The Hastings Banner — Thursday, July 1, 2021 — Page 11Interim manager catalogs city money missteps
Rebecca Pierce
Editor
When the city of Hastings adopted its $6.
million budget for the new fiscal year, the
spending plan included $350,000 in American
Rescue Plan Act funds.
It’s a problem, but the city can easily
resolve it, interim City Manager Gregg
Guetschow told The Hastings Banner
Wednesday,
During the council meeting Monday,
Guetschow said the federal ARPA money, the
first allocation of a total $765,000 that the city
expects to receive, was included in the budget
“like any other unrestricted revenue.”
“These funds are not unrestricted, however,
and can only be used for limited purposes:
Addressing the impacts of COVID-19;
recouping lost revenues due to COVID-19;
infrastructure investments related to water,
sewer and broadband; and a few others,”
Guetschow noted. “It is likely that the major-
ity of ARPA funds would be used for projects
that would not be accounted for in the general
fund and that would likely occur in future
fiscal years.
“In recognition of this, the Michigan
Department of Treasury is encouraging
accounting for the receipt and use of ARPA
payments in a separate fund.”
The city will have to move that money out
of its general fund and segregate it in a sepa-
rate account.
And, since the city has not yet applied to
receive those federal funds, there is no prob-
lem with setting up a separate account to
ensure they follow the accounting practices
established by the Treasury Department, he
noted.
The 60-day window for the city to apply for
the funds doesn’t open until July 6, Guetschow
said.
Without those federal funds co-mingling
with general fund money, and “assuming all
other revenues and expenditures occur as bud-
geted, the general fund appropriation from the
available fund balance would need to increase
from $550,000 to $900,000.”
And, while the projection for the following
fiscal year, 2022-23 did not include the city’s
anticipated ARPA amount, that fund balance
appropriation was already at $867,000, he
noted.
This means that, over the next two fiscal
years, the fund balance would decrease from
$3.8 million to $2 million, he said.
A $2 million fund balance “is a very
healthy reserve for a $6 million budget,”
Guetschow noted.
Yet “the rate of use of these funds, howev-
er, is not sustainable,” he added, pointing as
an example to the rising costs of pension
funds, which are expected to double over the
next 20 years.
“Other capital needs – a new public safety
building, for example – must also be consid-
ered when evaluating the city’s long-term
fiscal health.”
Guetschow said of greater concern is pen-
sion and OPEB (Other Post Employment
Benefits) that the city will have to consider
the corrective steps that will need to be taken
to meet those obligations in the future.
$791,300 in changes end fiscal year
During Monday’s meeting, the council
OK’d amending the $6.2 million general fund
budget before closing out the 2020-21 fiscal
year, which ended June 30.
But city Clerk Jane Saurman’s request,
which involved 18 separate appropriations
totaling $791,300, elicited some displeasure
from Councilwoman Deb McNabb-Stange.
“No. 1, there are way too many modifica-
tions to be presented this late in the year,”
McNabb-Stange said. “I don’t understand
most of them. So I need some explanation
going through what we’re doing here.
“But, also, I don’t like leaving it ‘til the last
meeting. Basically, we have a choice of either
approving these or being in violation of state
law. And I don’t like being put in that posi-
tion.”
Saurman pointed out that some of the
changes she requested were necessitated by
financial information that the city didn’t have
until June.
“I think what should come to this meeting
should be a final tweak of what needs to be
made,” McNab-Stange said. “And then these
(recommendations) should come sooner.”
Guetschow interceded in the discussion,
pointing to the fact that there are a lot of
changes in the plan that occur during the year.
“The budget that you adopt is a spending plan
that doesn’t elapse until ... 14 months after
you adopt it. There are lots of variations in
that.”
Guetschow pointed out that the way in
which the council adopts a budget is not on a
line-item basis.
“It’s not even on an activity basis,” he said.
“I think you’re adopting largely on a fund
basis. So there’s latitude within that for the
administration just to make variations in
spending as it goes. And we’re just not that
good at guessing to figure out, you know,
even within thousands of dollars, oftentimes
in any given department, where we’re going
to end up.”
Guetschow suggested that city administra-
tion provide the council with a summary of
anticipated budget adjustments on a monthly
or, at least, quarterly basis. So that “we’re
coming back to you and saying we still want
to go forward, (but) this is going to require a
budget adjustment at the end; it may mean
that we’re going to take more money out of
fund balance than when you originally fore-
cast.”
“I think that I’m understanding – and I see
some other heads nodding – that you just want
to kind of a running tally, as we go with the
significant variations,” he said.
“Right,” McNabb-Stange replied, saying
that she had made a similar request before.
“... I wanted some sort of a tally -- and then
got nothing.”
Her concern, she told Guetschow, is to keep
track of where funds have been spent and
“what other things have we done where we
didn’t spend significantly and we decided,
well, it’s better spent over here. So that’s
exactly what I want. Thank you for the ques-
tions.”Upon reaching that understanding with the
city administration, the council unanimously
approved final amendments to the 2020-
fiscal year budget.
But the issue of money handling – and
problems with the protocol currently being
used – cropped up again at the end of the
meeting.Purchasing rule ignored
The city has a rule that any expenditure
above $5,000 requires council approval,
Guetschow noted, yet he is finding numerous
examples in which this rule is not being
observed.
