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Multiyear Financial Planning Report – January 2023

Dear Residents,

Please find below the first draft of the Multiyear Financial Planning Report issued to the village board by Trustee Mark Browne and village resident Jerry Callahan. Mark and Jerry have put in A LOT of work and have done an outstanding job outlining improvements to the village’s budgeting process.  They have also begun to chart a path forward for the village to move beyond year-to-year budgeting and conduct long-term financial planning to ensure we can afford infrastructure improvements in the years and decades ahead.

There is much more work to be done on this topic and we will continue to discuss at village board meetings and communicate publicly for transparency and resident feedback.

I would also like to thank Treasurer Nicole Heeder, DPW Superintendent Dave Booth, village resident Dan Valentine from Tighe & Bond, as well as the team from Fiscal Advisors and our financial auditor for their time and assistance.

If you have any questions, please do not hesitate to contact me at mayor@villageofkinderhook.org.

Thank you, Mark Browne and Jerry Callahan for your hard work!

Sincerely,

Mike

Multiyear Financial Planning Report to the Village of Kinderhook Board – January 2023

By: Mark Browne, Trustee; and Jerry Callahan, Village Resident

Summary: This report is a draft, however, it provides important status covering ongoing activities.

In April 2022, Mayor Abrams identified the need to establish longer-term financial planning as a Village priority.  He is confident that this will better enable us to achieve our mutual objectives. He stated at the onset of this multiyear planning initiative that, “We will assess all village assets and create a long-term budget projection and savings plan to ensure we are able to afford and replace aging assets and equipment in the years ahead.”

Trustee Mark Browne was tasked to work with Village resident Jerry Callahan to produce a report for the Mayor and the Village Board containing new guidance relative to our future budget generation processes and make recommendations based on document reviews, discussions, and observations conducted with Village staff to improve the longer-term fiscal condition of the Village of Kinderhook.

As a first step in this endeavor a Multiyear Planning Initiative Project scope document was created and shared with the Mayor and the Village Board. There are fourteen (14) work items found in this scope document and this report will cover each item and provide observations and recommendations. Until such time as this document is complete it will include the status of ongoing activities. As such, this is a working reference document at present.

After establishing the scope of this work effort, Mark and Jerry have accomplished the following:

