A drop of more than $600,000 in its fund balance revealed in Rochester Avon Recreational Authority's (RARA) proposed fourth quarter amendments to its 2017 budget has sparked concern and additional oversight of the authority from Rochester Hills and Rochester.
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.
RARA generates about 75 percent of its overall budget through membership fees, programs and facility rentals. About 25 percent of the overall budget comes from tax millages levied in Rochester and Rochester Hills. The amended 2017 FY budget includes about $628,000 in funds from Rochester Hills and about $88,000 from Rochester.
"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."
Ronald Jewell, executive director for RARA, said the authority's original budget was submitted when RARA was still in the process of negotiating terms to acquire a 22,000-square-foot building at 480 E. Second Street, which wasn't opened until April 2017. The building and build-out of the facility includes about 10,000 square-feet of multi-court, multi-sport gymnasiums, and about 8,000 square feet of fitness and cardio equipment. The mid-year occupation meant memberships and building rentals failed to meet projections included in the original budget.
"From April to November of 2017, RARA was averaging $176 per day from memberships. In the past 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," he said in memo dated December 4.
Rochester Hills City Council in July 2016 approved a request from RARA to use a maximum of $333,000 of its unrestricted fund balance toward the purchase and renovation of the new building. Council members at the time specifically said they wanted RARA to maintain $100,000 in fund balance in the budget. That motion was passed 6-1 with councilwoman Stephanie Morita voting against the measure due to concerns about the fund balance dropping below 20 percent.
"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," Morita said on Monday, December 11. "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.
The drop in fund balance was met with concern from city council members, and calls for additional financial oversight of RARA to restore the fund balance. The move for more oversight came 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."
"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 City Council on Monday, December 18, approved the same measures, with exception to the fund balance restoration, which the council set at 10 percent, rather than 20 percent, and council showed similar concerns.
Rochester Councilman Stuart Bikson said while it appears RARA remains on solid financial ground, he said the lack of communication by RARA to council liaisons contributed to problems.
"The troubling thing with me, Ron, is that if you knew how tight (the budget) was, then you never should have let it go that way. By doing that, you allowed that (Downtown newsmagazine) article to be written," Bikson said. "Don't put yourself in that situation, and don't put us in that situation. That makes it look like there are problems there, when of course, there probably isn't. It sounds like you're on good footing, but don't go to one percent... I think you need to be more judicious in your counseling of resources."
"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 stated at the Rochester Hills meeting. "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."
Rochester Hills 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.
Related: Our thoughts on increased RARA oversight