The Council's Fiscal Recklessness

In light of the Council’s pending decision to resolve its wholly created budget woes by using contingency funds, I wanted to point out how truly reckless this is from a financial perspective.
Before proceeding, let’s remind ourselves how often we hear members of the current Council proclaiming how fiscally responsible and disciplined they are in affairs of money. I think the public record is pretty clear on that self-aggrandizement.
So how does a supposedly fiscally prudent, business-minded and taxpayer-protecting Council now find itself dipping into contingency funds to cover budget shortfalls? Is this not the very same Council which on a weekly basis decries the desperate straits of the city’s financials and the city’s impending bankruptcy? Do they not constantly tell us that we really have no money on which to expense a single item?
Given that demagoguing, how then do they find themselves drawing money from the very thing that they claim has no money , namely the contingency fund?
Here’s how:

City of Amsterdam Budget

City of Amsterdam Budget

If you look at the chart, you see that the Council’s recent budget , achieved by ignoring the reality of actual budgets as evidenced by the shortfall in the fire department, returns a pittance of a tax return to the typical city homeowner. A typical single family would see a $3.46 tax savings while a two family homeowner would see $2.41 tax savings. The key point here is not the level of tax cut but the politics of a tax cut. Even if taxes went down two cents, politically, you are cutting taxes. And you are a hero.
While that’s great politically, fiscally it is reckless and imprudent if — like the current Council claims– you truly believe the city has no fund balance or contingency on which to draw. In other words, you cannot have it both ways: you decry the lack of cash and fund balance while at the same time adopting a budget which increases the likelihood that you will have to dip into the contingency budget. By the Council’s own reasoning, this is reckless and dangerous. And it is wholly of their own creation.
If you look at the chart again, I calculated what tax rates should be if you want to not risk dipping into the contingency by adding $100K of expenses for things like the fire department overtime which by any measure cannot be reduced but was reduced by the Council to hit their tax cut target. The problem as you can see with this is that taxes would need to rise. In short, you must raise taxes to protect the city from dipping into its contingency fund. Or more pointedly, you must raise taxes to hedge against the risk that you claim is so imminent to the fiscal health of the city.
But as that fiscal reality runs counter to political dreams, you see that the Council’s actions are not driven by the financial calculus but the political calculus. So either the fiscal risk is not really as bad as the Council would have you believe or they simply ignored it for the political benefit. Either way, it’s recklessness.
So that is why the Council is demonstrably reckless in its financial thinking — it’s politics first, finances last. The financials here tell the story.

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8 Responses

  1. Rogo says:

    Why is it reckless “council” when according to nys numbers (submitted by local municipality) Thane administration is $11.5 million in debt first four years of office. Check openbookny yourself!!

    • flippinamsterdam says:

      My piece was about how the Council, and folks like you, constantly harp on the lack of fund balance and then enact a budget that almost assures they will have to dip into the fund balance. That’s reckless.
      The debt figure is a nice diversion in that the number needs financial context before weighing in whether it’s good or bad. A debt figure of $11.5 million is meaningless with no context for the figure.
      I’ve already covered why the analysis around the city debt is problematic more than a year ago City of Amsterdam Debt & Revenue Figures so I’m not sure what your point on the debt is other than changing the topic.

      • Rogo says:

        That was the deficit spending as of last aud 6/30/2012. How much more in next 2 auds???

        • flippinamsterdam says:

          First, I don’t see any evidence of deficit spending in anything you presented. You seem to conflate debt with deficit spending but they are not the same. Ironically deficit spending is the preferred budget workaround for Republicans as exemplified by the master practitioner of deficit spending and nonsensical economics, Ronald Reagan. Still, I’ll admit deficit spending is a nice talking point,
          Second, you still refuse to engage on the main financial points in the piece so to me , it just proves my point all the more that this is not really a debate on financials but covering for the Council’s missteps.

  2. Diane says:

    Considering we have no real numbers and will not have for some time, we did the best we could with the budget. I am sure though that you could have done a better job than we did. And by the way, the total debt is around 27,000,000.00 dollars on a 30, 000,000.00 budget. We have no jobs, no industry, no growth. But we do have a council that is not spending anything unless absolutely necessary until we have some real numbers that have been audited.

    • Rob Millan says:

      “…the total debt is around 27,000,000.00 dollars on a 30, 000,000.00 budget.”
      That’s an illogical connection. The bond debt, or any debt for that matter, is of no consequence to the budget since it’s not expected that the debt be paid off in a single year. Oh, and this is also not considering the fact that the Common Councils APPROVED THESE DEBT OBLIGATIONS.
      If this is any indication of your train of thought into why you do and say some of the things you do and say, then it’s no wonder why Amsterdam continues to sputter while everyone around it grows.

      • flippinamsterdam says:

        I agree. I daresay that creating fear, uncertainty and doubt (FUD) is really the strategy here. Unfortunately, the perceived political gain by FUD ignores the very real damage it does to incentivizing and attracting people to invest in the city.
        Worse, the FUD folks always talk about running things like a business even though it’s more than clear that the business they would run would bankrupt itself with poor financial management, lack of innovation and a failed strategy.

  3. wildthane says:

    It’s irresponsible to keep pointing out the “total debt” without acknowledging the revenue we will receive or have received in reimbursements through state grants, insurance payments and FEMA to offset this borrowing, as well as bonds/BANS that will be rolled over or retired in the near future. S&P bumped our bond rating up in my second year in office and the recent determination holds a favorable outlook for the city. The “we won’t spend” mantra chanted by this council indicates that they don’t understand municipal finances and have no plan to manage the needs of this city. To date, they have not completed their training requirements for the year. Perhaps focusing on this aspect of governance would be beneficial.

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