Those of us in leadership positions made the decision not to discuss The Audit until it was finalized. However, it's been discussed in open meeting and reported in the local media causing me revise my thinking.
While the reported findings are preliminary, the concerns raised are significant enough to warrant notifying the DOR, and both the Town's bond and financial counsels as well as legal counsel. This was done by the Interim Town Manager and the Auditor and, as chair of the BoS, with my knowledge. The BoS was immediately notified. By doing so, we have been proactive and transparent which is being viewed favorably by the DOR.
While what we have learned so far are irregularities such as misclassifying operational expenses as capital expense and paying for them out of bond funding, they are consequential and have serious ramifications for the Town's finances: i.e., capital funds will have to be replenished.
Until the audit is complete we won't know the exact amount but figures presented at Monday's emergency BoS meeting range anywhere from $600,000 to over a million just to resolve a 12/10 bonding deadline. Tinytown Unleashed
Where will the money come from? There are no good solutions. We could borrow from cash reserves but these have already been decimated to balance the water enterprise fund FY11 budget. We could raise water rates. Oops, we already did that. We could hold a Special Town Meeting and ask for an override or debt exclusion. Should the voters say no, cuts would have to made in the Town and School Budgets. Or we could just go ahead and make those cuts. Ultimately how the Town resolves this problem depends greatly on the DOR.
In order to identify available funds in the FY11 budget, the Interim Town Manager has issued a town-wide freeze on all discretionary spending. Mariner
Other implications could be that it might affect the town's bond rating and the rate at which we can borrow money; and existing tax-free municipal bonds may become taxable to the bond holder causing a federal tax issue.
Another unintentional consequence is that it may affect the Town's ability to set the tax rate. The Assessors will present their report to the BoS on Monday night at which time we will vote to set the tax classification for submission to the DOR. However, the DOR may choose not to set the Town's tax rate pending their receipt and review of the final audit. If that happens the Town can issue estimated tax bills based on the previous year's tax rate but new betterments cannot be included. Should this happen it may cause a cash flow problem for the sewer enterprise fund as the FY11 budget is based on the Little Harbor Project betterments being paid.
This sounds dreadful. It is. Fixing this is going to hurt.
