SOLVAY, NY – The village of Solvay has mismanaged the finances of its municipal electric department, which has caused its treasury on hand to drop from $4.1 million to $1 million in four years, according to an audit by the State Comptroller’s Office .
A report released Friday by Comptroller Thomas DiNapoli’s office said an audit of the village’s books from 2016-17 to 2020-21 revealed the following:
- Officials from the village electricity department failed to keep current records or submit proper financial reports to the village board of trustees.
- The board and village officials have failed to take steps to ensure that income from the village’s electricity fund keeps pace with expenditure.
- Officials failed to ensure that the annual payments from the Electricity Fund to the village’s general fund, totaling about $1 million, were justified and supported.
In addition, the report said officials failed to oversee the village’s general budget in 2021-22. As a result, spending totaled $7.3 million, which was $1.3 million (22%) more than the original budget estimate of $6 million for the year, according to the auditors.
Solvay is one of more than 30 New York villages that operate their own electronics department. The village buys electricity wholesale from the New York Power Authority and the New York Municipal Power Authority and sells it to villagers and businesses at prices well below those paid by customers of private power companies like National Grid.
The village’s electricity department is overseen by a five-member commission composed of the village mayor and four members appointed by the mayor, subject to the approval of the village board. According to the report, the commission is a subordinate body that acts on behalf of and at the discretion of the village head.
According to the report, the village power fund’s total net assets fell by about 50%, from $18 million at the start of fiscal 2016/17 to $8.9 million at the end of fiscal 2020/21.
The decline is mainly due to the power fund suffering annual losses ranging from $500,000 to $1.5 million during that period. At the same time, the power fund’s cash balance — the money left over after paying all expenses — fell about 75% from $4.1 million to $1 million, the report said.
According to the village ordinance, the Commission of the Electricity Department is responsible for preparing a proposed annual budget for the Electricity Fund by March 31 of each year and submitting it to the village board for review, the report said. However, they said they had not done so in the past.
“During our review period, the Commission did not develop a budget proposal and the Board did not adopt a budget for the Electricity Fund,” the report said. “As a result, officials had no information or records detailing the Commission’s or Board’s financial plan for each fiscal year, such as the proposed appropriations required to carry out the Electrical Department’s activities and the proposed appropriations to fund those activities .”
Because officials did not prepare budgets for the Electricity Fund, they were unable to compare actual income and expenditure with the budgeted amounts, the report said.
The lack of proper financial management has led to cash flow problems in the electronics department, it said.
According to the report, Mayor Derek Baichi signed and cleared checks in August 2021, including three electricity purchase payments totaling $1.6 million, when the former Electricity Department Treasurer was unavailable. However, the bank account is not sufficiently funded to cover the payments.
“This caused the account to temporarily show a negative balance of approximately $17,000,” the report said. “While the bank had the checks cashed and the negative balance was corrected by deposits the next day, this demonstrates the power fund’s precarious liquidity position and the need for the board and officials to carefully maintain up-to-date financial information and monitor the power fund’s finances.”
The report states that the electrical department has not conducted a tariff study since 2008. As a result, the base rates charged to customers have not increased for more than 14 years. During the same period, purchased electricity, labor, supplies, equipment and other costs increased, but revenue from electricity sales was not enough to cover the rising expenses, it said.
Auditors also questioned payments by the electricity department to the village’s general fund. They said the Electricity Fund paid the general fund about $1 million annually, or nearly $5 million from fiscal years 2016-17 to 2020-21, for rent and property taxes that the Electricity Department would have paid had they not been tax-exempt were.
“Although some of these payments were permissible, we question certain components that make up these payments,” the auditors said. “Furthermore, we question whether the fund has sufficient funds to continue making these payments to the general fund, given that the power fund has suffered annual losses and its treasury has declined in recent years.”
In a letter to the Comptroller’s Office in response to the audit, Baichi said the village “recognizes that improvements need to be made in the budgeting and monitoring of the Electricity Fund’s financial condition.”
“We are currently working to implement various changes related to the Electricity Fund, including the completion of a tariff study,” he said in the letter.
In a phone interview on Friday, Baichi said he had been campaigning for a tariff study since 2016, when he was a village board member. In 2018 he became mayor.
Baichi said the village has not increased its electricity tariffs since 2009 to keep bills for residents as low as possible. The average electric bill for village homeowners is $30 to $40 a month, compared to bills of $85 to $100 for residents in other communities, he said.
“Our rates are significantly lower than most other communities,” he said. “That’s why there aren’t many houses for sale. People don’t want to leave.”
However, he said that once the tariff study is complete, the village will likely seek permission from the state Public Service Commission to raise tariffs marginally while keeping them well below tariffs in other communities.
In addition, the village is introducing cost-cutting measures to achieve better prices for vehicles and other equipment for the electrical department, as well as lower rates for employees’ health insurance, he said. The company also hired accounting firm Dannible & McKee to help it improve the management of its general and electrical funds, he said.
As a result, he expects the power fund’s cash balance to improve significantly over the next two years.
“We’re moving in a much more positive direction,” he said.
Rick Moriarty covers business news and consumer issues. Do you have a tip, comment or story idea? Contact him anytime: email | Twitter | Facebook | 315-470-3148