Solvay, N.Y. -- The village of Solvay has mismanaged the finances of its municipal electric department, resulting in a drop in its cash balance from $4.1 million to $1 million over four years, according to an audit by the state Comptroller’s Office.
A report released by Comptroller Thomas DiNapoli’s office on Friday said an audit of the village’s books from 2016-17 to 2020-21 showed:
- Officials in the village’s electric department failed to maintain up-to-date records or provide adequate financial reports to the village Board of Trustees.
- The board and village officials failed to take action to ensure the village’s electric fund revenues kept pace with expenses.
- Officials did not ensure that annual payments from the electric fund to the village’s general fund totaling approximately $1 million were justified and supported.
In addition, the report said officials did not monitor the village’s general fund budget during 2021-22. As a result, expenditures totaled $7.3 million, which was $1.3 million higher (22%) than the original budget appropriations of $6 million for the year, auditors said.
Solvay is one of more than 30 villages in New York that operate their own electric department. The village buys electricity wholesale from the New York Power Authority and the New York Municipal Power Authority and sells it to village residents and businesses at rates significantly below those paid by customers of private electric companies such as National Grid.
The village’s electric department is overseen by a five-member commission which includes the village mayor and four members appointed by the mayor, subject to the village board’s approval. The commission is a subsidiary body acting for and at the pleasure of the village board, according to the report.
The report said the village electric fund’s total net assets declined about 50%, from $18 million at the start of the 2016-17 fiscal year to $8.9 million at the end of 2020-21.
It said the decline occurred primarily because the electric fund experienced annual losses ranging from $500,000 to $1.5 million over that period. At the same time, the electric fund’s cash balance -- the money left over after all costs are paid -- declined approximately 75%, from $4.1 million to $1 million, the report said.
Under village code, the electric department commission is responsible for preparing and submitting a proposed annual budget for the electric fund to the village board by March 31 of each year for its review, according to the report. However, they have not historically done so, it said.
“During our audit period, the commission did not develop a proposed budget and the board did not adopt a budget for the electric fund,” the report said. “Therefore, officials had no information or records that detailed the commission or board’s financial plan for each fiscal year, such as the proposed appropriations necessary to carry out the electric department’s activities and the proposed means of financing those activities.”
Because officials did not develop budgets for the electric fund, they were unable to monitor actual revenues and expenses against budgeted mounts, the report said.
It said the lack of proper financial management has caused cash-flow problems for the electric department.
In August 2021, Mayor Derek Baichi signed and released checks including three purchased power payments totaling $1.6 million when the electric department’s former treasurer was unavailable, according to the report. However, it said the bank account did not have sufficient funds to cover the payments.
“This caused the account to have a temporary negative balance of approximately $17,000,” the report said. “While the bank allowed the checks to clear and the negative balance was corrected with deposits the following day, this demonstrates the precarious cash position of the electric fund and the need for the board and officials to receive up-to-date financial information to carefully monitor electric fund finances.”
The report said the electric department has not conducted a rate study since 2008. As a result, base rates charged to customers have not increased in more than 14 years. During this same period, purchased power, labor, supplies, equipment and other costs have increased, but the revenues generated from electric sales have not been sufficient to cover the increasing expenses, it said.
Auditors also questioned payments made by the electric department to the village’s general fund. They said the electric fund paid the general fund about $1 million annually, or nearly $5 million from the 2016-17 through the 2020-21 fiscal years for rent and property taxes the electric department would have paid if it was not tax exempt.
“While some of these payments were permissible, we question certain components that make up those payments,” the auditors said. “Furthermore, because the electric fund incurred annual losses in recent years and its cash position declined, we question whether the fund will have sufficient resources to continue making these payments to the general fund.”
In a letter to the comptroller’s office in response to the audit, Baichi said the village “acknowledges that there are improvements that need to be made regarding the budgeting and monitoring of the Electric Fund’s financial condition.”
“We are currently working to implement various changes in relation to the Electric Fund, including the completion of a rate study,” he said in the letter.
In a phone interview on Friday, Baichi said he has been advocating for a rate study since 2016, when he was a village board member. He became mayor in 2018.
Baichi said the village has not raised its electric rates since 2009 to keep bills as low as possible for residents. The average electric bill for homeowners in the village is $30 to $40 a month, compared with bills of $85 to $100 for residents in other communities, he said.
“Our rates are significantly less than they are for most other communities,” he said. “That’s why there are not a lot of homes for sale. People don’t want to leave.”
However, he said that after the rate study is completed, the village will probably ask the state Public Service Commission for permission to raise rates a small amount while keeping them far below the rates in other communities.
In addition, he said the village is instituting cost cutting measures, looking to get better prices on vehicles and other equipment for the electric department and lower rates on health insurance for employees. It also has hired the Dannible & McKee accounting firm to assist it in improving management of its general and electric funds, he said.
As a result, he said he expects the electric fund’s cash balance will 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. Got a tip, comment or story idea? Contact him anytime: Email | Twitter | Facebook | 315-470-3148
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