  1. Reviewed the Village of Kinderhook 2022–2023 approved budget in detail with the intent to provide recommendations for the draft 2023–2024 budget and beyond. Jerry and Mark are working with Nicole and the Trustees to improve our budgeting processes and execution.
  2. Reviewed two (2) letters dated February 4th, 2015 and three (3) audit reports dated year ending May 31st, 2014 from SAXBST (an Accounting/ Tax/ and Advisory Firm) hired by the Village of Kinderhook to provide comments and suggestions with respect to matters in connection with an audit of the financial statements of the Village of Kinderhook, New York. The major finding therein identified the need for maintaining an inventory of capital assets and plan for longer term infrastructure projects and establish capital reserves using current resources to mitigate the burden on future taxpayers and water-rate payers. Although this statement was specific to financial management of the water fund a similar effort is needed for roads and infrastructure.
  3. Met with the Mayor, Trustees, Clerk-Treasurer, Water Commissioner and Department of Public Works Superintendent and reviewed current budget items and future funding needs.
  4. In meeting with the Clerk-Treasurer, we reviewed budget processes and financial controls. We recommended some refinements to the current budget relative to naming conventions to better align expected incoming invoices to a more detailed set of budget items. In addition, we discussed work-load challenges in the Clerk-Treasurer area with regards to grant administration, and the requisite invoicing to government funding sources. Thereafter, we produced a future staffing model to accommodate the future work load envisioned and we are in the process of determining the cost to transition to this future staffing model incrementally. It is anticipated that the Mayor and the Village Board will review these findings and incorporate some of them into the 2023-24 proposed budget after discussions of alternatives and determining cost impact on residents. Every effort will be made to contain costs as deemed practical while maintaining essential services.
  5. Reviewed the Fire Department Truck Acquisition plan and debt service agreement. It has been previously determined that this acquisition and sale of an older Fire Truck should not increase the tax base, however, the financing will increase the ratio of debt services to budgeted items for the Village of Kinderhook. This ratio at present is very low estimated at 24% or less.
  6. Reviewed the submittal of the Water Equipment Inventory that has been submitted by Village staff and the Water Commissioner to the Rural Water Organization to support the creation of a longer-term funding and maintenance plan. We are awaiting their report to build into a future budget any possible changes in water fees and revisions to reserve funds. In addition, we will need to work with our Financial Advisor to determine the impact of borrowing to conduct the Albany Avenue Watermain Upgrade Project. This endeavor is ongoing and it is hoped that a NYS (WIIA) grant or some other source of NY State and/or Federal funding can supplement this expenditure that must be made in parallel with the Albany Avenue Road Improvements. The DPW Supervisor is doing a comparison of our water usage fees to other municipalities in New York State. In addition, Jerry and Mark will interact with the Rural Water organization and come up with an estimate covering the longer-term maintenance costs for the current water distribution system to enable the establishment of a  better yearly reserve figure within future Budgets. This work is ongoing and will be incrementally improved on.
  7. Discussed with Tighe & Bond Senior Project Manager Dan Valentine who has been hired by the Village to do a road inventory to facilitate the creation of a longer-term funding and maintenance plan for repairing our roads. At present, we depend mostly on NY Chips funding that has been inadequate as compared to our needs. We are awaiting Dan’s report to build into a future budget possible changes in local taxes and revisions to reserve funds covering roads. They have produced preliminary findings indicating the condition of our roads and the order that maintenance and repairs should be conducted. They are currently producing estimates of what the maintenance and repairs should cost in the years they will be needed.
  8. Attended a NYS Comptroller’s Office training webinar covering Multiyear Financial Planning.
  9. Met with the Mayor and the Village Trustees to discuss future staffing models to manage the existing and upcoming grant and project work and cash flow models for these endeavors. The Mayor has assigned Trustee Paterson to support the analyses of position descriptions, pay rates and to conduct a review of the Employee Handbook to determine benefit costs associated with any of the proposed changes as found in the new staffing model under review.
  10. Met with P. Christopher Kelsey, CP, our Accountant, that assists the Clerk-Treasurer with Budget and Audit issues. He provided guidance on Project Capital Budget Accounts, Invoicing and Reporting Requirements for Grants, as well as Audit preparation best practices and Bonding. He advised that we meet again with our financial advisor and determine the impact of our recent bonding and have him do what if scenarios for us relative to the future bonding that will be needed for two (2) major capital projects envisioned – Albany Avenue/ Williams Street. This meeting was held and our Financial Advisor produces a report for our review in December 2022. In January 2023, we are meeting with our Financial Advisor again and we have come up with a new set of scenarios based on not starting construction until April 2024.
  11. A Federal TAP grant was awarded to the Village of Kinderhook in August 2022. Since this time, NYS DOT has authorized the start of this Road Project – Albany Avenue Pedestrian and Bicycle Improvement Project and the Village of Kinderhook has issued a contract to Hudson Valley Engineering Associates (HVEA). In addition to this endeavor, the Village of Kinderhook is soliciting a proposal for Albany Avenue Watermain Upgrade Project. The detailed design for the Albany Avenue Watermain Upgrade Project will be financed with Federal American Rescue Act Funds coupled with Water Fund reserves for a total of $200,000. As previously discussed, it is imperative that we conduct both of these initial projects in parallel. The hope is that we can demo the road, upgrade the Watermains and then put the road back together again and finish these projects by no later than December 2024. This design work has started and is reported to residents during periodic public hearings. The next public hearing is planned for March 1st, 2023. A project steering committee is being formed to facilitate decision making in regard to the Albany Avenue Projects. A workshop with these committee members will be conducted in late February prior to the public hearing in March.
  12. Unfortunately, on November 14th, 2022, the NYS Dept of Health indicated to us that our application for Water Infrastructure Improvements (WIIA) was not selected for funding. We intend to keep pursuing these funds to offset the cost of watermain upgrades under Albany Avenue and Williams Street by soliciting to both NYS and request Federal assistance.
  13. Prepared this preliminary report to report our initial findings to the Mayor and Village Board. It is hoped that after the receipt of additional information that we can share our findings periodically and issue a final report in 2023 and actively support the Budget analysis and approval process in 2023-24 and keep updating and reviewing the findings in this report on a annual basis.