In a June 23 memo to the council, he cited
“three purchases made in apparent violation
of purchasing ordinances requirement.”
A variable frequency drive motor was pur-
chased without council approval. And an
additional service not originally included in a
contract for tree trimming and removal ser-
vice bumped the cost above the $5,000.
At Guetschow’s request, the expense – for
an additional service of stump removal – wasnegotiated to bring it down below that $5,
threshold.
A third example he cited involves the city’s
Nativity scene being refurbished at Bronner’s
in Frankenmuth at a cost of $13,060.
“Authorization was given for the work to
proceed,” he reported. “All figures are expect-
ed to be completely refurbished within the
next few weeks. I have been told that fund-
raising efforts were initiated to pay for this
work. I have been unable to ascertain to what
extent this is accurate. The last donation to the
Manger Scene Fund occurred in 2009. I do
not believe that any significant effort was put
into soliciting donations.”
Guetschow said he spoke with a representa-
tive of Bronner’s, saying he was just made
aware of the situation and asked for their
patience in paying the bill so fund-raising
efforts could be completed.
“I have discussed the matter with Mayor
(Dave) Tossava. He and I will be heading up
an aggressive fund-raising effort with a goal
of $15,000, sufficient to cover the cost of the
refurbishing work and transport back to
Hastings. My goal is to complete this
fund-raising before my time in Hastings is
over.”
Even if the funds had been raised, however,
Guetschow pointed out that this project still
should have been authorized by the council
before the work had commenced.
“These three instances reflect weaknesses
in administrative policies and procedures
employed to manage the purchasing function.
These must be corrected. I will be meeting
with key staff members involved in this func-
tion to discuss changes we can make to tight-
en up our practices. I will also be emphasizing
with the Executive Team the requirements of
city code related to purchasing, my expecta-
tions for their efforts to comply, and the con-
sequences of continued failure to adhere to
these standards.”Problems with procedures
These problems with financial procedures
were compounded last week when a clerical
error resulted in bids for lawn mowing, land-
scape maintenance and city janitorial services
being opened two days before the published
deadline.
The intention, the interim city manager
said, had been to make a recommendation to
Council for its meeting Monday.
But, after the bids were opened last
Wednesday, someone called to request a bid
packet. When the vendor was advised that the
deadline for submitting bids had passed, he
pointed to the bid advertisement in The
Banner that reported a Friday, June 25, dead-
line.
Guetschow said the information had been
changed in the bid specifications, but not in
the information given to The Banner for the
ad.
As a result, Guetschow decided to schedule
a second bid opening.
“The bids that were opened were secured,”
he told the council, “with instructions not toprovide information about amounts bid to
anyone who might inquire. I also instructed
staff to contact each of the vendors whose
bids had been opened to alert them to the sit-
uation and the actions we were taking. One of
those contacted has reached out to Mayor
Tossava to express her concerns and has spo-
ken to me now as well.”
“Vendors have good reason to be concerned
as our actions are contrary to one of the rea-
sons sealed bids are solicited: To ensure that
no one has information that provides an unfair
advantage over the competition,” Guetschow
wrote in a memo to the council. “I believe that
our actions mitigate against this. Further,
information from the bids that have been
opened would be available to the competition
if bids were rejected and new bids sought.
“The situation is far from ideal, however,
and could result in a challenge at the time bids
are recommended for award. At that time,
Council can decide whether it wishes to waive
irregularities when awarding bids or reject
bids and solicit new ones.”
Guetschow told the council Monday night,
“I apologize for the error that’s been made
here.”
But the overarching problem – of not fol-
lowing the city’s purchasing procedures – is a
fundamental flaw, he emphasized.
“We don’t seem to be able to get this right,”
he added, saying that there are a number of
possible causes. “The one step we are going to
be taking is Jane and I and the individual
involving in our accounts payable, and who
sees a lot of the purchase orders and how they
come through, we’re going to be talking about
what steps we can take to really reform our
processes here.”
Guetschow said the city has “way too many
ways we have allowed for people to ignore
the requirements.”
The system needs checks early enough in
the process to make sure rules are being fol-
lowed.
In at least one instance, he noted, the prob-
lem occurred at “a very high level of the
organization,” when the city manager at that
time did not come to council for approval of a
purchase. Instead, an email was sent approv-
ing an expenditure that the council did not
authorize.
“So it’s a little hard to say you’re going to
catch 100 percent of these.”
But the rule limiting purchases to no more
than $5,000 without council approval is in
place for good reason.
“This is one of those things I’ve talked
about, the need for us to focus on the funda-
mentals. We don’t have this right yet. I don’t
want to convey this in a sense to let the public
think that we’re spending money, willy-nilly.
“There are safeguards, but they’re not in
the right spot... They need to be in place
earlier in the process so that there is some-
body looking at this every single time.
“I want to assure you, assure the auditors,
assure the public that we’re being good stew-
ards of the public’s money.”Banner CLASSIFIEDS
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Interim City Manager Gregg Guetschow listens to discussion during Monday’s
Hastings City Council meeting.