Algonac is financially healthy, audit shows | News

The city of Algonac has received a clean or unmodified audit opinion for the fiscal year that ended June 30, 2020.

Curtis McBride, a certified public accountant and director of governmental accounting and auditing services at McBride-Manley & Company PC, presented the audit findings to council members at their Jan. 19 meeting. He explained that a clean, or unmodified, audit opinion means legally the financial statements are fairly stated and they are in compliance with the firm’s professional standards.

“That’s the best opinion you can receive from your auditor,” McBride said. “Now, I just want to clarify, we’re just providing an opinion on the accuracy of your financial statements. We’re not providing an opinion on the financial health of the city. That’s not the primary focus of our audit.”

General fund

The general fund primarily derives its revenues from property taxes, state-shared revenues and federal, state and local grant money.

“From the year end to June 30, your general fund had about $2.383 million of assets on hand, and you had $122,000 of liabilities against those assets,” McBride said. “So you actually finished the year with an ending fund balance level of about $2.261 million.”

“To put that into perspective, the Michigan Department of Treasury recommends that at a minimum your fund balance level be at about 10% of annual expenditures in the fund,” he continued. “Now, we’re a little bit more conservative. We really think that a community the size of Algonac, because it’s smaller, that minimum fund balance level should be more like 15% to 20%. But I am pleased to say that at $2.261 million, your fund balance level is actually more than 100% of your annual expenditures in that fund, so in my opinion, your general fund balance is healthy at the end of June 30, 2020.”

McBride said the city’s total revenues went from $2.599 million in 2019 up to about $2.737 million in 2020.

“That’s primarily because you did have an increase in property taxes during the year and also you did have an increase to licenses and permits,” he said. “So you actually generated more in building permit revenues during 2020 than you did in 2019.”

As far as expenditures, the city spent about $2.402 million in 2019 and $2.343 million in 2020. McBride pointed out that one of the major differences is that in 2019 the city made an additional $100,000 contribution to its pension plan. Another difference is that fire expenditures increased from $181,000 in 2019 to $251,000 in 2020 because the fire chief was made full time during the 2020 fiscal year.

“You generated about $2.737 million of revenues; you spent about $2.343 million during the year, so you actually had a net increase year fund balance level of about $394,000 for 2020,” McBride said.

Special revenue funds

Street funds are called special revenue funds because their resources are restricted for a special purpose: the maintenance and construction of streets throughout the city.

The city’s major street fund finished the year with about $940,000 of assets on hand. It did not have a lot of significant liabilities, only about $1,000, so it finished the year with an ending fund balance level of about $939,000. The fund generated about $317,000 during the year and spent about $214,000, resulting in an increase to its fund balance level of about $103,000.

The city’s local street fund finished the year with about $457,000 of assets on hand, had about $1,000 of liabilities and finished the year with a ending fund balance level of about $456,000. The fund generated about $309,000 of total revenues during the year and spent about $132,000, resulting in a net increase to its fund balance level of about $177,000.

McBride said both fund balance levels were more than 100% of their annual expenditures so in his opinion, both funds had healthy fund balance levels. He noted there were repairs made to Washington and Mill streets during the 2020 audit year.

Trend analysis

In 2014, the state gave Algonac about $384,000 in state revenue sharing, which jumped up to over $400,000 through 2017 and $421,000 in 2020. In distribution to the street funds, the city generated $278,000 in 2014, $400,000 through the end of 2018 and $466,000 in 2019.

“2019 was a unique year in that you received an extra $48,000 from the state that was a one-time disbursement, so that explains why you went from $466,000 in 2019 down to $435,000 for 2020,” McBride said.

Property taxes generated about $1.185 million in 2014, went above $1.2 million through the end of 2016 and generated about $1.383 million for 2020. McBride noted that if the analysis went further back, in 2007 the city received about $1.5 million in property taxes, which is more than 2020 because of the housing market crisis in 2009 and 2010.

Due to limitations placed on the increase of property taxes, it is taking a while for the city to get back to where it was, McBride said.

As for the general fund, the city finished 2014 with a $1.328 million fund balance level, which went up to over $1.6 million in 2016 and then came down to about $919,000 in 2017 because the city spent about $800,000 for seawall repairs. It fully recovered in 2018, when the state gave Algonac money to help offset the costs associated with the seawall repair.

Water, sewer funds

The city’s water and sewer funds are called proprietary funds because they are accounted for similarly to that of a private business because of how they generate their revenues.

“In other words, the city typically owns the water and sewer plants and all the major equipment and it charges the city residents for use of those systems,” McBride said.

The sewer fund had about $2.689 million of total assets on hand at the end of the fiscal year, with liabilities of about $247,000 and a total net position of about $2.442 million. Its unrestricted portion of the net position was about 80% of annual expenditures in that fund, which McBride deemed healthy.

The fund generated about $472,000 of revenues during the year and ended up using about $42,000 of its net position, so it had a slight loss during the year.

The water fund had a balance of about $9.388 million of assets on hand and liabilities of about $580,000, finishing the year with about $8.8 million in total net position. The fund generated about $985,000 during the year and had an increase to its net position level of about $121,000.

“In my opinion, both your water and sewer funds have healthy net position levels,” McBride said.

Other comments

McBride then spent a bit talking about the audit process in general. He said the audit is performed in all of the major accounting functions, including purchasing, cash receipts, utility billing, adjusting journal entries, payroll and bank reconciliations.

“We do have a great relationship with the city,” he said. “We are in contact with the city throughout the year, primarily (Linda Mackie), the treasurer.”

He noted the firm assists with questions regarding transactions throughout the year, various state filings and state revenue sharing reports. He also added that reasons like the COVID-19 pandemic and the current environment are why communities need a cushion in their fund balance level, in order to be prepared for the worst.

Mayor Pro Tem Michael Bembas thanked McBride and his team.

“I’d like to make a motion that Linda Mackie should not retire, ever,” he said. “Great job, Linda. Thank you.”

Mayor Terry Stoneburner also thanked McBride and Mackie.

“The last few years … I’ve been amazed at how healthy things are getting,” she said. “We make decisions based, of course, on our budget, but we have things budgeted, money set aside for things, so when we get hit with something … it’s not a surprise. We’re prepared for it.”

She said Mackie would say it is a team effort and everyone worked together on the budget.

“It sounds kind of funny, but this is the bright spot, I guess, in this pandemic, is that we have something like this to look at, something very positive to look at when lots of the news is doom and gloom,” Stoneburner said. “And I will second that motion from Mr. Bembas that Linda not retire. I like that.”

Emily Pauling is a staff writer for The Voice. She can be contacted at 586-273-6200 or [email protected].