Norwood treasurer: Borough is broke

George Fieo returned as treasurer of the Borough of Norwood on Jan. 4, and right away he noticed some big problems. Looking at a bank statement, he saw that the borough had overdrawn its account by $185,000. Then a secretary pointed him toward a stack of unpaid bills from 2009 totaling $94,000.

Soon the secretary was fielding multiple calls a day from businesses looking for money owed them: the electrician who works on the borough's streetlights, a contractor who repaired the library heating system, and the daily newspaper that runs the legal advertisements the borough must place.

After some digging, Fieo realized that not only was the borough broke, but it also owed $500,000 in bills from 2009. The 2010 budget of $3.68 million approved in December would have to be revised to cover the shortfall.

If the problem sounds unpleasant, the solution is worse.

Norwood is one of a string of small towns along the southern edge of Delaware County that sprung up at stops along the Pennsylvania Railroad. It is smaller than a square mile, and about 5,700 people live there.

Founded in 1893, Norwood got its name from the title of a romantic novel written by Henry Ward Beecher, a prominent abolitionist minister. The borough has always been a mostly residential area, with a few shops along Chester Pike and Winona Avenue.

Officials have tried to keep the budget modest because of the borough's size. It shares a street sweeper with neighboring Glenolden, for example.

But somewhere along the way, Norwood got into the practice of paying bills late, letting some carry over into the next budget year.

At the beginning of 2008, the borough had $45,000 in unpaid bills from the previous year, Fieo said. The leftover bills put him "in a low grade panic," but he said the council reassured him that they would be taken care of. He served as the appointed treasurer a few more months that year before being replaced.

When he returned, the borough's debt had ballooned. Some of the more expensive items that were paid late in 2008 and 2009 were police and employee pension plans. By paying those late, the borough will have to pay interest.

Fieo said in an interview that the borough's finances were no different from that of a homeowner who forgoes paying the cable bill to pay the water bill.

The money the borough does have on hand, courtesy of a $600,000 tax-anticipation loan, is being dispensed in a triage fashion. Payroll is paid first, then health insurance, and then whatever agencies are threatening to cut off services.

"You call it living paycheck to paycheck, and that's exactly what the borough's been doing," he said.

To break that cycle, Norwood officials must do what elected officials try to avoid in a recession: raise property taxes. And they want to do so by a whopping 34.7 percent. For a house assessed at $100,000 – the average value in Norwood - the annual tax bill would rise $279 to a total of $1,082.

When residents learned of the proposed tax increase last month, 100 people crowded into a Borough Council meeting to ask what happened. At another meeting Monday, a smaller but still angry group questioned the revised budget, which the council is scheduled to vote on tonight.

"You all need to be held accountable for all the money that is missing," said Joyce Anderson, 59, who has lived in Norwood for 50 years. "We all pay taxes, and where did it go? And how could you miss something like this? I don't understand."

"Are you in line to buy foreclosed houses?" said Ted Carotenuto, who suggested the seven council members go without pay this year. "Don't just slap us in the face all at once. I don't understand: There's seven of you up there. Step up."

The council plans to order a forensic audit to find out exactly what went wrong, but the answer so far is unsatisfying to residents, who will be facing new tax bills.

The council blamed sloppy bookkeeping, lack of a full-time manager, and a practice of keeping taxes too low for too long.

"We spent more money than we brought in, that's what happened," said David Kowalski, board chairman, who sat stiffly at the center of the table as angry residents told him that he and other members should resign.

Dirk Delgrego, the borough's treasurer in 2008 and 2009, said that Fieo and the board were playing politics with the budget, and that residents were the ones who would suffer.

Democrats have controlled Norwood for most of the last 30 years, with Republicans gaining the 4-3 council majority this year. Delgrego, who served when Democrats controlled the board, said the borough was behind in payments, but not as drastically as Fieo said.

"We're behind, yes, I would say in the range of $200,000 to $300,000," Delgrego said. "But they're claiming $688,000 in arrears, and I vehemently disagree with that."

The budget passed by the Democrat-led council in 2009 called for a 3 percent increase as well as an increase in sewer fees, which Delgrego said he believed would be enough to cover the basic costs in the borough. The new proposed budget, which Delgrego described as a budget based on "worst-case-scenario revenues and worst-case-scenario expenditures," would leave the borough with a "huge" surplus, Delgrego said. That budget calls for spending $3.8 million, and the council expects to spend an additional $2.3 million to finance the 2009 bills, pay off the tax-anticipation loan that has covered their expenses so far this year, and put money toward a new firehouse.

Kowalski said in an interview yesterday that he would much rather have a surplus than another situation like this year. "I think we'd be irresponsible to take [Delgrego's] liberal estimates. I don't want to take that risk," Kowalski said.

Municipalities are supposed to pay their bills, in general, within 30 days, and paying pension-plan contributions late will result in additional fines, said Fred Reddig, executive director of the Governor's Center for Local Government Services at the Pennsylvania Department of Community and Economic Development.

And while the state does not require municipalities to keep a rainy-day fund, it is recommended, he said. "It is a good foundation of management practice to maintain somewhere between 5 and 15 percent of your budget in reserve," Reddig said.

Reddig said that he did not know the specifics of Norwood's financial woes, but that "there certainly are deficiencies here that need to be addressed."

For now, the $184,000 in the borough's bank account will hopefully keep it afloat until March 1, when the year's first tax receipts come in, Fieo said.

"We're going to be cutting it pretty close," he said.