WHEATFIELD – It seems that this year’s campaign for town offices in Wheatfield will offer another opportunity to refight the battles of 2009, the final year of Timothy E. Demler’s tenure as town supervisor.
Thomas J. Larson, who is running against incumbent Robert B. Cliffe for supervisor, declared at a news conference Aug. 22 that the town’s large surpluses show Wheatfield is overtaxed. Another reason he cited for that contention was the highway tax imposed at the end of Demler’s administration.
Cliffe responded that the highway tax has been reduced for the past two years and will be eliminated in the 2014 budget, a move urged by Larson at his news conference.
Cliffe said the Town Board had little choice but to impose the tax to close a deficit that opened in the last two years of Demler’s administration.
The surpluses stand in contrast to the town’s position at the end of Demler’s tenure, when the town was in the red.
Larson, Cliffe and Demler are all Republicans; Larson is challenging Cliffe in the September primary but already has the Democratic line in November.
The Buffalo News reviewed the last seven years of town audits, all performed by the Drescher & Malecki accounting firm, and a State Comptroller’s Office audit issued in 2010.
They showed that the town’s financial position in the middle of the last decade was healthy but quickly deteriorated under Demler. The state’s figures, for example, show a $1.5 million general fund surplus in 2006 had been wiped out by 2009.
The position has improved every year Cliffe has been in office, as deficits have disappeared in all but one of the town’s accounts and were replaced with surpluses – large ones in several cases.
Cliffe said there has been conservative budgeting, with total spending in 2012 marking the first time in his administration that Wheatfield spent as much as it did in the final two years of Demler’s tenure.
“Sales tax was the major help, but the Town Board reviewed and reduced expenditures,” said Edward D. Mongold, the town budget director, who took office with Cliffe in January 2010.
The reason for the sales tax spike has nothing to do with economic activity within the town. Wheatfield is entitled to it because of its population.
Niagara County has an 8 percent sales tax: 4 percent state and 4 percent county. Of the county tax, the county keeps the proceeds of 1 percentage point to pay for the county share of Medicaid.
The money from the other three percentage points is split up. The county keeps 47 percent for itself and divides up the other 53 percent among the cities and towns based on their population.
The first decade of the century was a booming residential time for Wheatfield. While the 2010 census showed the county’s overall population fell by about 3,000 people, Wheatfield’s grew by more than 4,000: a 28.6 percent increase to 18,117, making it the second-largest town in the county behind Lockport.
As Wheatfield grew and the county’s three cities shrank, the town was able to claim a greater share of the sales tax money the county was passing out: 8.4 percent instead of 6.4 percent in the previous decade.
The 2010 comptroller’s report, while not naming names, said that the Town Board “did not provide adequate oversight.”
As far back as 2007, according to the state audit, “The board adopted a structurally imbalanced highway fund budget that appropriated more fund balance than was available to finance budgeted expenditures.” However, revenues exceeded estimates until 2009, so the town was able to skate past the problem.
Mongold said the immediate cause of the highway deficit was the use of $1.2 million borrowed on a bond anticipation note, which is short-term borrowing, as budgeted revenue in the highway fund in 2009.
Such a use is barred by state comptroller policies, which require a bond anticipation note to be listed as a liability, not an asset.
“The revenues for the Highway Department had been gutted,” Cliffe said.
“There was a fictitious revenue,” Mongold said.
“I would call it an inappropriate budget revenue estimate,” said Thomas P. Malecki, the outside auditor. He has no role in preparing the budget; his job is to come along after the end of the year and report what resulted from it.
His letter to the Town Board on June 15, 2010, cited the misuse of the bond anticipation note as “an instance of noncompliance” and “improper use of debt proceeds.”
“The highway fund was using it for operating needs,” Malecki said. Normally, the proceeds of a short-term borrowing would be placed in the capital projects fund, not an operating fund such as highway, he said.
Demler said the his budget adviser, Winston Moeller, should have placed the bond money into a capital projects fund, “but other than his placement in the wrong account, the numbers didn’t change, as they showed the expenses associated with those bonds in the same fund.”
The problem was apparent months before Malecki issued his letter.
On Nov. 19, 2009, two weeks after Cliffe defeated Demler in the general election, the Town Board voted, 3-1, to impose a property tax to help fund the Highway Department. Demler cast the only vote against it; Cliffe was not a board member at the time.
The rate was 82.06 cents per $1,000 of assessed valuation, and it brought in $643,157.
“The highway tax is clearly the Cliffe administration tax. It was adopted by his running mates and passed by his Republican-controlled board at the 11th hour, the date before the levy had to be turned in to the county,” Demler said in an email to The News.
Larson objected to the budget cuts instituted in response to the deficits, such as the end of animal control, mosquito spraying and the temporary cutback in summer youth programs.
Cliffe said he thought the Town Board acted wisely. “They made the adjustments they thought they could make without gutting important services,” Cliffe said.
He said that instead of the highway tax, “You could have eliminated the Recreation Department, closed the parks, the senior center, the youth center, and you would have been right where the highway tax was (in savings),” Cliffe said.
Meanwhile, the census figures were right around the corner, bringing Wheatfield unexpectedly large revenue increases.
While the town’s sales tax income hovered around the $3 million mark from 2006 through 2009, rising to $3.3 million in 2010, the sales tax revenue jumped after the new census altered the formula.
Suddenly, Wheatfield had $4.5 million in sales tax in 2011 and $4.65 million in 2012, the Drescher & Malecki audits show.
Mongold said Comptroller’s Office policies require towns to use sales tax revenue only in the general fund or the highway fund.
The town took advantage in 2011, almost doubling the previous year’s allocation of sales tax to the highway account. That jumped from $652,000 to $1.28 million, while the highway property tax rate remained at the original level.
The results of the sales tax infusion were instantaneous. The highway fund budget deficit was $416,000 when Demler left office at the end of 2009. In 2010, with the new highway tax but the old sales tax formula, Cliffe reduced it, but only to $338,821.
But after one year with the new sales tax formula and the same highway tax, the highway deficit disappeared. The fund had a net surplus of $199,353 at the end of 2011.
The board reacted by slashing the highway tax rate. It had brought in $648,000 in 2011, but it garnered slightly under $261,000 in 2012. However, the town plowed $1.77 million in sales tax into the Highway Department, and the outcome was a surplus that grew by $455,000, reaching the year-end 2012 figure of $654,894.
This happened even though highway spending increased by $400,000, to $1.86 million, from 2009 to 2012.
“We have the highway budget back where it belonged,” Cliffe said. “Now we can go forward, continuing with a balanced budget but with less tax.”
The general fund, which was underwater by $78,377 when Demler left office, had a net surplus of $1.75 million at the end of 2012. There is no property tax for the general fund, but the sales tax allocation for the general fund was increased from under $2.5 million in Demler’s last budget to $2.88 million in 2012.
Spending in the general fund was $3.49 million in 2009, Demler’s last year in office, and it was $3.43 million in 2012.
Larson contended that the unallocated general fund surplus is far too high – 36.9 percent of the fund’s spending total, according to Malecki.
“It is now very clear that Wheatfield families have been taxed unnecessarily for the past four years,” Larson said. He claimed that a 10 percent fund balance “is the state recommendation.”
Not true, according to Comptroller’s Office spokesman Brian Butry.
“There’s no hard-and-fast rule,” he said. The state law on the subject tells towns merely that they should maintain “a reasonable amount” of surplus.
“A fixed percentage might be insufficient for small units and excessive for large units,” says the state’s last memo to localities on the topic, dated July 2001.