For some reason — perhaps the bad economy — more people have asked me to explain how the budget process works this year than in my previous seven years as your town councilman combined. I would like to offer a simple overview of how it is supposed to work.
1. In late summer or early fall, the supervisor is supposed to provide worksheets to all the department heads to include information such as the year-to-date amounts in their accounts and previous year(s) budget amounts. They fill in estimates for each of their budget lines for the upcoming year and return the worksheet to the supervisor by the date requested. The amount requested is supposed to appear in the budget column entitled “Requested Budget” with no modifications. That did not happen this year. Many “Requested Budget” lines in the presented budget were not what the department heads said they had asked for. Some were higher, others lower and others simply left blank.
2. Once the worksheets are returned to the supervisor, he or she usually schedules meetings with the larger department heads to review their requests. For some reason, some departments, such as the Building Department and ZBA, did not meet with the supervisor during this year’s budget review.
3. At this point, the supervisor has full discretion to modify any numbers up or down based on his meetings with the department heads or simply of his own accord. Once he has made those modifications, they are entered into the column called “Preliminary Budget” (aka “Supervisor’s Budget” or “Tentative Budget”).
4. This version is then turned in to the Town Clerk’s office, where it is recorded, copied and presented to the Town Board and public for review. At this point, it is entirely the supervisor’s budget, as he has the final say on all the numbers in the “Preliminary Budget” column.
5. Once presented to the Town Board, we (the board and supervisor) initiate our review of it in our open session budget meetings. We call in the various department heads to discuss their expenditure and revenue requests for the upcoming year. We also review their year-to-date numbers to see how adequate the prior year’s figures were. We pore over every single line item several times. When in disagreement on a number, we confer until we arrive at a consensus.
6. After numerous such meetings and board revisions, the draft is once again submitted to the Town Clerk and presented as the “Preliminary Budget,” but it is often referred to as the “Town Board budget” since it comprises input from all five members. This is the budget that is advertised for public hearing.
7. After the public hearing, the Town Board has the opportunity to make additional changes, which are usually based on public input or “just-in” numbers, such as the final change in health insurance premiums. After that, the budget is placed before a roll call vote to adopt or not.
I have also been queried a lot this year about “fund balance” — what it is, where does it come from, how is it used and how big should it be. Fund balance is also referred to as “reserves” and appears in more than one budget line. The simplest way to understand this concept is to think of it as a sort of savings account, while the budget is the checking account.
For example, if the adopted budget is, say, $9 million, a new “checking account” is created on January 1 with that $9 million deposited into it. That $9 million can come entirely from the amount to be raised by taxes or the Town Board has the option of applying some money from the fund balance (“savings account”) if we feel doing so would still leave adequate money in that coffer for any large, unexpected emergencies.
During the course of the year, if a particular budget line runs out of money for any reason, the Town Board can vote to either transfer funds from another budget line, if there is a surplus, or from the fund balance. The more accurate a budget, the less money transfers are needed, but unfortunately no one has a crystal ball and we cannot predict every item in advance — especially items over which we have no direct control, such as rising fuel costs or revenue from mortgage tax income.
On Friday, October 21, the Town Board voted to make the third transfer this year from the fund balance to certain accounts, for a total transfer of $177,000. That merely means specific funding lines were depleted and not that the whole budget was running out of cash.
On December 31, if there is any money left in the “checkbook,” it is rolled over and added to the “savings account” (fund balance) to be supplanted by the new budget on January 1.
With regard to how much should be in the fund balance, that is a matter of personal opinion. Auditors recommend a minimum of 10 percent of the budget. My motto of “always be prepared,“ coupled with the fact that we are a small and geographically isolated community, lead me to feel that 15 to 20 percent is an appropriate reserve amount for Shelter Island. Anything in excess of that amount should, in my opinion, be used to reduce the tax burden. After all, it is your money, and the Town Board is the custodian you elected to manage it. The other Town Board members and I have always strived to do what we feel is in the best interest of the Island while trying to keep taxes as low as possible. Your Town Board members live here, too, and have to pay the same taxes.
The other confusion on the street seems to be what budget numbers are being quoted. There are two different numbers — both important. One is the change in the budget. That is the net increase (or decrease) of expenditures and revenues as compared to the previous year. The data I got on October 21 from the Town Clerk’s office showed this increase to be up 7.9 percent from 2011. By the time you are reading this, that number will have most likely changed. The other number often quoted is the net increase (or decrease) in the amount to be raise by taxes, which is the budget number less money taken from the fund balance to reduce that tax burden.
Offsetting the budget number with something like $500,000 from the fund balance may reduce that budget number from an increase of 7.9 percent to below 2 percent. That number, after tapping the fund balance, is what the supervisor has been quoting, but again, that can be very misleading to people, especially when comparing it to pre-tapping the fund balance budget numbers from previous administrations.
I hope this has helped enlighten you on the fund balance and the budget process.
Mr. Reich is running for re-election to a third term on the Republican and Conservative lines.