Denver City Auditor Dennis Gallagher on Tuesday said the city is on a “fiscally imprudent” path because reserves have dropped.
In a letter accompanying an audit of the city’s Budget and Management Office, Gallagher said he fears the decline could lead to a lower bond rating for the city, increasing its cost to borrow money.
But a bond-rating agency said the city was fiscally sound and faring better than most. The city’s finance director, Margaret Browne, was out of town and could not be reached for comment.
Mel Thompson, the city’s budget director, said the actual budget numbers cited by the auditor were incorrect.
“You can call any bond-rating agency, and they are pretty impressed at how the city handled a severe downturn in the economy in 2002, 2003 and 2004,” Thompson said. “I was surprised by some of the language in the transmittal letter.”
Gallagher’s letter said the city’s fund balance reserves have dropped from 13.4 percent of expenditures in 2005 to a projected 10.1 percent of expenditures in 2007.
Gallagher said he was disturbed by the decline because the city’s policies require a 10 percent fund balance, and he believed the city was close to violating that. He added that he believed bond-rating agencies would want an even higher fund balance, such as 12 percent.
Gallagher also rapped Browne’s office for playing a “shell game” by using the city’s contingency reserves to pay for operating expenses.
Thompson said recent audits will show the city’s fund reserves ended above 16 percent for 2005 and that fund reserves for 2006 are being revised upward. Thompson said final fund reserves for 2007 haven’t even been determined yet.
David Hitchcock, director of the state and local government group for Standard and Poor’s, said the city’s AA+ bond rating is among the highest for cities in the nation and is the second-highest bond rating possible.
Hitchcock added that even a downgrade of one notch in the city’s bond rating probably would have a negligible impact on the city’s cost to borrow.
The audit from Gallagher’s office further said the Budget and Management Office had a 78 percent employee-turnover rate and failed to ensure that its employees received adequate training.
Staff writer Christopher N. Osher can be reached at 303-820-1747 or cosher@ denverpost.com.
