Bor­ough ad­dresses $700K short­fall

Of­fi­cials in­sti­tute new fi­nan­cial prac­tices, vote to dis­solve bor­ough au­thor­ity

Times Chronicle & Public Spirit - - FRONT PAGE - By Rob Hey­man

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.

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