Thursday, March 29, 2012

State certifies $3 million deficit at airport

A $3.3 million deficit at Nantucket Memorial Airport caught the eye of Gerard D. Perry, the state Department of Revenue's director of accounts, who issued a letter of concern to island officials.

The selectmen characterized the letter and a subsequent conference call with Perry as "sobering." The Inquirer and Mirror requested and received a copy of the letter Wednesday night. 

"This office certified a negative -$3,356,201 in retained earnings associated with your airport enterprise fund," Perry wrote in the letter. "During a conference call with your Town Manager and other financial officials on March 28, 2012, we learned that the airport has had financial problems for several years. Further, we learned that Nantucket is in the process of conducting a forensic audit regarding the airport."

Perry added that he would not approve Nantucket's tax rate next year unless he first received the town's financial audit and management letter for the close of FY12, the balance sheet for the close of FY12, as well as the forensic audit regarding the airport. 

Long-running accounting problems among town and airport finance officials, as well as other significant issues that have cropped up over the past year, including an expensive legal settlement and volatile fuel sales, combined to generate the significant deficit in the airport's retained earnings. A complex plan to cover the deficit has been crafted by town officials, and features a large transfer of cash from the government's general fund, the use of authorized but unused borrowing from previous capital projects and other financial maneuvers that must still be approved by voters at Town Meeting on Saturday. 

"This is a unique, unfortunate and disappointing event, but I don't think we've found any way around it other than the town using town funds to cover the deficit at the airport," selectmen chairman Rick Atherton said. He added that the plan to cover the airport deficit includes a provision for the enterprise fund to repay the town over time for the subsidy from the general fund. 

The town operates the airport as an enterprise fund, meaning its revenue and expenses are separated from the general fund and the other municipal departments. 

Unlike some of the town's other enterprise funds - namely the solid waste, sewer and Our Island Home enterprise funds - which require annual cash infusions from the town's general fund to continue operating, the airport has long been self-sufficient, and has often been flush with excess revenues. This year will mark the first time voters will have to take action due to a shortfall at the transportation hub. 

Several selectmen noted that both the town and the airport hire private auditing firms to reconcile their financial records, yet those companies did not flag the growing problems at the airport nor the fact that its books didn't match those of the town. 

Town manager Libby Gibson said that she, the town Finance Department and airport officials all share the blame for the situation. 

"The internal controls that should have been in place were not, but they are now," Gibson said. "Then there is the issue of the airport being excluded from town administration. There was a lot of sloppy bookkeeping that caught up with us. Why it wasn't caught in prior audits, I don't know. Why it wasn't caught in a prior DOR review, I don't know. We do believe the actions at Town Meeting, as difficult as they might seem, are the way to resolve them going forward."

There was some good news from the DOR, however, including the town and its other enterprise funds being informed that they will have more than $13.3 million in certified free cash available following the state certification. 

The term “free cash” is a misleading expression used by government budget wonks to describe unreserved, undesignated fund balances from year-end revenue in excess of projections, or money left over when year-end expenditures are less than appropriations. In other words, it’s money that is budgeted but not spent, or additional revenue that comes in above initial projections. The town's free cash policy generally dictates that it be used for one-time items like capital projects, and not for recurring operational expenses.

On Wednesday, the state DOR transmitted the following free cash and retained earnings certifications to the town:

• General Fund: $ 3,630,103
• Sewer Enterprise Enterprise Fund: $ 2,256,301
• Siasconset Water Enterprise Enterprise Fund: $ 1,328,310
• Wannacomet Water Enterprise Enterprise Fund: $ 5,068,378
• Landfill Enterprise Enterprise Fund: $ 853,716
• Island Home Enterprise Enterprise Fund: $ 253,616
• Airport Enterprise Enterprise Fund Deficit: $ -3,356,201

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