerns expressed in previous audits regarding the school district’s adherence to its own transfer policy, as well as the need for a municipal policies and procedures manual have been addressed.

Mr Tait said the manual he is helping to develop is a tabbed document in a binder, so new chapters and updates can be easily added. He said in the coming year the town will attempt to codify a new chapter on travel policies for town employees who must go out of state on town business.