In “The Reckoning,” Jacob Soil, a professor of history and accounting at the University of Southern California, presents a history of accounting to reveal how accounting has shaped kingdoms, empires and entire civilizations. Soil states: “Sometimes it seems as if our lives are dominated by financial crises and failed reforms. But how much do Americans even understand about finance? Few of us can do basic accounting and fewer still know what a balance sheet is. If we are going to get to the point where we can have a serious debate about financial accountability, we first need to learn some essentials.”
I agree with professor Soil’s opinion that a population well versed in accounting will not immediately solve our complex financial problems, but it would allow average citizens to understand the nuts and bolts of finance. It would also give them a clearer sense of what financial accountability really means.
I have written several times over the past four years about the South Portland City Council and School Board and their ignorance of financial matters and their total lack of accountability.
This year’s city and school budgets and the proposed tax increase are just another example of what happens when the city is run by individuals who don’t understand basic financial matters and are never held accountable for their poor financial decisions.
Last month, the City Council for the eighth straight year made no changes to the proposed school budget that voters will vote on June 10. The council did so despite the undisputed fact that the school has incorrectly budgeted costs every year for the past 11 years. Over that period, the actual school costs averaged more than $1 million less than the budget. They also did not take into account that the school had about $4 million in surplus accumulated from prior years’ budgeting errors. They also ignored the fact that more than $2 million of this surplus might be taken by the state in 2015, because the surplus is in excess of state law. They also ignored the fact that the budget did not use the $600,000 of state school funds received last year, which the superintendent stated would be used in the 2014-2015 school year. Instead of using this revenue to cut the taxes due this year, the school board decided to carry that $600,000 forward for years after 2015.
In total, the school budget is $1.4 million more than it should be, if proper accounting were used on the budget. This tax increase is due to budgeting errors and does not include another $2 million in wasteful spending on excessive non-teaching administrative costs.
On the city side of the budget, the budget includes similar budgeting errors that understate revenues and overstate expenses. The total errors to that budget total about $1.1 million. Between the school and city budgets, the accounting errors create a tax increase of about $2.5 million.
The proposed property tax increase for this year has been dishonestly reported by the City Council as a 3.3 percent tax increase. The truth is the actual property tax rate increase is 8.3 percent. The undisputed fact is that the audited financial statements (which the City Council and voters don’t read or understand) illustrated that for the last three years ended June 30, 2013, the taxes collected were 5 percent greater than were needed to cover the actual expenses. Accordingly, a 3.3 percent tax increase is really an 8.3 percent increase over the actual taxes needed to cover actual expenses.
While the 8.3 percent property tax rate increase is already too much, it does not reflect the total tax increases to South Portland residents. In 2013, South Portland’s city manager along with many other city and town managers testified before the Maine legislature and supported a 10 percent sales tax increase in return for additional state revenue sharing, which they stated would reduce property taxes. In 2014, the cost of this sales tax increase to South Portland residents will be about $100 per household (or equal to about a 3 percent property tax increase on the medium priced home). When you combine the sales tax increase with the property tax increase, the impact to South Portland residents is equal to about an 11.3 percent property tax increase for 2014 over the 2013 taxes needed to fund the actual expenses.
Despite this real 11.3 percent tax increase in 2104, the financially challenged city councilors will tell you that they are concerned about South Portland’s residents and their ability to pay the never-ending financially irresponsible tax increases.
For seven years, I have tried to educate the City Council on financial matters, but it is clear that I have failed to get through to them. In fact, this year’s City Council is the worst in seven years. They lack the ability to understand even the most basic financial concepts. It is also clear that this council will never take responsibility for their financial mistakes and will never be held accountable for their actions.
In the end, the real problem is with the voters of South Portland, who are just too busy with their lives to take the time to understand what their representatives are doing to them.
On June 10, a small group of uninformed voters with no basic understanding of financial matters will pass the school budget. Professor Soil would suggest that that will not change until we have a society trained in financial matters and accountability or when there is a major financial crisis.
Al DiMillo is a retired CPA who lives in South Portland.