“This is how government should work.”

May 15, 2018

Good Morning! In this morning’s eBlog, we fiscally visit the small municipality of Evans, New York, a town of about 41 square miles in upstate New York which was established in 1821—seventeen years after its first settler arrived, and today home to about 14,000—but a municipality so broke after years of fiscal and financial mismanagement that it lost access to the municipal market in the wake of the withdrawal of its credit rating.

Absence of Fiscal Balance? Evans Town Supervisor Mary K. Hosler has reported that the municipality was unable to secure a loan in the wake of the withdrawal of its credit rating. In her 3rd State of the Town Address, where she advised citizens that “much can be accomplished when politics are checked at the door, and a spirit of cooperation is adopted at all levels of our town government;” she added that it was her hope that citizens would leave with “a sense that our Town is mending and moving ahead with strength and momentum,” as she noted: “By way of brief overview, as many of you are aware, the Town has been faced with numerous challenges over the past two years. Unfortunately, a decade of financial mismanagement came to a head during my first year in office, and we were faced with what turned out to be the worst financial crisis in the history of the Town. There were very few options available as the Town was facing the possibility of insolvency or a control board.”

In New York, a municipality—or its emergency financial control board, may file for chapter 9 municipal bankruptcy: the Empire State’s §§85.80 to 85.90 authorize the state legislature to create a financial control board—something created in September of 1975 for New York City; however, the New York State Constitution also contains certain fiscal limitations on municipal debt—including a limit of 9 percent of the average full valuation of said municipality’s taxable real estate for municipalities with populations under 125,000.

Supervisor Hosler introduced Evans Finance Director Brittany Gloss to present the municipality’s financial accomplishments and the progress being made in terms of economic development and, “most importantly: where we are headed,” reminding constituents that any loans would have been “costly to our residents: financially, in the loss of services, and the loss of local control,” adding:  “It has been said that the definition of insanity is doing the same thing over and over again while expecting different results. Well, we stopped the insanity, which meant we had to identify the problems and take action. Every decision was critical to move the needle in the right direction, and work the Town out of this financial disaster. These decisions were often painstaking and gut‐wrenching, but they were necessary to change the Town’s financial course. They were reviewed from all angles, and made with the taxpayer’s interest and the future of the Town of Evans in the forefront. And these difficult decisions have yielded positive results.” In her introduction, Supervisor Hosler, noting the town’s bond rating had been restored to an A rating, reported: “We’re  definitely on the recovery side of the balance sheet,” with the former bank vice president who played a key role in steering the town toward solvency, telling the audience that the municipality had turned to Erie County for assistance two years ago—or, as Erie County Comptroller Stefan I. Mychajliw recalled, the call came as the town’s payroll and bills were piling up, late at night as he was “on the couch with a horrible flu.” Nevertheless, he stated that he advises every town supervisor to let him know if they ever need anything, adding: “That night I had three or four conference calls with three of my most senior staff.”

Remarkably, by the next morning, he had already helped pull together three possible fiscal plans for the town—with the one which led to the fiscal rescue: an unprecedented $980,000 short-term loan from Erie County.

For her part, Supervisor Hosler knew when she ran for office three years ago that there were financial problems; however, it was not until she took office that she discovered thousands of missing financial transactions, internal audits which had never been completed, and a $2.6 million deficit. The fiscal depths appeared to be the result of the municipality’s debt issued in 2007, when the town had borrowed $12.6 million to install new water lines, hydrants, and a water storage tower. In that transaction, instead of putting those funds into a separate account, as required, the town combined the money with the rest of its municipal funds. Thus, a subsequent New York State audit found that $2 million of those funds were used to cover operating expenses, with the bulk for the municipality’s troubled water operations—putting the municipality on a seemingly unending reliance on tax-anticipation notes to make ends meet—that is, until the ends were at the end—or, as Supervisor Hosler described it: “Not six months into office, I’m thinking ‘Holy Lord, this is a big climb’…We had to keep moving on all fronts.”

A year and a half later, Evans has received an A credit rating from S&P Global Ratings, easing the way for the municipality to issue municipal bonds to finance $5.2 million for a new water tower, with S&P noting: “The stable outlook reflects S&P Global Ratings’ view that Evans has implemented various corrective steps to restore structural balanced operations over the past three audited fiscal years. It also reflects our expectation that the town will likely maintain strong budgetary performance, which will likely support its efforts to eliminate its negative fund balance and rebuild its budgetary flexibility.” Indeed, the town’s current deficit of $320,000 is a shadow of its former $2.6 million—and Supervisor Hosler is hopeful it can be eliminated by the end of the fiscal year—a fiscal accomplishment which could create a fiscal bonus: lower capital borrowing costs on municipal bonds the municipality hopes to issue for its water system.

The $2.6 million deficit is down to $320,000, and now Supervisor Hosler is hopeful it can be erased by the end of this year. In addition, with the credit rating, she is hoping to get a lower rate on water bonds to hopefully lower water rates. As Comptroller Mychajliw put it: “I’m just thrilled for her and the town: This is how government should work.”

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