What Our Annual Audits Reveal

Show Me The Numbers -- a glimpse into the city's finances

There are three sources of information on the city's finances:

• monthly treasurer's report to city council,

• annual budget resolutions, and the

• state-mandated audits.

The first of these shows the activity in the city's two general fund bank accounts, a checking account and a CD. (There are other checking accounts for the library, fire department, and the water and sewer utilities.) The end-of-month balances in these general fund accounts are quite stable. In checking, the balance has not fallen below $2 million for the period I have gathered (Nov 2021 - Nov 2023) and at this writing (Dec 2023) has averaged $2,745,000 over the last 8 months. Over the same two years the CD had a low of $255,000 and a high of $381,000.

The bank account reports give a sense for the cash at hand, but nothing about liabilities and encumbrances.

The second, annual budget resolutions, can allow you to see generally where city funds come from and go. But these are just best estimates for the coming year, and stuff happens. Importantly, from our budgets you cannot learn much about the various funds and their balances that are at the heart of municipal accounting (and which add up to the bank account balances).

The third source is annual audits, required by the state and performed by an outside CPA firm. Here the emphasis is on assets and liabilities, and they are all but indecipherable for a non-accountant. They are a snap-shot in time (close of business December 31st), but they provide a great view into our various funds. When several years of audits are studied together, concerns about their snap-shot nature are lessened. 

That's what I've done here, for 2017-2022, for the parts of the audit that I think I understand (my many hours contemplating them may have lulled me into overestimating my grasp of what they say). I only went back to 2017 because this was the year that our current auditor took over. This change led to some reshuffling of some assets, which I gather is not unexpected.

First a couple notes on fund balance accounting might help. Municipalities all have a general fund, like your personal checking account. Most revenues are deposited there, and most general expenses are paid out of it. Other funds can be set up within the accounting system as needed, to make it easier to track revenues and expenses associated with particular enterprises. We have, for example, one for harbor, the courthouse, Lakeside Pavilion, and capital improvements -- even the Iron Bridge has a fund. 

Now here is an important concept: a fund (or a portion) may have limitations on how it is meant to be used. The three important distinctions for our purposes are restricted, unrestricted, and unassigned. Restricted funds are just that: some entity outside the city has placed legal restrictions on how these can be used. An example is a grant from the state or federal government for a specific project.

Unrestricted funds, on the other hand, can be used as the city council wishes. However, most of this money was previously allocated to some specific purpose by the council. For example, we have a capital projects fund that council places money into annually, with the intention that it will be spent on big-ticket items (like streets) in the future. But in an emergency council can reallocate it as it sees fit, with a vote. 

Most of our funds have at least some unrestricted assets. Only the general fund, however, has unassigned funds. This is the money the city government has that it did not specifically designate for some purpose -- what you might think of as the buffer you keep in the checkbook to avoid an overdraft if you fail to record a check.

As you can imagine, more unassigned and unrestricted funds are better than less. A healthy city has an appropriate and fairly stable quantity of both of these categories of fund balance.

Sorry about all this, but now for some results. What's happening with the city's unrestricted and unassigned fund balances? Look at the graph below. Good news here: for the last six years both have increased -- year-by-year for unassigned and with just a wobble early for the unrestricted category (shown by the solid lines in the graph). This means revenues have exceeded expenses. But this can come about from either increased revenues or reduced expenses. Both are at work here, including unfilled police officer positions.

Two other lines on the graph (dashed): the lower one in blue is the capital projects fund. The drop in 2018 was related to the fountain project, when the city paid some bills before grant and gift dollars were received. But overall this fund has not been applied to a big-dollar project for years.

The higher dashed line is what the auditors call "current expenses" -- what it takes to meet payroll and keep the snowplows fueled. It strikes me as remarkably stable, perhaps the result of some avoided expenditures countering the effects of inflation. I expect that audits for 2023 and 2024 will show it trending upward, with inflation and substantial wage increases at work.

My take: we aren't broke and, arguably, are carrying what some consider excessive unrestricted fund balances. Local governments in Wisconsin are not supposed to squirrel away too much revenue without declaring some specific purpose for it -- this issue has been tested in court several times.

BUT... there is a great need for investment in our city infrastructure. Streets, storm water management, and city hall top the list. The total cost of all this deferred maintenance has not been tallied, but it is surely way beyond our current fund balance excess. Further, there aren't any conceivable ways to reduce current expenses enough to have an impact on this challenge. To assert so brings to mind the baby boomer telling the millennial who is unable to afford a house that all they need to do is quit buying lattes and avocado toast.

Time for some careful financial planning and new revenues.

Originally published December 15, 2023.