State auditor unveils 'fiscal physical' of local governments' finances

Staff report

COLUMBUS

State Auditor Dave Yost unveiled a new look at local governments’ financial books, with hopes officials will use the information to make changes before they face budgetary crises.

The goal of the financial health indicators is to help county and city governments anticipate areas of potential fiscal difficulty before it’s too late to address them.

A quick look at the results for Mahoning and Trumbull counties and several area cities revealed most fared well under the new financial-ratings system.

“The changes you make in a budget and your revenue and your spending, your cost structures, your debt structures, those things are all things where if you have more time to do them, they have much more limited impact on services and citizens,” Yost said.

Yost, a Republican running in 2018 for attorney general, announced the fiscal tool Wednesday during a news conference at the Statehouse.

Over the past five years, his office pinpointed 17 indicators, identified as part of local governments’ financial books, that could be checked to determine the financial health of a city or county.

General revenue fund balances, declines in tax collections, instances of expenses outpacing revenues and the conditions of capital assets were among the areas considered.

His office then ranked those indicators as “critical” “cautionary” or “positive” with a color-coded chart summarizing the findings for Ohio’s 88 counties and 247 cities.

According to 2015 data, 16 cities – including Girard and Niles – and one county met thresholds to be considered under “high fiscal stress.” And, a majority of counties (82 percent) and cities (92 percent) had at least one cautionary or critical indicator.

The full results are available through the auditor’s website, online at OhioAuditor.gov. The Vindicator looked at several of the reports.

YOUNGSTOWN

Youngstown had one critical indicator and four cautionary indicators with 10 positive outlooks and two categories that weren’t applicable as there wasn’t enough data to judge them.

The lone critical listing was for having a ratio of more than 15 percent of its debt service to its total revenues. The city’s ratio was 16.37 percent in 2015, and has decreased annually from 2012 when it was 19.7 percent.

The city’s current budget is $180 million.

“In general, I’m pleased with the results,” said Youngstown Finance Director David Bozanich. “Most of the city’s financial factors are moving in the right direction. We’re very happy with the general cash flows of the city. We recognize that any time you issue long-term debt, you have to pay it off, and we do that.”

The state auditor’s program is a positive one as “it provides a template to look at all critical areas” of finance, Bozanich said.

Among the city’s four cautionary categories was a decline in its general fund income-tax revenue in 2015, which it reversed a year later. The state auditor’s data stops in 2015.

CANFIELD

The report showed the city’s finances are relatively sound. Out of 17 indicators, 12 had a positive outlook, three had a cautionary outlook and one had a critical outlook.

The indicator showing a critical outlook measures the percentage of general-fund revenues that exceed general-fund expenditures. Canfield has a negative percentage, which means the city was running an operating deficit in 2015.

Finance Director Christine Clayton said the city was already aware of these issues and monitoring them, including the operating deficit. She said a police levy that passed in November would help in that regard.

“We cut expenditures as low as we could get them, cut a lot of overtime, didn’t replace some people that retired,” Clayton said.

The city’s budget is $8.7 million. She said she will give the report to the council members at their Wednesday meeting.

MAHONING COUNTY

The county received a positive outlook on 11 of 17 financial health indicators, a cautionary rating on five of the indicators and a critical rating on one of them.

Auditor Ralph Meacham, however, said the figures for the county for 2012 to 2015 are somewhat misleading because they do not reflect the carving out in 2014 of the justice fund from the county’s general fund after the voters passed a sales tax devoted to justice services.

The justice fund contains the county sheriff’s, prosecutor’s and coroner’s offices and 911 emergency dispatching.

The general fund, which is the county’s main operating fund, contains the courts and the central operating functions of county government.

The critical outlook rating stems from what the state auditor shows as a steady decline from nearly $12 million in unrestricted net assets in 2012 to about $3 million in 2015, which the state auditor said “can be a sign of fiscal stress.”

The justice fund carve-out explains that decline, Meacham said.

“We cut the general fund almost by half,” in the carve-out, explained Stacy Marling, chief deputy auditor.

The budgets for the general and justice funds for 2017 are $34.2 million and $28 million, respectively.

A cautionary rating applies to insufficient general-fund reserves.

The county now has a general-fund reserve of $3.9 million, Marling said.

“The larger the reserve, the better the entity is able to absorb, in the short term, the impact of sudden revenue loss or significant increases in operating costs and begin planning financial adjustments,” the state auditor said.

The county now puts 60 percent of its casino-tax revenues into its reserve fund. The county’s 2016 casino tax revenue was $1,335,955.

The commissioners decided recently to add $800,000 to $1 million annually to its reserve from building-inspection fee collections, Marling said.

WARREN

Auditor Vince Flask responded to the city’s tally of two critical and five cautionary indicators to be reflective of the condition the city was in before it passed a half-percent income-tax increase last November.

One of the worst ratings for the city was its percentage of general-fund revenues compared to general-fund expenditures.

Warren barely ended 2016 in the black, having to use excess funds in its hospitalization and worker’s compensation funds to erase a $1 million deficit in the general fund.

The city’s current budget is $25 million.

But with the additional revenue coming in, the city won’t be in that same shape this year, Flask said.

TRUMBULL COUNTY

Auditor Adrian Biviano said one of the two items listed as a cautionary indicator was one involving a budgetary noncompliance in 2015.

Biviano said that related to the county not moving money from the sales-tax fund to the general fund as often or as quickly as the state thought it should.

“It’s a moving money from the right pocket to the left thing,” Biviano said, adding that it wasn’t a matter of having the money, just a “budgeting item.”

“We don’t consider it a material item,” he said. The county’s 2016 budget was $45.4 million.

CORTLAND

The city was listed with three critical and three cautionary warnings.

Finance Director Fran Moyer said one of the critical areas listed for Cortland, lack of reserves in the general fund, is not as big of an issue for the city as it would be for towns with a lot of industry.

The description of that category says Cortland would have trouble absorbing “sudden revenue loss” because of the lack of reserves, but Cortland is stable in that it receives most of its revenue from property taxes, Moyer said.

Cities that rely on income taxes are the ones more likely to suffer sudden losses of revenue, like when a large employer shuts down.

“We’re certainly very stable,” she said.

Niles Auditor Giovanne Merlo did not return a call Wednesday seeking comment.