Observations and Recommendations with regards to work plan scope (Appendix 2):

1. Develop an annual budget calendar for the board and staff at the beginning of the fiscal year and stick to it.

    • Observation – Due to the COVID emergency these past years (2020 to 2022) it was difficult to hold to and keep up with the annual budget calendar. Several special board meetings were needed to finish up the exercise in 2022 and to allow for the availability of all the needed participants. We need to move beyond this impediment in 2023-24.
    • Recommendation – Publish and discuss the budget calendar in early January 2023 and set expectations for all participants and schedule dedicated meetings in advance.

2. Analyze bill paying efficiencies and claims auditing procedures

    • Observation – The Mayor and Trustees review all invoices monthly and sign off on vouchers beginning three (3) days prior to the Village Board meeting. The Clerk-Treasurer oversees the preparation of these vouchers that are generated by the Deputy Clerk. If there are any discrepancies, errors or clarifications needed they are addressed and resolved prior to or at the monthly Village Board meeting. In rare cases, a bill is partially paid or not paid until resolution of issues raised are addressed. At the monthly Village Board meeting – budget amendments, a voucher summary report and a revenue expense control report are reviewed and voted on by the Mayor and Trustees. Bank accounts and check issuances are periodically reviewed by the Mayor and Trustees on an ad hoc basis to make sure payments are made and labor resources are recorded with accuracy and according to approved policies and procedures. Time sheets for staff and payroll are approved by the Mayor. There is a yearly audit of the judiciary accounts and the Village accounts and periodic external financial reviews are conducted by our Village accountant, as needed. The Clerk-Treasurer seeks guidance from outside independent sources and from the Mayor and Trustees when financial questions arise as to how to handle budget and financial issues not covered by existing policies and procedures so as to adhere to best practices. The Clerk-Treasurer seeks approval from the Mayor and Trustees on all major financial issues that are not routine, (Bonding/Debt Management, Issuance of Contracts, Legal Issues and Major Acquisitions).
    • Recommendation – The Village Board should consider using an internal claims auditor for bill paying purposes rather than having the Board do that work. This would allow bills to be paid earlier than the monthly cycle if that is a desirable outcome.  Internal auditors report directly to the Village Board of Trustees and are not supervised by the Clerk-Treasurer so internal controls would not be compromised. Since the Village closes out purchase orders at the end of each fiscal year, a claims auditor would make year-end bookkeeping more efficient for the Village Board and the Clerk-Treasurer. It has been Jerry’s experience in other municipal environments that a well-qualified claims auditor is more likely to pick up any irregularities in claims management and adjudication than an individual Village Board member. This individual would also advocate for periodic changes in vendors via additional competitive procurements. A future organization chart and budget figures for this part time addition to staff as well as some additional staffing increase recommendations can be found in Attachment 2. This attachment is deemed confidential. It has been shared with the Mayor and the Trustees and the cost to transition and implement this approach is being analyzed.

3. Use budget coding to identify specific project and policy priorities

    • Observation – It is difficult to rapidly review budget versus policy priorities.
    • Recommendation – Jerry’s suggestion would be to use the NYS Comptroller’s uniform system of account coding to identify specific areas of the budget, (i.e., fund designations and function codes) that will focus on specific initiatives and capital projects and/or policies requiring funding, followed by coding for location, object and program. Nicole Heeder, (Village Clerk-Treasurer) understands how the coding system works and can develop as much or as little detail as the Village Board requires. The advantage of this approach is that the Village Board can keep track of amounts being spent and in what time frame allowing them to take action as deemed necessary. If the Village Board wants to break out specific areas for study, that can easily be done without requiring a great deal of additional work. What if scenarios can be rapidly presented at Village Board meetings. The Village Board may choose to transition to this new staffing support model in the next budget year. Costs associated with this proposal will be prepared for the Village Board to review prior to these executive session discussions.

