Lack of Oversight Found in Impact Fee Record Keeping

Addressing the ticklish subject of impact fees, which have been suspended by the town pending the results of a court-ordered audit, Londonderry Controller Doug Smith said the town had 223 escrow accounts in public works and approximately 50 accounts in planning in 2012.

“Over the last year we’ve managed to review and resolve approximately 150 of the Department of Public Works side of the ledger and 25 of our planning department accounts,” he told the Town Council at its July 15 meeting. “What this has done is reduce the liability on our balance sheet accounts for these items by approximately $300,000 last year.”

Smith said they not only cleaned up items that were in dire need of review, “but it also helped us look at our process and understand from a big picture approach so we can better manage that process going forward. It’s a much more efficient process in place today to make sure that we’re not in a situation where we have accounts that are waiting or not resolved in a timely basis. They are monitoring projects, making sure that the requirements are met for those projects, and upon completion, funds are returned to the appropriate party that paid those fees or to the town, based on the department review.”

He said that today the town has approximately 130 accounts that are in active status. In a Superior Court decision dated Dec. 31, 2012 the court found that the impact fee program in place in Londonderry since 1994 has at times been illegal and that refunds were due to parties who paid the illegal fees. “The court sees that a full accounting of the impact fee program to be the only solution to the town’s widespread misfeasance,” the judge wrote.

The court then ruled that the town employ an independent auditor to fully audit the town’s impact fee collections and expenditures since the program’s creation in 1994. The town suspended its impact fees pending the audit, which has been ongoing, and also repaid the fees determined to be illegal. The results of the audit are due shortly, according to Acting Town Manager William Hart.

Town Councilor Tom Freda asked if a system is in place that notifies the finance department when an impact fee was running at six months prior to expiration. By law, impact fee money must be returned to the person or organization that paid it if the money is not used within six years. Smith said information is exchanged between the planning and building departments and noted there can be varying time frames in between a building permit and a certificate of occupancy.

“My concern is that we should have something in place that gives us a little head’s up. If we can’t spend it or encumber it in that time period, I think we have an obligation to review these so that we can take action,” Freda said. He emphasized that if the town is not going to use the money, it should be given back.

“Why do we have to wait the six years if we know that we’re not going to use the money?” Freda asked. “There’s no sense in it just sitting in the account.” Finance Director Susan Hickey said the town currently uses Excel spreadsheets to track the money, with bank accounts broken out by category, as the ordinance requires. “There’s a lot of room for error in that and a formula that says ‘please take this date and add six years and then show me when it will expire,’” she said, adding she expects the town will look for another software program to manage the money so dates are not missed.

Councilor Jim Butler asked if the finance department reviewed a P&L (profit and loss) every month and Hickey said it did not. “Most departments do it on their own,” she said. “Police looks at them on a weekly basis, as does Fire, and I think the library does as well. If they have any questions, they come to us.”

She said she looks at the smaller departments on a weekly basis and then on a monthly basis and said that “if something looks strange, Doug and I will take a look at it with the department head and it gets flagged right away.” Councilor Joe Green questioned whether she was asking for software.

“There are other communities that have an access database in order to manage impact fees and I think if we ask nicely, they might be able to give us the tools that we need,” Hickey said. Green asked her to look into it and report back at the next meeting.

Hart said that in the last year impact fees had been in the forefront of many of their considerations.
“We’re coming to the end of the (court-ordered) audit process,” Hart said, noting town officials are looking at two things – a mechanism to put in place to assure that the town meets the statutory ordinance requirements of the six-year review, done early enough to either take advantage of the financing so the town can defer or defray taxpayer costs, or return that money to its rightful owner; and secondly, software that would be needed.

“Other municipalities are facing the same kind of issues we’re facing,” Hart said. Hart said three things “came out of the legal aspect of this. “One is to make sure the protocol to assure compliance with the statute is appropriate; two, make sure the software program allows us to take care of business in a way that was described; and three, what personnel do we need and who is that person and what department should they be in to manage the varying aspects of this,” Hart said.

Hart said he found there was no centralized authority for the impact fees – it involved three departments, or four, if the Town Manager’s department is included. “Nobody was saying, ‘this needs to be done now or within six months,’” Hart said. Green asked if Hart thought the finance director or the Town Manager should oversee impact fees in the future, and Hart said it would be premature to answer that.

“I would think that it might not be the finance director or the town manager. What we’re finding is that this is a complex, intense task of review and ongoing management,” he said. “Do I think it’s a full-time job? I do not. It’s similar to other jobs a municipality has and must complete – for example, escrows.”
Hart said perhaps someone in planning might have managing impact fees as part of his or her job, if the town decides to reinstate impact fees.

“So, because we don’t have them in place right now, what kind of risk are we at?” Green asked.
Hart said that speaking as a lawyer and a police officer, there was always risk “of bad things happening,” but termed the risk was significantly lower than last year.

Green asked if financials on the web site could be updated and Hickey said she would do that.
Vice Chair Tom Dolan said he could characterize this past year with the audit as a period of discovery, a period of clean-up and a period of process improvement.

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