It’s been about 1 year and 8 months since I took office as Holyoke’s mayor. When I sought office, I had a dollars-and-cents ambition: to strengthen internal controls and better manage our municipal finances. I strongly believed— and still do — that if we cultivate a culture of responsible management, face-to-face communication, and a commitment to protecting our city assets and resources, we could improve the quality-of-life for every citizen of Holyoke.
I try my best to communicate the issues, share our objectives to overcome challenges, and report on our progress every step of the way. I want to share with you today where we are, what to be aware of, and where we are going. Some of this may sound familiar if you have been following my previous reports.
Let’s start off with where we are:
My first two fiscal year budgets underwent only minor cuts from the City Council. Past administrations submitted budgets that exceeded revenue projections, forcing the City Council to make drastic cuts. Those cuts resulted in budgets that were at the levy limit, leaving no excess capacity, no flexibility to respond to interruptions in services, and significant annual tax increases.
My two budgets presented to date pumped the breaks a little bit. They were based on what we understood to be our revenue and expense projections and an informed understanding of Holyoke’s municipal service needs.
- For review of FY23 Mayor’s proposed budget and budget narrative
- For review of FY24 Mayor’s proposed budget and budget narrative
They included moderate increases in net local revenue growth. Our estimates for revenue were conservative, however, for two reasons:
- Postings of revenues are behind, making it difficult to project out true anticipated revenues.
- To provide flexibility in the event of unexpected circumstances.
And it’s important to note we have been making strategic use of ARPA funds while our financial team works to leverage new sources of revenue and efficiencies while getting a grasp of our revenue potential.
Neither of my budgets proposed a Proposition 2½ override or any reduction in services. My latest budget left on the table a surplus of $1,205,490 from the levy limit. Because of the conservative estimates of receipts and the maximum new growth potential not yet realized, our excess capacity may be greater than anticipated. This offers the city even more flexibility to pivot in case of unforeseen developments, further plan for service needs, and also remove dependence on ARPA.
The budget is a moving target with new revenue projections being realized every day. We will know more about our revenue limit as we get closer to the end of the calendar year prior to setting the tax rate. I anticipate making additional adjustments to the budget as we get closer to the calendar year-end so that we can strike a better budgetary and service need balance. My budget mitigation process in my first year resulted in just a 1.7% tax increase, which is much lower than previous annual increases in the city: well over 3%. I look forward to continuing to implement my strategies to keep any increases moderate and avoid major increase impacts.
Summarizing, my two budgets reflected growing excess capacity from the levy limit and a healthy certification of free cash. This is a direct result of careful fiscal planning and forecasting to navigate the storm I inherited. Although I am the first to admit it isn’t perfect, the plan we are following puts us in a stronger position.
We drafted and continue to develop a 5-year forecast model to help us navigate uncertainty and make informed decisions. We worked with the City Auditor to close outstanding deficits that have been on the books for decades. This helped produce very healthy levels of free cash balances for the last two fiscal years. For almost a decade, Holyoke’s free cash balances had been certified in the negative. We also started a capital stabilization account and invested in our emergency stabilization account for the past two years. Year One was the first time the emergency stabilization account was invested in since the 1990s. Since I have been Mayor, we have made significant investments in deferred capital maintenance and equipment upgrades, enabling city departments to keep up with services. We have invested in — and continue to make investments in — our outdated IT infrastructure and our municipal finance management system called MUNIS. We also started a trust account for post-employment benefits other than pensions (known as OPEB). These benefits can include life insurance, health insurance and deferred compensation. We made our first investment in that account as we strive to adequately fund our OPEB responsibilities. All decisions we have made supported our needs without having to bond.
We developed and have maintained a rigorous schedule of financial discussions with department heads and our finance team to achieve strategic objectives. We’ve made sure departments are adequately supported and we developed a system that enables us to effectively navigate department needs and city obligations while also ensuring internal control compliance as expected by Mass General Law and Municipal Finance Management Best Practices often preached by the Division of Local Services (DLS) of the Massachusetts Department of Revenue. Although we have made strides, we have so much more work to do to catch up and meet those expectations so that we protect our resources and close any opportunity for liability.
Speaking of the DLS, they helped pave the way to help us be better managers. They have recently helped us draft a Financial Policies Manual (click to review). The manual’s main objective is to provide direction and guidance for local planning and decision-making as we build a better government for our citizens. The policies outline objectives, provide direction, and define authority to help ensure sound fiscal stewardship and management practices in the effort to:
- Sustain a consistent level of service and value for residents and businesses
- Safeguarding financial integrity and minimizing risk through a system of internal controls
- Ensuring the quality and maintenance of capital assets
- Conforming to general law, uniform professional standards, and municipal best practices
- Protecting and enhancing the City’s bond rating
- Promoting transparency and public disclosure
- Assuring accurate and timely reporting
This manual will be in front of the City Council to review and codify in to our city ordinances so that no matter who is the next Mayor, Treasurer, Tax Collector, Assessor, Auditor, City Councilors, etc., the expectations for each are clear when it comes to management of resources.
These achievements to-date helped us maintain the city’s A+ Standard &Poor’s bond rating. This rating is a significant financial achievement for the city because of the recognition by the financial community of our strong fiscal management and budgetary performance. The analysis acknowledged the work we did to strengthen Holyoke’s financial foundation, with a focus on cost-saving initiatives, long term-planning and codification of best policies and practices to manage resources. If we continue this positive trend in our budgetary performance, we can anticipate an increase in our rating in the near future.
