Officials Weigh Discontinuing Enterprise Funds

ORLEANS – Voters at the fall town meeting in 2020 voted in favor of creating enterprise funds to promote better financial transparency. But members of the finance committee say that the funds have failed to become self-sustaining.

With that, the committee made their case to the select board Aug. 28 to discontinue four enterprise funds for Rock Harbor, moorings, beaches and the transfer station. An article to eliminate the funds is being considered for inclusion on the warrant for the Oct. 28 special town meeting.

Specifically, Lynn Bruneau of the finance committee told the select board that the funds have failed to keep up with their respective debt. She said debt service is required to be factored into each fund’s annual expenses. 

Using the beach enterprise fund as an example, Bruneau presented data showing that while the fund operated in the black in fiscal 2022, it has not performed as well in the years since.

“Subsequently in fiscal 23 and fiscal 24, the math works in such a way that because we’re in this case including the debt service, we end up with negative numbers for the beaches,” she said.

Data referenced by the finance committee showed that the Rock Harbor and transfer station enterprise funds have been particularly impacted by debt. The mooring fund, meanwhile, which Bruneau said is the only fund of the four with “its head above water at all,” is impacted by other indirect costs.

The idea of discontinuing the funds has the support of Town Manager Kim Newman and Interim Finance Director and Town Accountant Jennifer Mince, Bruneau said, as well as Public Works Director Rich Waldo and Natural Resources Manager Nate Sears. She said that the funds could be easily discontinued. Money currently run through the funds would instead go into the town’s general fund.

“They’re meant to be self supporting,” she said of the enterprise funds. “That’s the whole idea of an enterprise fund is to have it be self supporting. And clearly they’re not, the way the rules are defined.”

But some on the select board disagreed. Mefford Runyon, for one, said he initially was against the idea of creating the enterprise funds because he believed they had to be self-supporting. But the town eventually found out that is not the case, and they can be subsidized.

“I guess this is a long way of saying that I never had any expectation that any of these would be self supporting,” he said. “For some reason, that is a universal thought about how these funds should be.”

Michael Herman also said he didn’t expect the funds to be self-supporting. Discontinuing the funds would be going against the will of residents who voted to support their creation in 2020, he said.

“There were years of discussion on this,” he said. “There was depth, and this was the way that you were going to go. It seems to me knee jerk to kind of get rid of it.”

For Andrea Reed, the enterprise funds offer financial transparency that gives residents and officials “a basis for conversation” around how the funds should operate moving forward. If an article advances to town meeting to discontinue the funds and is approved, that transparency should be preserved in some other form, she said.

“How do we get at those conversations without this kind of snapshot? That’s my question.”

The town could revert back to some systems it had in place prior to the enterprise funds for providing fiscal transparency, said select board member Kevin Galligan. The department of public works, for instance, used to provide detailed spreadsheets outlining its financial operations. That data was used to help justify rate increases as needed, he said.

But while transparency is important, the conversation turned to how reliable the data driving the funds are. Currently, there is no policy in place for determining how much each fund will be subsidized. Without that, it’s difficult to accurately gauge how well the funds are performing.

“As the person who just did this, I can tell you that the system you have in place right now for these enterprise funds does not work,” Newman said. “It has nothing to do with what’s come in, what’s come out.”

Select board chair Mark Mathison agreed, saying the town needs tighter policies and systems in place to offer residents proper accounting.

“Whether it’s an enterprise fund or not, I think what we owe the town of Orleans and the citizens of Orleans is real numbers,” he said.

Newman recommended staying with some of the funds, namely those for Rock Harbor and the beaches, for another three years. She said data generated from those accounts could still be used to help generate rate changes in the years ahead.

Runyon, meanwhile, said limits for how much to subsidize the accounts need to be set in order to accurately determine fees and potential rate changes in the future.

“I think that’s an important discipline moving forward,” he said.

The board did not take action on whether or not to place the proposed article on the Oct. 28 warrant. Newman said she welcomed any public input on the enterprise funds and the proposed article in the coming weeks.

“That way we have a better understanding of what the concerns are in the public,” she said. “Because that helps us determine how quickly we want to move.”