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Accounting errors could send Annapolis tax increase back to 13 cents

Accounting errors could send Annapolis tax increase back to 13 cents
Mayor Gavin Buckley, left, and City Council members present the fiscal 2019 budget during a town hall. A discovery by City Manager Teresa Sutherland this week potentially pushes the proposed property tax rate increase back to 13 cents per $100 of assessed value. (Danielle Ohl)

Annapolis residents might face a 13-cent tax hike rather than a planned 9.9 cent increase because of a reported $2.8 million in misallocated spending in the fiscal 2019 city budget.

City Manager Teresa Sutherland found accounting errors she disclosed Wednesday to the Finance Committee. These include $2.8 million in errant transfers between enterprise funds — which account for utilities like water and sewer — and the general fund — which accounts for other government-related expenses and revenues.

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When city employees complete administrative functions — such as billing — that benefit the enterprise funds, those funds reimburse the general fund for the cost. To come up with the proper reimbursement, the city should use a “calculation with a good methodology to support it,” Sutherland told the committee.

Annapolis Mayor Gavin Buckley wants to raise city property taxes for the first time since 2014. The first-term Democrat called righting the city’s financial health his ultimate goal for the budget he is set to introduce Monday to the City Council. Buckley proposed raising the property tax rate about 13 cents for every 100 dollars to meet expenses.

The former finance director included an allocation to the planning and zoning department even though it doesn’t provide services to the enterprise funds, Sutherland said.

“I cannot transfer $2.8 million out of the enterprise funds to pay for accountants and police officers and firefighters,” Sutherland said. “I’m not going to do it.”

After accounting for both over-budgeting and unforeseen expenses, Sutherland still came away with a $562,545 shortfall in the general fund.

“This is the real starting point,” Sutherland said.

Cuts made by the finance committee will cover the shortfall in the budget currently under review, but only with a 13-cent property tax increase. The city must adopt a budget later this month.

Alderman Ross Arnett, who chairs the City Council Finance Committee, said Sutherland is adjusting the budget to show how much money the city is spending, rather than how much it wants to spend.

“There’s some style changes going on here,” Arnett said. “I don’t know how much is errors and how much is difference in accounting. But I trust (Sutherland).”

Sutherland had found additional income tax revenues that would lower the tax hike to 9.9 cents from the 13 cent proposal by Mayor Gavin Buckley. But the latest discoveries leave the council to decide how to get less for more.

The increase, if passed, would raise the municipal tax rate to 77.9 cents per $100 of assessed value, bumping the cumulative city-county-state rate residents pay to 1.435 per $100.

The accounting adjustment will likely cost the city some of the fixes Buckley intended to cover in his initially proposed 13 cent tax increase.

Arnett said the council will likely have to push off funding road, sidewalk and vehicle maintenance with cash on hand or deny new hire requests.

For the hires the city has made — including Hispanic and African-American community specialists in the mayor’s office — this would mean a reduction in salary or defunding the position altogether.

Union negotiations with police and fire unions, which are underway, are also likely to be costly, Arnett said. Union contract requests could top the $938,339 the city built into the proposed tax increase, Arnett said.

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The Finance Committee will meet at 10:30 a.m. Friday to discuss the developments. The City Council will discuss the budget Friday at a 3:30 p.m. work session.

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