These aspirations and accomplishments depend on dedicated and motivated City staff. For that reason, we have worked and continue to work toward improving the attractiveness and competitiveness of city positions, improving our personnel practices, and investing in our employee workspace environment.
The City Council is largely to thank as well. Our positive working relationship has allowed us to rethink operations, build capacity, invest in deferred maintenance and capital needs, and also to pivot in areas where we need to in the effort to strengthen internal controls of our local government and keep up with important services. Without the Council’s support, this work- would be nearly impossible.
Now let’s share what to watch out for:
Yes, we can celebrate our achievements in the short run, but understand we are untangling issues that have built up over time. Where we are today is not perfect. We have a lot of work to do, particularly in the Treasurer’s office. The cleanup work in the Treasurer’s office is extensive as well as expensive but necessary. Reviewing previous annual audits (click to review audits from the last 10 fiscal years), you can conclude that a lot of the material weaknesses are in the Treasurer’s office. It’s the reason why DLS has consistently recommended to the City that we change the position of Treasurer from elected to appointed and that the City hire a Chief Administrative Financial Officer (CAFO).
- click to see 2007 DLS report for Holyoke
- click to see 2015 DLS report for Holyoke
- click to see 2020 DLS report for Holyoke
Until then, during Year One we were able to get support for the Treasurer’s office through a consultant to help with catch-up work. The consultant has been working with the Treasurer to update cash-book entries and bank reconciliations, among other day-to-day tasks. At the same time, they are working directly with the Treasurer to overhaul the city’s antiquated cashbook procedures among other complex tasks that are the responsibility of the elected Treasurer. If we can get caught up, it will result in revenue being booked to the General Ledger on a daily basis, a smoother year-end process and a more efficient reconciliation process. This directly addresses the adverse findings and material deficiencies that have been cited by our external auditors for years. But since we are still not there, it makes it very difficult to close previous fiscal years books and certify free cash in a timely manner, leaving us vulnerable to mistakes and/or fraud, and unable to effectively plan for future budget and needs. These issues cannot be resolved in one year and will require ongoing, significant investment. I promise you will see a return on that investment. Currently, the City Council is trying to understand why ongoing investment in this office is necessary and is withholding the funds the Treasurer needs to get ongoing help from the consultant. We look forward to making a presentation to the Council soon.
We also have in front of the City Council an order to start the process of changing the Treasurer’s position from elected to appointed. Also in front of the City Council is an order to reflect in Schedule A of our City Ordinances the CAFO position so I can go forward and search for one.
Until these three important resources are supported, the Treasurer’s is fighting against the tide. This will continue to have an impact on taxpayers. I’m confident we can get the public and the City Council to share my concern and agree to these important strategies.
Other things to watch out for are uncontrollable related expenses such as retirement and the school budget. We are in a third year of increases(Year Three of six years) in net school aid through the Student Opportunity Act, which has been a major contributor to the overall impact of our budget along with transportation costs. Although the cost for school transportation is going up, our Procurement Department, together with the School Department, has been able to save the city roughly $2 million over five years through creative changes in the competitive procurement process. I share this because it’s important for the public to know that although we have no control over these increases, we do what we can to soften the impact to taxpayers.
Also, historically, we have seen increases in health insurance. But for the first time in a while, we had a reduction in health insurance costs. I don’t anticipate that to be the case next year. Also, there are increases in salaries across all departments from negotiated union contracts due to cost-of-living increases and also ongoing efforts to retain employees and prevent turnovers so we can continue to limit disruption and better mitigate negative impact to local services, as well as to maximize the city’s potential to collect new revenue and properly navigate quality-of-life issues.
ARPA will not be around for long. ARPA has been incredibly helpful in helping us strengthen our foundation as we attempt to achieve new growth and other opportunities. When ARPA is no longer available, I hope to take advantage of those new opportunities. Worst comes to worst, as a community we will have to make some very difficult decisions on what to fund in the budget to keep any tax impact limited. These hard decisions may have an impact on services, potentially reduce services if it’s the desire of the community to keep taxes low. This is why it’s extremely important we do what we can to bring in new growth in the city. We need to expand our commercial tax base and support efforts for economic development.
Lastly, other unrestricted Local Aid from the Commonwealth to Holyoke is not adequate, which is frustrating. Gateway cities across the Commonwealth have been doing what they can to advocate for more resources to better keep up with the challenges that Gateway cities often face. Considering the circumstances, we have a lot to do on this.
It is up to this office to continue to strategize with the City Council to be creative with the budget to get us closer to meeting the demands of our community.
Where we are going:
The budget strategies I have implemented to-date are far from perfect but it’s one that allows us to appropriately mitigate the minefield. 1 year and 8 months will not allow me to avoid completely the icebergs ahead. However, in this short period, we have reduced the impact. Our strategies helped us maintain our bond rating while also keeping up with services and investing in our dire capital needs and other obligations that have been neglected for a long time. We are heading in a direction that anticipates increasing our bond rating and providing better services. Considering the circumstances, for a Gateway City we are doing okay. However, we can’t take our eyes off the ball. We are in a delicate situation where if we lose sight now, we can get off track making it increasingly difficult to return from years of errors, deferred maintenance, and inadequate local support. At the same, we need to support strategies that sustain continuity, so we never go backwards no matter who is in office.