FRANKLIN TWP MAYOR: “WE WERE OUT OF CASH & NOT PAYING OUR BILLS”
Published The Sentinel of Gloucester County Weekly Newspaper – Week of October 3rd – 9th, 2019 – Cindy Merckx/Editor
FRANKLIN TWP MAYOR: ‘WE WERE OUT OF CASH AND NOT PAYING OUR BILLS’
Franklin Township Mayor Dave Deegan met last month with members of the Local Finance Board at the State Department of Community Affairs in Trenton to request their help with a serious financial situation. Residents were kept in the dark regarding the serious financial situation that eventually came to light when the Township ran out of money and were not able to produce a municipal budget on time and provide timely tax bills to residents. There were underlying issues with bookkeeping and making the required payments to the school districts and fire departments.
Franklin Township’s CFO, Katie Coleman and the Township’s auditor Kevin Frenia applied to the states Local Finance Board for a CAP waiver in the amount of $701,533. The meeting was held August 22nd and the transcripts of the meeting were released to the public on Friday (9/27). The Sentinel is publishing the entire transcript regarding the meeting in this week edition to keep our readers informed of what occurred. These transcripts are also available on line on the state DCA local finance board website.
“Next matter up is Franklin Township appearing on a proposed CAP waiver related to deficit. Good morning. Please introduce yourselves and if you’re not counsel, please be sworn in,” said Ms Walter of the Local Finance Board.
MR. DEEGAN: Sure. My name is Dave Deegan, and I’m the Mayor of Franklin Township, Gloucester County. MR. FRENIA: Kevin Frenia, Holman, Frenia and Allison. I’m the township auditor. MS. COLEMAN: Katie Coleman. I’m the CFO. (At which time those wishing to testify were sworn in.) MS. WALTER: Please proceed. MR. DEEGAN: I’m not sure what I should say. Maybe Miss Coleman, our CFO can answer your questions. MS. COLEMAN: So we applied to the Local Finance Board for a CAP waiver in the amount of $701,533. This is the result of a deficit in operations from 2018 of $1,400,000. The $700,000 is the amount that we are over the appropriations CAP. The deficit resulted in a large interfund from the capital account. The township self-financed, not self-financed, the capital ordinances, two capital ordinances throughout the 20 year and they didn’t issue BANs,(Bond Anticipation Notes) so BANs were issued at the beginning a few months ago. So that deficit, or that interfund has come back in. We anticipate that as revenue to offset the deficit. MS. WALTER: So can you talk about the circumstances that created the capital issue? MS. COLEMAN: Okay. So the prior CFO left midyear. I came on, so it was just kind of a catch up. By the time we got to the end of the year, you know, the BANs weren’t rolled and we discovered it. MS. WALTER: There was no new project? It was an issue with the notes? MS. COLEMAN: Right. There was 10 notes from prior years that weren’t rolled and then there was a new project also, trash trucks. MS. WALTER: How much was that? MS. COLEMAN: I don’t know – I think the trash trucks were $900,000. MS. WALTER: Where did you draw the other million to cover? MS. COLEMAN: Just from reserves. MS. WALTER: Could you explain what the thought process has been here and how you are making sure this doesn’t reoccur? MR. DEEGAN: Well, I can’t say that it won’t reoccur. I mean, I’m embarrassed to be here. Miss Coleman came on in, I believe, April of that year and with very high credentials. And I would have thought that she would have identified that we needed these BANs. By the end of the year, I was out of cash and, you know, during the course of the year, we had numerous services that were discontinued because we weren’t paying our bills. We’ve had, you know, we were having problems paying the schools, the fire districts. It’s just frustrating for me in a small town to be the face of the town and get all these phone calls and frustrations. At the various meetings, I would question why we’re paying for capital projects out of operating fund monies. We have color coded checks. I don’t know if that’s standard or unique to our town, but I can understand, I said this is a capital project, why are we paying out of the general fund. And I never got answers and needless to say the frustration was extremely high. As I spoke more and more about getting these things corrected, then all of a sudden there was this supposed ethics complaint against me. And part of that was I had to step down from the Finance Committee. I’m the only member on the Township Committee that has any business experience. I worked retail. I was a vice president of a national company in the operations division. I’m used to doing budgets. I’ve managed stores that did excess of 50, 60 million dollars. I understand the budget process. I’m not familiar with all the laws as it relates to municipal accounting, but as I saw things that were out of line, I tried to question them. And then I was called in by the administrator and said there’s an ethics complaint being filed against you. For what? My son works part-time for our township as a fire inspector. The fire district or the fire marshal’s office is a budget of $49,000 out of a $13 million budget and I can’t participate. I can’t recuse myself from that portion of it, but I was told that I had to step down on the finance committee, and part of that was I couldn’t have any communications with Miss Coleman. I had to go through the administrator. It’s pretty tough when you’re the mayor of the