4. Review time management for the board and office staff

    • Observation – The Mayor and Village Board Trustees put in a significant amount of volunteer time each month over and above the budget statements made within our organizational meeting working documents that indicate 16 hours/month as an estimate for Trustees and 40 hours/month as an estimate for the Mayor for 2022-23 year. The commitment hours/month should possibly be adjusted somewhat in this next budget cycle to accommodate the level of oversight expected in these next few years for Capitol Project work now that funding in these areas may well exceed the base budget.
    • The labor resource shortages for office staff is a serious issue in that at present only high priority tasks are being completed and there is limited time to support the ongoing small grants and the establishment of newer financial support efforts envisioned, (American Rescue Act, TAP, WIIA, Chips and other grant activities such as NYS Downtown Revitalization Initiative (DRI) and Round 6 of Future Forward grants coupled to the required contract administration and invoicing requirements need dedicated attention and a considerable amount of administrative work done). This issue has been partially mitigated with the hiring of a part time recording secretary covering the Village Board meetings. Additional hiring and contracting of services is envisioned in the Future. Mark and Rene have discussed the use of contract administrative services with the County CEDC organization as a way to better position the Village for Economic Development grant fulfillment.
    • Recommendation – As stated in our most recent Downtown Revitalization Initiative (DRI) Round 6 and NY Forward grant application submission; the Village of Kinderhook has a record of successful administrative capacity. “ . . . The Village’s practice has been to appropriately scale our management and technical and administrative support to meet the challenges required to successfully execute project grants. . . “. This requires the Village Board to react to our present reality. It may be necessary to hire additional part time project assistant staff and/or consultants to conduct grant administration and to generate status reports and for financial invoicing work. It may also be necessary to dedicate the Clerk-Treasurer 100% to the oversight of financial tasks full time and delegate other Clerk additional administrative tasks to new staff and/or consultants. It is recommended that a budget plan to migrate the Village towards this new organizational model in the next budget cycle should be discussed and agreed to in 2023. As stated above, an organizational chart with budget figures are in Attachment 2.

5. Evaluate long range planning for terms and conditions of employment and costs for staff (salary, benefits, retirement)

    • Observation – Shared with Susan the Employee Handbook and need to produce estimates for the Mayor and Village Board to discuss and consider – this work is ongoing and will be produced in 2023 once the Mayor and the Village Board provide some guidance in this regard – Trustee Susan Patterson is assisting in this endeavor – Salary, benefits and retirements costs are revisited each year as part of the budget preparation cycle. Comparisons are made to similar New York State municipalities with similar roles, responsibilities and projects underway. Roles and responsibilities are also tweaked/changed  to reflect the future work priorities. The employee handbook was updated in 2022 and needs additional corrections and updates for 2023.
    • Recommendation – Consider rotating the employee policy and process update oversight work periodically amongst the Trustees. The Mayor should continue to execute the policies. Consider additional usage of part time project assistant staff for expanded project administration efforts. Mark has produced a preliminary budget covering the use of existing staff for the Albany Avenue Pedestrian and Bicycle Improvement Project. This information was shared with the Mayor and the Village Board in December 2022 prior to adding it to this years budget in January 2023.
    • In the future, the DPW staff will need to support the contractual construction efforts envisioned for Albany Avenue Road and Water Projects for each of the next two (2) years Spring, Summer and Fall seasons. Either outsource some efforts or expand on staffing for this period. Temporary outsourcing ideas might include; contract for mowing and trimming, leaf pick up, and for maintenance tasks normally conducted by the DPW. With regards to office staff implementation the organizational chart in Attachment 2 is one way to address this issue. An alternative is to contract out this administrative work to the maximum extent that is practical and possible. However, it is my opinion that some financial activities are best monitored and executed by our internal staff.

6. Develop multiyear budget planning policy that will foster continuity from administration to administration We will get to this work in the first quarter of 2023.

    • Observation – Jerry we need to still meet with Susan and determine how to put together some content so that the onboarding of a new Trustee includes explanations of the most recent budget process and what is expected of the Trustee as regards oversight. Our observation is that it takes multiple budget cycles for Trustees to fully understand and execute this function. A guide will help shorten this learning process.
    • Recommendation – The creation of a guide and onboarding document of 1-3 pages would mitigate this issue – See appendix 4.

