The City of Stuart held a year-end audit workshop for the 2003/04 budget year and fiscal policy review on June 1. The only member of the public that attended was a representative of our organization. This is very unfortunate, as taxpayers dwelling within the Stuart city limits have a lot to worry about.

The Comprehensive Annual Financial Report for the fiscal year ending September 30, 2004, is very well organized and as thorough as any we have reviewed. Although it takes some time to find all the cross-references, it presented a clear picture of the City’s finances.

Among the financial highlights, the auditors report that the City ran a General Fund deficit of $3.47M, and Enterprise Funds (water, sewer, stormwater and sanitation) deficit of $0.46M. The General Fund reserve was drawn down to just over one month’s expenses at year end.

Among the highlights of the prior ten years, the City’s population increased 18%, property tax revenues increased 85%, property values increased 107%, and general government costs increased 120%.

One interesting exhibit is a comparison between the original budget and the final budget for 2004. The City budgeted a $2.9M deficit using reserve funds to cover the anticipated revenue shortage for that year. The final deficit for the year was $4.3M, which included some hurricane expenses.

The City staff believes that remaining hurricane expenses will exceed total reimbursements by about $1.1M. During the mid-year budget report staff projected a $0.4M general fund deficit for 2005, so the total general fund deficit is now projected to be approximately $1.5M. Total reserves after 2004 were $2.3M, so remaining City reserves at the end of this fiscal year should be around $0.8M.

During the present fiscal year, the City has increased utility rates, sanitation rates, and has adopted a mechanism to transfer more funds from these Enterprise Funds to the General Fund than was policy in years past. Voters approved a 0.5 mil increase in property taxes to construct a new public safety center. This assures property taxes will increase this year from 4.15 mils to 4.65 mils, or 12%. The FY 2006 budget has not been released for public review.

The City’s Fiscal Policy has been weakened over the past ten years. This Commission does not require a budget based on the Policy. Instead they allow the City Manager to depart from the Policy and merely explain his reasons for not complying in his proposed budget. The end result is that the City Manager sets fiscal policy.

The Fiscal Policy requires the City’s financial history and projections of future years be provided the Commission so they can see where the City has been, where the budget and revenues are headed, and make policy and budget adjustments before a crisis looms.

In 2001, the City adopted falsified financial projections to show a rosy future when the genuine projections showed major financial problems ahead. Projections were not provided in subsequent years. The City overspent its revenues each year between 2001 and 2004, using up financial surpluses in both General Government and Enterprise Funds, and is now down to dangerously low reserves.

The Fiscal Policy was designed to avoid another fiscal crisis like the one the City experienced in 1992, which resulted in both large staff layoffs and tax increases. Instead, it is happening again. We conclude either the Policy is ineffective, or the City Commission is ineffective in applying it.