CORNWALL – The auditors for the City of Cornwall say the corporation put its Progress Fund in jeopardy by not following its own policy for two years.
The $25 million nest egg, created from the 1998 sale of Cornwall Electric, has paid for a number of projects. Right now, the interest income is supposed to be making the $719,000 annual payments for the Benson Center, leaving the burden off taxpayers.
But MNP accountant Ross Markell told council last month that, due to low rates of return on its investments, the city actually let the fund and the required payments eat into its $25 million principal.
Financial statements show the fair market value of the fund was actually $24,229,111 as of the December 31, 2018 and was $24,040,917 in 2017.
The city has a reserve fund policy, established in 2014, that had a “mechanism” to get the fund back to $25 million but that wasn’t followed. The city was supposed to only take 80 per cent of the interest income and leave 20 per cent to replenish the account.
“We noticed this year…the Progress Fund has to have a minimum balance of $25 million, that’s set out by bylaw. We were offside and the 20 per cent didn’t happen. In fact, by the time we pointed it out to administration for 2019, in your budget, it wasn’t dealt with in your budget as well,” Ross Markell said.
That means 20 per cent of the income, used to make the Benson Center loan payments won’t be available, leaving Cornwall taxpayers to pick up the tab.
“The tax rate will have to support that,” Markell added.
Markell said administration will “move $200,000 that otherwise would have gone” from the Progress Fund to support that payment and top up the account to correct the error.
“Administration goes have a plan to deal with the shortcomings of not following that policy,” he said. He characterized the slip up as an “oversight. It wasn’t on purpose that they (the city’s finance department) did this.”
Coun. Dean Hollingsworth suggested maybe it’s time for the city to look at increasing the principal amount of the Progress Fund by 2 per cent per year, given the new economic reality and rates of return on city investments. “Certainly $25 million today, doesn’t have the same ‘buying power’ that it would have had 10 or 15, or 20 years ago.”
The auditors agreed.
Markell reiterated his opinion he has made in the past to council – don’t spend the $25 million.