Opening discussion reveals audit delay tied to city effort to correct fixed-asset records dating to the 1960s
Recurring revenues exceed recurring expenses by about $200,000
General Fund reserves remain above city’s newly adopted targets
MANDEVILLE — Mandeville’s proposed FY2027 budget would pay for recurring city operations entirely with recurring revenues for the first time in years, Finance Director Jessica Farno confirmed Wednesday during the first of five City Council budget hearings.
After removing grants, capital projects and other one-time revenues and expenditures, the proposed budget projects approximately $23.8 million in recurring revenues and transfers, with revenues exceeding recurring expenditures by about $200,000, a first in “many years.”
Councilman-at-Large Jason Zuckerman asked Farno to establish the distinction early in the council’s review of the budget.
“What I’m trying to get at … in this year’s proposed budget, are we covering our recurring expenditures with our recurring revenues?” Zuckerman asked.
“Yes,” Farno replied.
Zuckerman later noted that during his six budget cycles on the council, he had repeatedly heard that Mandeville was not covering recurring expenses entirely with recurring revenues.
“This is the first year in many years that we … are paying for recurring expenses with recurring revenue,” Zuckerman said.
“Correct,” Farno replied.
The approximately $200,000 margin is narrow. District I Councilwomen Cynthia Strong-Thompson and District III Councilwoman Jill Lane described it as providing little room for unexpected operating costs, with Strong-Thompson calling the structurally balanced proposal a “squeaker.”
But the recurring operating balance represents only one measure of the city’s overall financial position.
When grants, capital activity and other nonrecurring items are included, Farno said the FY2027 budget projects a net General Fund increase of approximately $8.7 million, although much of that amount results from the timing of multi-year capital appropriations and reimbursements rather than ordinary operating income.
Farno’s five-year projection also estimates an FY2027 ending General Fund balance of approximately $10.26 million, above the upper end of the 30% to 40% reserve target recently adopted by the council.
Even under the more conservative governmental fund calculation, which assumes outstanding capital appropriations remain committed, the city projects approximately $6.44 million in unappropriated General Fund balance — still above the 20% minimum reserve established by ordinance.
Audit discussion opens hearing
The council did not initially begin Wednesday’s hearing with those budget figures.
Councilman-at-Large Scott Discon instead opened the first FY2027 budget hearing by reading a prepared statement focused on the city’s delayed FY2025 audit, despite acknowledging in the statement that the unfinished audit does not prevent the council from legally proceeding with the budget process.
Discon’s emphasis on the delayed audit also echoed broader questions about the Madden administration’s financial management — including concerns over late audits — raised in recent anonymous mailers and websites targeting the mayor, although his statement did not reference the campaign.
Discon said a completed audit would provide a “certified look at our past financial health” and that future spending estimates are most effective when based upon “verified historical baselines.”
He said he had met with the city’s auditors the previous day and had been told the audit would be completed and submitted within approximately two weeks.
Discon said it was his “professional expectation” that the “official certified audit” be delivered before the council takes its final vote on the FY2027 budget later this month.
The discussion that followed, however, established that council members had already received repeated explanations of both the reason for the delay and the relationship between the unfinished audit and the FY2027 budget, possibly by email or other internal communications.
Zuckerman specifically asked that those explanations be placed on the public record rather than allowing the discussion to end with the fact that the audit had not yet been issued.
“I know there’s been a lot of correspondence [by email] and a lot of information that our director of finance has provided regarding that,” Zuckerman said. “I think that it was worthwhile rather than just throwing out there that … we don’t have the audit yet.”
Zuckerman said the public deserved to understand why the audit had been delayed and asked Farno and Mayor Clay Madden to explain what remained unfinished.
Madden also referenced the previous communications, saying council members had been kept informed about the audit and had received explanations through email, individual discussions and previous public comments.
The delay, officials explained, stems from a reconstruction of the city’s historical fixed-asset records after the current auditing firm identified deficiencies in beginning asset balances that had carried through previous audits.
The work has required researching city property and other assets dating back decades, including records from the 1960s.
