Fairview Fire District Proposed 2012 Budget May Deepen Financial Crisis

The Fairview Fire District Long Range Planning Committee announced at a public workshop meeting on May 26, 2011, that recent budgets have not contributed enough money to the apparatus and equipment reserve fund.  The money that should have been set aside was used instead to decrease the fire tax levy.  If Fairview continues this strategy, it will be out of money when future obligations come due.  Fairview's proposed 2012 budget continues this strategy, therefore threatening to deepen Fairview's long term financial crisis. 

How much should be contributed to reserve fund?

Fairview Fire Commissioner Bob Gephard is justifiably proud of the fact that he initiated the first long range planning study of the District in quite some time.  One result of this work is the Long Range Committee Capital Equipment and Building Plan posted on the District’s website, which shows specific apparatus and equipment expenditures going out 15 years to 2026.  This document shows that if nothing is ever contributed to the apparatus and equipment reserve fund, the District will be in the hole about $4.1 million by 2026.  However, the current fund balance is actually about $335,000 more than that document assumed, so the District only needs to come up with $3.8 million.  On the other hand, it needs to come up with it by 2025, not 2026, because 2025 is when the last significant expenditure occurs.  Dividing the $3.8 million by 14 years gives about $270,000 per year that the District must contribute to the apparatus and equipment reserve fund in order to meet anticipated expenses.

The following chart shows how this would play out on a year-by-year basis.

The red bars show the amount projected to be spent each year, according to the Long Range Committee Capital Equipment and Building Plan.  The blue bars show the amount available in the Fund at the beginning of each year.  The green bars show the amount contributed to the Fund each year – in this case $270,000.  Note that in 2026, the blue bar is zero, indicating that the yearly contribution of $270,000 is just enough to carry the district into 2026, paying for everything with no money left over.

What if less than $270,000 is contributed to the reserve fund?

If only $153,000 is contributed to the apparatus and equipment reserve fund every year beginning in 2012, there will be just enough money to carry the district into 2020.  Unfortunately, the District's ladder truck, which will then be 18 years old, is scheduled for replacement that year, and the reserve fund will be nearly $1 million short of the projected $1,716,160 replacement cost.  Oops!

How much does proposed 2012 budget contribute to the reserve fund?

Fairview's 2010 budget contributed only about $143,000 to the apparatus and equipment reserve fund, and Fairview's 2011 budget contributed nothing to the reserve fund.  Fire Commissioner Bob Gephard stated at the May 26 meeting that he regretted supporting the move to not contribute to the reserve funds, seeing that neglect of the reserve funds is at the heart of Fairview's long term financial crisis.

So on September 26, 2011, after careful consideration, the Fairview Fire Commissioners passed a proposed 2012 budget that contributes nothing to the apparatus and equipment reserve fund.  Zero!  Zilch!  Zip!  Scratch!  Null!  Nix!  Nada!  Even Fairview's Treasurer, James Passikoff, during his presentation of the proposed budget, noted that adding nothing to the reserve funds, “ ... is probably not a good move.”  Under the circumstances, this strikes me as a bit of an understatement.  In my view, the failure of the proposed 2012 budget to contribute $270,000 to the apparatus and equipment reserve fund is the single most inexplicable decision.  It appears that the Board has learned nothing from the May 26 meeting which described the long-term financial crisis.

Proposed 2012 budget makes high-risk assumptions

Unfortunately, the proposed 2012 budget makes a series of high-risk assumptions on smaller items.  Consider the following quotes from Passikoff's budget presentation on September 26 (emphasis added):

• “We've got a potential to get another $45,000 from Dutchess Community College when the dorms open next September.”
• “We also have a chance of getting a SAEFER grant of $75,000.”
• Fairview currently has four firefighters eligible to retire.  An early draft 2012 budget contained $100,000 needed for a “buyout” in case one of them retired.  Passikoff said, “We ended up taking that out.  We're gambling that nobody's going to [retire].”

So let's see:  “We've got a potential ... We have a chance ... We're gambling ...”  Not my words — Passikoff's.  These gambles add up to $220,000 that hopefully will fall in favor of the District.  But what's the chance that all of the above optimistic assumptions will hold?  As far as I can tell, there isn't any “fat” in other parts of the proposed 2012 budget.  So if any assumption fails, the District may need to borrow money at taxpayer expense to make up the difference, essentially costing taxpayers more money in the long run.

Proposed 2012 tax levy is low-ball

The proposed 2012 tax levy continues Fairview's strategy, begun in 2009, of starving the District of resources, as I explained in Big Three Fire Districts Use Divergent Tax Strategies.  It's true that the proposed 2012 tax levy is 9.3 percent higher than 2011's (or 10.7 percent higher, if you take the budget viewpoint).  The problem is that Fairview's 2011 tax levy is artificially low in part because it contributed nothing to the reserve funds.  If the 2011 budget had contributed a nominal $250,000 to reserve funds (lower than the $270,000 that's now needed), then the proposed 2012 tax levy would actually be slightly lower than 2011's.  A similar analysis shows that if the 2010 budget had fully contributed to reserve funds, the proposed 2012 tax levy would be lower than 2010's.  In other words, it's only because recent budgets have neglected the reserve funds that the 2012 tax levy seems large.

In my view, it is more relevant to note that the proposed 2012 tax levy is 5 percent lower than Fairview's pre-meltdown 2008 tax levy.  In other words, one could add $150,000 to Fairview's proposed 2012 tax levy and still not exceed Fairview's 2008 tax levy.  From the perspective of 2008, Fairview's proposed 2012 tax levy is low indeed. 

Fairview's Financial Crisis May Deepen

Given the difficult times we've lived in since the economic meltdown of 2008, it is understandable that Fairview's 2012 budget cannot in any way reverse or compensate for the mistakes of the past.  But one can reasonably expect a budget that does not make Fairview's dire financial situation worse.  Fairview's proposed 2012 budget, by underfunding the apparatus and equipment reserve by $270,000, and by making $220,000 of other high-risk assumptions, threatens to do just that.