Borough addresses $700K shortfall

Officials institute new financial practices, vote to dissolve borough authority

The borough needs to know what’s happening with its money, and the picture hasn’t been a pretty one, according to the mayor and two members of borough council.

But that may soon change. Like many of its neighboring municipalities, Hatboro is scrambling to finish next year’s municipal budget in time for the mandatory December deadline. This year’s work has been a particular headache for the borough’s governing body as an early detailed read of the numbers pointed to a sizable $700,000 shortfall in the projected budget.

A shortfall of that size would have pointed to a tax increase for residents of 40 percent, according to borough council President George Bollendorf. But an increase of that magnitude is not going to happen, he said. The borough has been working on ways to close the hole and minimize the tax impact next year.

Charged with the heavy lifting of putting the plan together has been Dave Stockton, council vice president and a newcomer to the governing body this year, and David Rich, who has served on council since 2012. They make up the borough’s finance committee. Bollendorf, another newcomer to council, sits in on the meetings as liaison to the governing body.

In an interview that included Mayor Nancy Guenst, Stockton and Bollendorf said their review of the borough’s finances in preparation for the 2019 spending plan revealed sloppy work and a shocking degree of poor financial planning — problems that have likely existed in the borough for years but were not publicly known.

One of the most egregious oversights was the borough’s failure in recent years to put aside money on an annual basis to pay officers for their accrued time when they enter the Delayed Retirement Option Plan, also known as the DROP, according to officials.

The DROP allows an officer to continue working for an additional five years even though he or she has qualified for retirement. During the DROP, pension benefits are typically held in a separate account until officers

exit the DROP, but accrued time, such as vacation and sick time, are paid to them up front when they enter the DROP.

A 2016 memo from police Chief James Gardner to then-council President Bill Thompkins outlined the police department’s DROP schedule for subsequent years in an effort to guide the council in its long-term budgeting for accrued time.

“There was never any money put aside for it,” Bollendorf said.

This year’s finance committee suddenly found itself in a race against the clock as several officers had already entered the DROP or were planning to do so soon, meaning payouts would have to made from funds that were not allocated for this purpose. The chief, who qualified for the DROP in 2016, agreed to enter it in 2019. A detective who entered the DROP last month was willing to take his payout next year in the form of two checks.

Lack of foresight in the budget reached further. Bollendorf said last year’s council budgeted $60,000 for police overtime in 2018. That number was closer to $120,000. A total of $25,000 was budgeted to fight the super Wawa, a battle fought for over a year before the zoning hearing board. The actual cost was $60,000.

The zoning hearing board’s August decision to deny the Wawa application is currently under appeal by the developer, and the borough has reaffirmed its support for the board’s decision.

Overall revenue estimates in the current budget came up $655,000 short, Bollendorf said. It was anticipated that completion of the Hatboro Station townhome development would alone provide $400,000 in real estate transfer taxes. The borough has only realized $130,000, Bollendorf said, with Hatboro Station “nowhere near being completed or sold.”

He said 25 homes there have been completed so far, which is about a third of the total. That development had originally been slated for completion in 2017.

Stockton said there is evidence that last year’s council was aware it was in some form of trouble with the budget.

He said at the end of November of last year, there was just $15,000 left in the borough’s general fund, which covers various operating expenses including borough payroll. There were three payroll cycles remaining in the year, which $15,000 could not possibly cover, Stockton said.

“That money has to come from somewhere, so it came from the capital account, an account dedicated to major improvements to the borough,” Stockton said. “That account is not suppose to be earmarked for things like payroll, but they were out of money, and it had to come from somewhere. So it got transferred.”

The borough also late last year attempted to go after a $600,000 tax anticipation note, a shortterm municipal bond that municipalities commonly use to fund operations and is paid back once tax revenue is received in the new year.

“They didn’t get the because the paperwork wasn’t filled out in time,” Stockton said. “So they basically had to raid their capital fund to cover their operating expenses once the money wasn’t there.”

Faced with underfunded programs and services and an immediate need for cash, this year’s council had to take significant steps to try and balance the upcoming budget while augmenting services that were in desperate need of attention.

Twenty years ago, Hatboro sold its water company to Aqua for $9.5 million. Over the years, the borough has tapped into that sum to help pay for various capital projects. Today, the balance stands at about $3 million. Watching over that money has been the borough authority, a specialized Hatboro board that was formed after the sale of the water company and that includes five members appointed by council in staggered five-year terms.

At its Oct. 22 public meeting, the borough council voted to dissolve the authority, giving it full rights to the $3 million in assets — a decision that was greeted with swift condemnation by some members of the community who attended the meeting. They argued that dissolving the authority, which was charged with protecting the money from reckless council use, amounted to nothing more than a cashgrab and feared the money would be used beyond its intended purpose.

“Don’t raid the funds. They are capital funds,” said Thompkins, one of two previous council members who attended the meeting and spoke out in opposition to the resolution to dissolve the authority.

Given the projected shortfall in the budget, Bollendorf said at the meeting that the finance committee had no choice.

“[The committee] has met countless times. We can’t raise taxes $700,000,” he said, adding residents should not have to shoulder that burden. “The council would never do that. There are too many seniors on a fixed income.”

Bollendorf said council has no intention of spending the $3 million frivolously. Only $400,000 of it will be used to help balance the new budget. A portion of that $400,00 will also be used to make needed repairs to borough hall, which Guenst said has been “recklessly ignored for the past two to three years.”

“I know people are fearful we’re going to spend the money,” Bollendorf said. “We’re going to take the minimal amount of money we need to cover the shortfall and give the residents the services they deserve, and the rest of it will be invested.

“We’re expecting to invest over $2 million,” he added. “It’s not going to be placed in the general fund, and it will be reported on by our treasurer every month. That money is not to be spent on anything else.”

Bollendorf said the finance committee has managed bring the projected shortfall down from $700,000 to $70,000. He said he would like to get it down to $60,000, which could be addressed through a minimal tax increase of 3 percent or 4 percent. The final tax increase, if any, has not been specifically determined.

As for the police accrued time obligations, Bollendorf said the borough will begin putting money aside for that to accommodate the department’s DROP schedule going forward.

“We are fixing the mistakes,” Stockton said.

For his part, Thompkins, who served on council for 12 years and lost his seat in a failed re-election bid last fall, is finding himself answering questions from the public regarding council’s budgeting work in previous years.

“I was on council for 12 years. We used the same basic budget process for all of them as did councils before us,” Thompkins said in comments to Digital First Media. “Budgets are a best estimate of what is likely to come in and what is needed to go out. There are always adjustments needed. Were I there now, I would have to accept fault for not adjusting to the reality of the year, but I was not there to react. They [the current council] did not react. They need to accept responsibility for that.”

Thompkins said this year’s new council could have “re-opened” the budget in January but did not. It also could have controlled its own spending based on how well revenue was coming into the borough over the course of the year.

“The new finance committee can call it inadequate budgeting, but the process was adequate for many prior years,” he said. “In the past, police retired, revenue came in under expectations, spending in one category needs to go up so spending elsewhere gets cut. It is up to council to work through changes — that is their job. They are the ones running the overall operation of the borough.

“Every council can say that the previous council did not leave them enough money to do everything they want to do. It is up to council to make every dollar count and to wisely spend the money they have,” Thompkins added.

Thompkins acknowledged that accrued time payments for police as part of the DROP were traditionally made from the general fund, which left it vulnerable to spending by the borough for other purposes.

“In retrospect, that money should probably have been segregated in a separate fund to prevent it from being spent,” he said.