Borough finds it owes $125K for compensation fund

Saturday, October 18, 2008
Pottstown Mercury
POTTSTOWN — Taxpayers are on the hook for an additional $125,000 as a result of the borough's failure to correctly forecast the borough payroll, a consultant told Borough Council this week.Timothea Kirchner is a consultant with Financial Solutions, the Reading firm hired to help the borough prepare its budget in the wake of the resignation of former finance director Robert Armelin.Tuesday night, she appeared before council to give a preview of some of the budget difficulties the borough will face in the coming year. Not the least of these, is the recent discovery of a letter from one of the borough's insurance companies informing the borough that it owes $125,000 toward its workers compensation fund.This was the result of underestimating the borough's salaries by $2 million, she said. Kirchner told the council, "That's a real concern."
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"How do we underestimate salaries by $2 million?" Councilman Steve Toroney asked incredulously.Toroney said he had to wait a few moments before speaking, "So my head doesn't explode."Assistant Borough Manager Jason Bobst explained that because the borough provides workers compensation insurance by being part of a trust, at the beginning of the year a worksheet is filled out in which the borough's total payroll is estimated. This number is plugged into a formula which is used to estimate how much the borough will pay into the trust to cover that year's anticipated expenses.Although the estimate of base salaries was "right on," Bobst said, "overtime and longevity numbers, primarily police overtime, resulted in the estimate being too low."The driving factor here is police overtime," said Bobst. "It was grossly underestimated."The reason for that, said Police Chief Mark Flanders, involves a long-standing complaint he has had about how Pottstown puts together his budget. Much of the overtime, Flanders explained, is due to grant-funded activities, such as DUI checkpoints.Although the grant revenues pay for the overtime — "if there's no grant, there's no overtime" — the over-time is nevertheless booked in the budget as an ordinary expense, making it look like the police department is spending more money than it has revenue, Flanders said.The news of the due bill comes in the wake of a prediction Armelin made in July that the borough would end the year with a $200,000 shortfall. At the time, he identified shortfalls in the real estate transfer tax and the local services tax as the primary causes of the predicted shortfall.It is unclear whether that prediction included the $125,000 the borough owes the trust and if the shortfall the borough now faces is actually $325,000.What is becoming increasingly clear is the financial pickle in which Borough Council will find itself when it begins looking at the 2009 budget later this month, Kirchner warned.She said the audit on the 2007 budget is not yet complete and she is concerned about other surprises that may be lurking in the 2008 budget.The discovery of the letter regarding the worker compensation insurance "made us look that much more deeply at this budget," she said.