Madden said auditors presented the city with the option of completing the audit earlier with the fixed-asset problem noted or delaying it while the underlying records were corrected.
“I said, ‘Let’s do this thing right,’” Madden said.
The problem predates both Madden’s administration and his previous service on the City Council, he said.
Farno then explained why the outstanding work does not undermine the figures being used in the FY2027 budget.
Fixed assets appear in the city’s government-wide financial statements, while the annual governmental budget is prepared at the fund level using revenues, expenditures and fund balances.
“The fund financial statements are essentially complete,” Farno said.
The draft audit remains the property of the auditors and is not yet a public document, she said, but those fund-level figures are substantially complete and agree with the figures she used to construct the proposed FY2027 budget.
“There’s really no support for the suggestion that the numbers that were used to develop this budget are inaccurate,” Farno said.
Zuckerman said the explanation was consistent with information he had received directly from the city’s auditors.
“After thorough discussions with the auditors myself, I feel very confident in the figures that Ms. Farno’s been working off of, and I have no issue whatsoever moving forward with the budget process this year,” he said.
District II Councilman Kevin Vogeltanz similarly said that while future audits should be completed on time, the outstanding fixed-asset work does not prevent the council from evaluating the FY2027 budget.
Farno also clarified that Discon’s stated expectation of receiving an “official certified audit” before the budget vote is unlikely to occur on that timetable. The auditors expect to submit the audit by the end of August, after which the Louisiana Legislative Auditor must review it before certification.
Lane asked directly whether that certification would occur before the council is expected to vote on the budget.
Farno said it would not.
Water and sewer presents different picture
While the proposed General Fund is structurally balanced and maintains substantial reserves, Wednesday’s review identified a considerably different financial problem in the city’s water and sewer enterprise fund.
The projected loss comes as the city is already preparing for an independent review of its water and sewer billing system following months of controversy over the rate structure adopted last year. In July, the council unanimously authorized the administration to seek a new consultant to review the current methodology and recommend changes aimed at balancing customer fairness with the requirement that the utility enterprise fund be financially self-sustaining. The review is also expected to examine alternative billing methods and whether the city should continue handling utility billing in-house.
The FY2027 proposal projects an approximately $2.44 million operating loss for the combined utility operation.
Zuckerman noted that last year’s budget projected an approximately $2 million operating loss, meaning the projected deficit has actually increased despite implementation of new water and sewer rates.
Farno confirmed that assessment.
The discussion also showed that the enterprise fund has depended on loans from the city’s other funds to maintain sufficient liquidity to pay its bills.
Draft FY2025 figures discussed Wednesday show approximately $7.7 million in enterprise-fund cash and investments while the fund owes approximately $8.6 million to other city funds.
“The only reason that it’s been able to support this is because of the liquidity in the other funds,” Farno said, adding that without those inter-fund loans, “we wouldn’t have been paying bills.”
That means eventually reaching operational break-even would stop the enterprise fund from accumulating additional losses but would not address the millions of dollars already owed to other city funds.
Farno also noted that money loaned to the enterprise fund could otherwise be invested by those funds and generating interest revenue.
The council previously authorized an outside review of the city’s water and sewer rate structure.
Other issues ahead
Sales-tax collections are currently running approximately 5% above the FY2026 budget, Farno said, while the FY2027 proposal assumes approximately 3.25% additional growth.
The administration’s proposed budget includes a 1% cost-of-living adjustment for employees in addition to budgeted merit increases. Council members requested calculations showing the full cost of the COLA and the effect that increasing it would have on the approximately $200,000 recurring operating surplus.
Farno said she and Madden had already modeled larger increases while constructing the budget.
“It didn’t work,” she said.
Zuckerman also requested a five-year projection of the city’s restricted funds, saying it will become increasingly important to understand the relationship between growing restricted balances and General Fund expenses as major city sales taxes approach renewal during the next five years.
The council will continue its review during four additional FY2027 budget hearings this month, with the next scheduled for 5 p.m. Aug. 13, one hour before the council’s regular meeting.
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