PICA – Opinion on Five Year Forecasted Statements

Audit Date: September 16, 2013
Audit Categories
  • Financial
Controller: Alan Butkovitz
Audit Tags
  • Budget,
  • Finance,
  • Five year plan,
  • Revenue,
  • Treasurer

Executive Summary

For Immediate Release:
September 16, 2013

Contact: Brian Dries

Butkovitz Calls on PICA to Reject City’s Updated Five Year Plan
Controller issues adverse opinion based on critically low fund balances

The Updated Five Year Plan FY14-18

Updated Transmittal Letter

PHILADELPHIA – City Controller Alan Butkovitz today called on the Pennsylvania Intergovernmental Cooperation Authority (PICA) to reject the City’s Updated Five Year Plan.

Responding to PICA’s request for an Opinion on the Updated Five Year Plan, Butkovitz examined the City’s Forecasted General Fund Statements of Operations for the fiscal years ending June 30, 2014 through June 30, 2018 (The Updated Plan) and found that the city’s assumptions did not provide a reasonable basis for the city’s forecast.

“Over the life of the Updated Plan there is a steadily declining fund balance to a critically low amount of $8.5 million in fiscal year 2017,” said Butkovitz.

The FY14-18 Forecasted General Fund Statement of Operations is prepared by the City’s Finance Office and then submitted to PICA.

The decline in the fund balances to extremely low amounts occurred because the City failed to update the revenue amounts in the Updated Plan for the anticipated favorable financial impact that management assumes will take place because of the ongoing economic recovery.

“No recent Five Year Plan has had these critically low fund balances,” said Butkovitz.
“Any significant deviation because of unforeseen circumstances such as litigations, severe weather, or future unexpected commitments to the School District of Philadelphia could drastically impact city operations.”

In addition, the Updated Plan continues to include the following particularly sensitive assumptions:

• The city has assumed it will realize $536.6 million of property tax revenue for fiscal year 2014 and $2.26 billion over the remaining years of the Updated Plan. However, these estimated revenues may not be fully realized, because it is difficult to estimate the extent of tax appeals that may arise as a result of the city’s newly implemented Actual Value Initiative and because of more aggressive tax collection efforts implemented by the city with respect to additional current and prior year property tax receivables.

• The Updated Plan does not include any additional potential costs above the estimated $36 million for its final offer to District Council 33 made on January 16, 2013 for a contract to run July 1, 2009 through June 30, 2014.

• The Updated Plan does not include any potential costs above the estimated $21 million for the most recent offer to District Council 47.

“These assumptions could further erode the critically low fund balance available for appropriations if the revenues fall short of expectations and/or union contract settlement cost more than anticipated,” said Butkovitz.

“I urge PICA to reject the City’s Updated Five Year Plan as presented because the assumptions are not reasonable.”