City finances remain a work in progress

Just one-and-a-half years after the City of Starbuck was forced to raise its tax levy by 75 percent, increase fees at Hobo Park and the Starbuck Marina, and cut down on much of its spending, the financial outlook for the city has improved. While the financial outlook may be better than it was a year ago, a long road to recovery remains ahead for the city's finances according to the 2009 year end audit.

"In summary you did a nice turnaround from 2008-2009, but of course you are still not out of the woods yet," said David Euerle of Westberg-Eischens auditing firm.

According to the annual audit, which was presented to the Starbuck City Council at its regularly scheduled meeting on April 12, the city increased its year end assets from $487,552 to a total of $1,143,193. Euerle also told the council, "you had a nice increase in cash," which was largely due in part to a $328,046 increase in cash assets raised by the city's five propriety funds. All of the city's propriety funds increased its ending balance by at least 18 percent, except for the garbage fund which actually lost $17,309 in 2009. Euerle said the loss was due to the city not charging a high enough rate to cover Waste Management's total charge to the city. Nonetheless, Euerle said "overall a very nice gain across all accounts."

The largest increase in the city's proprietary funds came in the Hobo Park Fund which increased its cash assets by $187,790 over the previous year, however, Euerle noted that for the most part the city did not spend any money on any upgrades at the park, and only paid for normal operating expenses.

While the city's finances have improved significantly in the past year, he cautioned the council that some of the city's funds are still below an ideal level. Euerle specifically pointed to the city's general fund, which did increase from -$79,355 at the beginning of 2009 to $158,224 at the end of the year. Euerle suggested the city should keep an end of year fund balance of 50 percent of future expenses or $350,000-400,000, but gave the city credit for ending the year with a positive general fund balance for the first time in a number of years.

Another point of interest Euerle brought to the council's attention was the 2009 budget. For the first time in six years, the city did not overspend its budget. In fact, thanks to receiving nearly $200,000 in additional property tax payments, the city actually received $177,962 more than budget. In addition to receiving more money than budgeted, the city's expenditures were also $17,000 less than it was budgeted in 2009.

Looking ahead to 2010, Euerle said the city should be aware of the potential cuts in Local Government Aid to Starbuck. If the state legislators further cut LGA payments to the city in order to balance the state budget, Euerle said the cuts could adversely affect the city's financial recovery.

"Uncertainty as far as the future budget issues at the state level, that can definitely have an impact," said Euerle.

Audit findings

During the course of performing the 2009 audit, Westberg-Eischens noted four findings and recommendations for the city to address in the upcoming year.

Two of the audit findings, a limited segregating of duties for the city staff, and relying on the auditor to prepare the financial statements and related disclosures, are a direct result of the city's small staff. Euerle said the findings are common, and may not be cost effective to completely correct. Instead, Euerle said the city can take some proactive safeguards like continually reviewing bank statements to make sure nothing seems out of the ordinary from month-to-month.

Euerle noted the audit also found changes which needed to be made to the city's financial statement. Euerle said the need to make adjustments that result in changes to the city's financial statements will likely no longer be needed in the future after the city staff becomes more familiar with a new software installed at the city office.

"I would anticipate we wouldn't have this finding in the next couple of years," he said.

The final audit finding pertained to the city having inadequate collateral, or too much money in one or more banks to be financially covered for all of its deposits at certain points throughout the year. Euerle said making sure that the city is properly covered with all of its deposits is especially important when large amounts of money are being deposited at certain times of the year, like during tax season. Euerle said the city needs to be careful to be under the insured threshold because in today's market, "bank failures aren't as uncommon as they once were."

To correct the measure, Euerle suggested the city make sure to have enough bank collateral to cover deposits that are over the FDIC insured amount.

Other notable audit findings

• As of December 31, 2009, the City of Starbuck had $5,255,695 in bonds remaining to be paid. The bonds include $4,131,996 in General Obligation Bonds and $1,123,699 in Revenue Bonds.

• The city collected a total of $1,007,864 in taxes, Intergovernmental Receipts, various charges for services and miscellaneous receipts. Of that amount the city collected $468,385 in general property tax, franchise tax, special assessments, and licenses and permits last year. The city also collected $459,954 in Intergovernmental Receipts which includes everything from LGA, Residential Market Value Credit, grants and aid for various city agencies.

• The largest city expense was for public safety, which accounted for $298,921 in expenses last year. Public safety includes the police department, ambulance, fire department, and building inspections. Other major city expenses include the general government at $169,898 and the streets and highway department at $134,307. The city spent a total of $726,832 in total disbursements last year.

• Euerle suggested the city close a couple of accounts for projects that have already been completed. Euerle said the extra money from these accounts can be made available for other debt services.

• Copies of the city audit can be viewed at the Starbuck City Office.