Changes called "long overdue"

A state report about the planned consolidation of town and school finances points to a number of shortcomings that need to be addressed while it recommends guidance for moving ahead with targeted completion of the process in mid-2014.

Steps include changing the treasurer and Board of Assessors from elected to appointed offices as well as moving the comptroller to Town Hall and increasing the automation and efficiency of financial processes.

Read the complete state report here >> (.PDF)

Two key conclusions

"Currently, the school budget analyst spends as many as three hours per day to complete these tasks using a manual system," the report says, referring to Janet Collins, who records staff absences and hiring of substitutes. "We don’t believe that these responsibilities represent the best use of time for the second highest paid and longest serving person in the school business office."

The state's proposed timeline see completion of a proposed merger by July 1, 2014. The Jan. 26 report from the Department of Revenue's Division of Local Services has at least two key conclusions:

-- "Many other Massachusetts communities have moved to a government structure that places financial management responsibility firmly with the town manager or administrator. Arlington has resisted the clear trend among Massachusetts communities, and particularly among comparably-sized communities with AAA bond ratings, to create a consolidated finance department with financial positions accountable to an administrator or finance director.

"Loyalty to and respect for long-serving officials in these offices may color local opinion, but in the harsh environment of revenue constraints and constant spending pressure, we believe that a coordinated and accountable financial management structure is long overdue in Arlington."

-- "On the school side, improvements to financial controls and reporting have been put into place by the chief financial officer [Diane Johnson] since the [$1.5 million] deficit in FY2010. However, resources and systems remain somewhat fragile and staff is stretched thin at times. Over time, tight budgets have caused resources to be focused on direct educational services at the expense of administrative capacity across the department.

"In part, lack of administrative capacity at the building/cost center level is cited as the reason the business office has not moved ahead with MASBO’s recommendations to decentralize processing of purchasing and payroll. Recently, communication between the school department and lead finance officials and committees on the town-side has been strained."

The reference is to recommendations made in an audit by the Massachusetts Association of Business Officials in the fall of 2010 following the discovery the previous August of a $1.5 million shortfall from the preceding fiscal year.

Nov. 3, 2010: Addressing flux, school auditor recommends series of changes

Other points in 38 pages

The report's 38 pages include these points:

-- TOWN OVERSIGHT: The town’s finance offices perform their functions well in most respects, but "they operate without direct oversight to ensure coordinated and efficient operations across departments.

"Staffing levels appeared uneven across departments and we found some procedures were manual or labor intensive. Given the complexity of municipal finance today and the ongoing budgetary pressures facing Arlington, we believe that the current organizational structure with independent finance officers is outdated and no longer sufficient to meet the town’s needs."

-- SCHOOL ADVANCES: After arriving in September 2009, the schools' CFO has revised the district’s chart of accounts, the third such change in recent years, to make them more compatible with state reporting requirements. She revamped the monthly reporting system for revenues and expenditures to reflect the new account structure and to include projections to year-end. She also has instituted a position-control system where all district positions, regardless of funding source, are listed and assigned a position number with projected salary costs for the year.

Even so, more work remains, on both sides.

In its 2011 report to Town Meeting, the Finance Committee supported a request to study putting in effect a town-school finance department. In doing so, the Fincom pointed to the "current fragmentation of financial management functions." The report also describes a budget process that suffers from "obscurity and complexity."

Before making its recommendations, the 2012 state report helps confirm last year's Fincom report with a series of observations. Among them:

UPSETTING OFFSETS: The town’s budget includes numerous "offsets" that effectively reduce appropriations in many line items. "These offsets typically represent costs that are funded by the town's enterprise funds," the report says. "The use of offsets in the budget is not consistent with current enterprise fund budgeting procedures and detracts from a transparent budget document where departments are fully funded."

Offsets were "likely a contributing factor in an error that occurred in the setting of the FY11 tax rate. The comptroller’s staff entered an incorrect offset figure for the skating rink which lowered the debt service appropriation and resulted in an appropriation deficit of $239,083."

NO CENTRAL SYSTEM: "Departmental budget requests are not prepared using the MUNIS [accounting system] budget module, but reside on various individual computers and are transmitted to the finance committee in different formats.... Complications arise in tracking budget changes as the deliberation process evolves and assumptions are adjusted."

TAX RATE SETTING "is handled almost exclusively by the elected assessors and comptroller, with no meaningful role for the town manager’s office. This creates a situation where the financial policies reflected on the tax rate recapitulation sheet may not coincide with the town’s initial financial plan developed by the manager and finance committee."

DUPLICATION OF EFFORT: "Financial information entered in the treasurer/collector’s office must be rekeyed in the comptroller’s office due to the lack of integrated software. While bridge programs could be developed to automate the transfer, this has not occurred."

EARLIER RISKY INVESTMENT: "The treasurer/collector’s office invested proceeds from property tax overrides that were set aside in a special purpose stabilization fund in risky investments at State Street Bank. During FY2009, these investments experienced a net loss of about $500,000 in principal, after the Attorney General’s office recovered about $230,000 from State Street for failing to fully disclose the risky nature of these investments."

$1.5M SCHOOL SHORTFALL: The issue "was set into motion by overly aggressive and flawed revenue estimates, depleted special revenue fund balances and a lack of control over salary expenditures."

OTHER PRACTICES include the school department initially charging all costs to the general-fund appropriation and making adjustments at year-end. The report says that "made it very difficult for the comptroller to detect school budget problems during the fiscal year. Procedures associated with the long-standing practice of encumbering the entire remaining balance in the school budget at year-end also compromised the town’s ability to detect deficits."

15 recommendations

To address these and other issues, the state report makes 15 recommendations. Among them:

-- Amend Arlington's Town Manager Act to create a consolidated finance department where appointed finance officers report to a finance director or the deputy town manager.

-- Convert the elected treasurer/collector’s position -- now held by Stephen Gilligan -- to one appointed by the manager. The report calls this a "clear trend" in Massachusetts for reasons related to making sure that office holders possess the experience and qualifications needed.

-- Make the director of assessments job -- now held by John Speidel -- and the Board of Assessors appointees of the town manager. Such a director would receive direct, day-to-day supervision from the manager.

-- To preserve some independence, keep the comptroller -- a position now held by Ruth Lewis -- subject to appointment and removal by the selectmen. Have it report directly to and be evaluated by the finance director or deputy town manager. Consider placing the comptroller’s office in Town Hall, not in the basement of the high school, where it is now.

-- Explore using the MUNIS budget module for departmental budget submissions and as a central database to store and track changes during the process.

-- The town manager and school superintendent -- Adam Chapdelaine and Kathy Bodie, respectively -- should address outstanding issues with previous town-school consolidations, including job classifications, salaries and union representation in the merged IT department.

-- Purchase and put into effect an automated system for recording school staff absences and hiring of substitutes. Collins, the budget analyst, spends as many as three hours daily to complete these tasks using a manual system.

-- Install MUNIS terminals in each school building or cost center.

The town made the state report public Feb. 3, eight days after it was dates as released, and issued a news release with general information, available here >> 

The consolidation will be discussed at Town Meeting, which begins Monday, April 23.

This story was first reported Friday, Feb. 3, 2012.