town not being able to talk to your staff, so I don’t know what else I can bring to your attention other than the fact that even today, after we went out and got 3 million dollars worth of BANs, I had a call from the school business department today, the administrator of our regional high school saying that he didn’t get his payment for this month. I don’t know what else to do. MS. COLEMAN: That’s related to you don’t have a tax collector currently. That has nothing to do with this issue. MR. DEEGAN: I think if we had money in the bank, we owe it to them, we should give it to them. MS. RODRIGUEZ: I’m going to stop this right here. I didn’t realize we were having two people from the same municipality disputing. MS. WALTER: This is the municipality’s petition to the board requesting help with a pretty serious situation. MR. DEEGAN: It is strange, yep. MS. WALTER: There may be an internal conflict, but it’s not really the time or place for it. MR. DEEGAN: That’s fine. MR. FRENIA: If I may for whatever reason, did not get issued which created an interfund which them in an operating deficit. We were able to put the budget together with no tax increase, so it’s simply a matter of funding the capital ordinances which we’ve done and bringing the interfund back in. There has been some internal issues with some of the bookkeeping and the bill paying. We’re still working on the audits. The financial situation has been troubling this year but there was a turnover in the CFO. MS. WALTER: How is the corrective action plan coming along? MR. FRENIA: For ’18? MS. WALTER: Mm-mm. MR. FRENIA: The audit hasn’t been released yet. The audit is not finished yet. MS. WALTER: We’re still waiting on the Gatsby? MR. FRENIA: Well, we’ve got that. We’ve had some issues with the financial statements as well, but we anticipate filing the audit very shortly. There will be several comments which they’ll need to address. This obviously being one of them. We’re back on our feet. The tax bills are going out in about two weeks, so long term, I don’t see any major financial issues, but this was a big problem that, for whatever reason, didn’t get taken care of during the year. MR. CLOSE: Was the issue with the 8 BANs identified? Because I think you had mentioned, not just the notes rolling them over, it wasn’t done, but with the additional equipment. You said trash trucks, I believe, 12 were purchased? MS. COLEMAN: Right. MR. CLOSE: Was that what resulted in the identification of the issue with the BANs? MR. FRENIA: For whatever reason, the BANs, it was 3 million dollars of BANs off the top of my head. For whatever reason, they got paid back and never got reissued which created a major cash shortfall. And when we started to pay for the capital ordinances the money was coming out of the general fund as an interfund. It created a $2.3 million interfund between general fund and capital which created the deficit. The deficit has been addressed in the budget. The interfund, we raised the cash. The interfund has been returned and we should be okay now. It’s just whatever reason they didn’t get issued. MS. WALTER: So one other issue came to our attention is that the levy is being reduced by $36,000. A minor tax increase? MR. FRENIA: I think it’s a very minor tax decrease. MS. WALTER: Going from .623 to .626 but it’s a levy reduction of $36,000? MR. FRENIA: Yeah, that’s based on the assessments. MS. WALTER: When you’re seeing these kinds of overages that’s always concerning. We have a representation on the record right now that you’re not sure you can prevent this in the future. That’s concerning as well. I want to make sure that there is money to cover and I’m looking at you as the auditor to tell us where we are. MR. FRENIA: Once the interfund has been returned, we’ve introduced the budget that we feel comfortable with. That doesn’t require tax increases, so there should be money available going forward. The tax bills have been delayed. MS. WALTER: To be clear, we’re not looking at a tax increase. You’re actually decreasing it while you have a significant overage on your budget. MR. FRENIA: I’m not sure what you mean by overage on the budget. The deficit you mean? MS. WALTER: You’re coming in for the CAP waiver. MR. FRENIA: Yes, because the only reason that was is because we needed to create the interfund to pay for the capital items because the notes weren’t issued. Other than that, the budget is fine. If we had issued the notes, we would have had the cash, we wouldn’t have created the interfund and we wouldn’t have been in deficit. Deficit is created strictly by the interfund being created. MS. WALTER: It’s obvious that there were some underlying issues here. Coming into the board on something like this doesn’t happen that often. I appreciate that you recognize that and have some concerns. MR. FRENIA: I’m going to try to make an effort to monitor. Our firm, we weren’t contracted to be involved with the annual financial statement or the annual budget. It was strictly the audit. So by the time I found out about what was going on, the year was completed. I’m in contact now with both the CFO and the mayor on a more continual basis. MS. WALTER: So the representation is on the record that this has been rectified and we can say this is not going to reoccur and there are measures in place to avoid it? MR. FRENIA: Yes. I will represent that. 17 MS. WALTER: No other questions? MR. LIGHT: I’m not sure what the motion is going to say. MS. WALTER: To permit the CAP waiver. The vote to permit CAP waiver was approved by the finance board by a vote of 6 Yes 2 No.