Update: On July 12, the State Board of Accounts notified the City of Carmel that after further review, it does not have an issue with the 2015 $5 million bond payment reimbursement to the Carmel Redevelopment Commission. This means SBOA is no longer asking for the $5 million to be shown as a general fund liability and deducted from the fund balance.
By Ann Marie Shambaugh
The City of Carmel is feeling repercussions from the way it handled a budget shortfall at the end of 2015, but officials differ on how big of a problem they believe it will turn out to be.
The State Board of Accounts has questioned how the city paid for a $5 million budget shortfall in December 2015. That month the city council voted down a proposal to shift money in several funds, such as the motor vehicle highway fund, to make debt service payments on various bonds.
The bond holders could sue the city if they didn’t receive their payment on time, so the city council passed a resolution later in the month that used $5 million from the Carmel Redevelopment Corporation – which did not require approval from the Dept. of Local Government Finance – to cover the bond payments and costs through the end of the year. The council approved a resolution that outlined plans to repay the CRC from the general fund in 2016.
The 2016 council – which included three new councilors – authorized the repayment, and the CRC got its money back. But according to SBOA, the transfer of funds should have been reflected in the city’s 2015 financial statements, which it was not.
Curt Coonrod, Carmel’s financial consultant, told the city’s audit committee July 11 that the issue comes down to whether or not the council’s decision to use CRC funds and repay it was binding. He said – as a resolution and not an ordinance – it was not.
“That resolution was not binding to pay that money back. It is what I call a gentleman’s agreement,” he said. “I can tell you gentleman’s agreements take place all the time in city government. Sometimes they’re backed up by resolutions, sometimes they’re even in statues and ordinances, a lot of times it is just a meeting where one department agrees to do this, or another department agrees to do that.”
The SBOA disagrees, however, and told the city that if the financial statements are not adjusted to reflect using and repaying CRC funds it will affect its opinion on the general fund. Carmel Clerk-Treasurer Christine Pauley said that SBOA could issue a “material finding,” which would be the city’s first and could be a red flag when the city goes to get bonds approved. It could also affect the city’s ongoing audit, she said.
Coonrod, however, said that it shouldn’t get to that point. He said that if SBOA “won’t budge” that “it’s probably not worth declaring war over” and that the city would make the adjustment to reflect the change in its financial statements, even though it would show the city losing $5 million in its 2015 fund balance.
“The higher the fund balance in any recent past year, the more favorably the city will be viewed by credit analysts,” Coonrod stated in an email. “Consequently, it is in the city’s interests to report the higher amount, if appropriate under acceptable accounting standards.”
Audit committee chairman Arnold Hanish suggested that the city attempt to resolve the issue with SBOA by including a disclosure about the situation in the footnotes of the financial statement. Coonrod said it sounded like a good idea and that he would discuss this option with SBOA.