7. Build on / Update the 5 year plan that has already been recommended – We will get to this work in 2023.

    • Observation – A lot of work to do here Jerry – we need resource projections, those reports from water and roads and cash flow projections for DOT work and Water Projects. Maybe we could use one of the templates from the NYS Comptrollers Office
    • Recommendation – Present the 5 year plan and update each year at budget time.

8. Establish expectations for the staff’s involvement in budget planning.

    • Observation – Many of the Village budget items are in sustaining mode and/or are ordinary contingent expenses and are incremented according to an approximate rate of inflation. Some estimates are updated periodically, however, there is very limited use of revenue and expenditure projections with the exception being that labor resources are tightly managed and monitored including over time costs.
    • Recommendation – As far as staff involvement we can explain to the Mayor, Trustees and Clerk-Treasurer roles and responsibilities and what tools are available to them. Plan for a work shop in January/February to demonstrate budget planning preparations.

9. Identify capital projects that will require bonding and determine long range impact on debt service management and the tax levy. We will get to this work in the first quarter of 2023.

    • Observation – A lot of work to do here especially in the borrowing to be done as a budget amendment and how that affects our debt to budget ratio. We initially borrowed $501,000 to finance the DOT cash flow for a $1.8 Million Multi-Year Albany Pedestrian and Bicycle Improvement Project, I think we are good in the near term. In my opinion, the key will be to only borrow what we need for cash flow and invoice aggressively and on time. We need to cut through the red tape and get the funding flowing to us so that the lag between us paying vendors and us being reimbursed is as short of a duration as possible. I have estimated this lag to be ninety (90) days and the grants pay 80% so seed funds for cash flow will be reduced over time. Additional bonding will be needed to complete construction phases of the Albany Avenue Projects.
    • Recommendation – We are going to need to produce a multi-year cash flow analysis with what is likely to happen and contingencies for both positive and negative outcomes.

10. Review reserve fund options, establish those that will balance savings with long-term bonded debt, and fund them on a planned periodic basis – We will get to this work in the first quarter of 2023.

    • Observation – A lot of work to do here – we need to explain the current reserves
    • Recommendation – We need to make recommendations for future years that will likely include tax and water fees to build dedicated reserves gradually.

11. Establish a fund balance policy. We will get to this work in the first quarter of 2023.

    • Observation – I think this is a policy that would cover why a reserve is being established.
    • Recommendation –What triggers the establishment of a reserve? My feeling is the magnitude of the future expense.

12. Plan to create a fixed asset schedule/inventory as recommend in the 2014 independent audit (identified as a material weakness for internal control). Incrementally Execute on this Plan, (Water, Streets, Assets). We will get to this work in the first quarter of 2023.

    • Observation – I think once we get the water and roads reports this will be straight forward. With regards to assets (buildings) – I think we maintain at the current level pending grant funds to implement improvements.
    • Recommendation – TBD

13. Determine the parameters for tax levy increases year to year. We will get to this work in the first quarter of 2023.

    • Observation – Know your revenue projections. During this Capital Project Execution it will be very difficult to stay under the tax cap and our Debt to Operations numbers will increase. It will be important to communicate to the public exactly what we are doing and why we are doing it.
    • Recommendation – I think next year and perhaps the year after we will not be able to stay below the tax cap – with inflation rampant and the Village trying to upgrade both Albany Avenue and Williams Street we may overshoot this cap for two (2) to four (4) years. In fact if we are able to stay under a 5% increase in each of the next two (2) years that would be an accomplishment. The good news is we would set a new base and then maybe be able to get back to a 2 % increase in 2028-2030 budget years. A lot of this depends on how successful we are in grant awards versus bonding of funds.

14. Identify entitlement and competitive grants to fund projects well in advance of the need to execute the projects We will get to this work in the first quarter of 2023. Easier said than done. Unfortunately, these grants we are going for want you to be shovel ready and they have claw back clauses such as if you do not start construction by a certain date we will suspend the grant and possibly claw back the funds. Yikes. This is why – I have aggressively started the Albany Avenue Pedestrian and Bicycle DOT project – lets get this very necessary project done.

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