A loss of more than $600,000 in its fund balance revealed in the Rochester Avon Recreational Authority's (RARA) proposed fourth quarter amendments to its 2017 budget has sparked concern and additional oversight of the authority from the city of Rochester Hills.
Rochester Hills Chief Financial Officer Joe Snyder told Rochester Hills City Council on Monday, December 11, that RARA's budget amendment proposes a decrease in total revenues of $48,474 and an increase in total expenses of $614,769. The decreases in revenues and increases will have a proposed net impact of $663,243 on RARA's fund balance, bringing it to about one percent of its total budget.
The authority has traditionally maintained a fund balance of about 20 percent.
"To say I wasn't particularly pleased with RARA's reduction in fund balance is really an understatement," said Snyder, who added that Rochester Hills is responsible for administering the financial aspects of RARA, and the city's treasurer is responsible for controlling the funds of the authority. "What we must do now is move forward to ensure that matters like this do not occur again."
Rochester Avon Recreational Authority Executive Director Ronald Jewell said the original budget was submitted at a point when RARA was in the process of negotiating terms and seeking to acquire property at 480 E. Second, west of RARA's main headquarters. The new property, which includes about 22,000 square feet, was completely renovated and built out for recreational purposes. The building opened in April of 2017 with 10,000 square feet of multi-court, multi-sport gymnasiums, 8,000 square feet of fitness and cardio equipment, along with a large multi-purpose group room.
Jewell said the budget was submitted as if the building was fully operational and running projected programming for the entire fiscal year, but was in fact unsure exactly when the building would be fully operational and open for business, along with providing lead time to build up memberships and line up building rentals.
"From April to November of 2017, RARA was averaging about $176 per day from memberships. In the last 14 days, RARA is capturing about $740 per day from memberships, or RARA has seen about 21 percent of its membership revenue collected for the budget," Jewell said.
The drop in fund balance was met with concern from city council members, and calls for additional financial oversight of RARA to restore fund balance.
"After conferring with Rochester Hills fiscal, RARA agrees with taking additional measures in the budget," Jewell said.
Those measures include the development of a three-year budget process, rather than the one-year budget currently used by RARA. Snyder, who will oversee the process, said the RARA board also will establish a target fund balance amount to be achieved by a certain date, with a fund balance target of no less than 20 percent of budget, which would be about $400,000 compared to its current amount of about $13,000.
"Rochester Hills fiscal also requests to be present at future RARA board meetings and will provide monthly financial reports to the board to ensure budgets are being adhered to," Snyder said. "If amendments are required, they must be presented on a quarterly basis, the same as the Rochester Hills budget cycle. If build-outs and floor projections were included early on in the first and second quarter updates, this matter that is here before us would have been addressed much earlier."
Snyder said RARA has historically been a smaller enterprise, and one single budget amendment at the end of the fiscal year was acceptable. "I think we have seen very clearly that this practice of one budget amendment per year is no longer advisable," he said.
The city will also work with RARA to develop a capital improvement plan to identify and schedule improvements over multiple years in order to ensure the fund balance won't be decreased again in the future.
The revelation about the authority's depleted fund balance comes on the heels of a salary study and request for raises at RARA earlier this year that was met with opposition from city council members in both Rochester Hills and Rochester.
"If you would have done that, you would have had a negative fund balance," councilwoman Susan Bowyer said. "I hate to see RARA go away, but it wouldn't be beyond me to say 'dissolve the inter-local agreement if we are losing too much money and being bled out."
Other council member also expressed their frustration with the financial situation.
"Mr. Jewell, I don't think you understand the amount of aggravation that you have caused us this week. Not just staff, but also council, in finally being appraised of the financial status of RARA," councilwoman Stephanie Morita said. "This is an organization that we all care very much about and want to see succeed. When we have a $14,000 fund balance at the end of the year, it’s very, very concerning.
"It hasn't been an easy year for RARA in terms of you coming in mid-year and a salary study that was done in which you were asking for increases for staff, but at the same time you were blowing through a fund balance to the tune of $533,000 for the year,” Morita continued. “It's one of those situations that I'm glad we put that on hold for a while until we can get RARA in a better financial situation. I understand you are going through with the pay study right now, and that's going on now, but I would hope you understand council's reluctance to agree to a pay raise for anyone at RARA right now with the fund balance the way it is."
Councilman Dale Hetrick said while he would like to see progress at RARA, there needs to be measures in place to ensure such a situation doesn't occur again.
Snyder said RARA's fund balance should be able to be restored to 20 percent of its overall budget in two to three years, based on RARA's projections.
Rochester Mayor Bryan K. Barnett said having more checks and balances in place will help to ensure there aren't overruns in the future. "I think the city is stepping up in an appropriate way," Barnett said. "You will love Joe (Snyder) and hate Joe because he will get your financial house in order."