AKRON, OH (WOIO) - In the first-ever use of a new state law governing fiscal caution for municipalities and other political subdivisions, Auditor of State Dave Yost announced that he has declared the City of Akron to be in a state of fiscal caution.
"Akron has a lot going for it, and I am confident the city will be able to take the steps necessary to shore up its fiscal house," Yost said. "But make no mistake, these are tough times, for Akron and many other Ohio governments, and the city will be making some tough decisions."
The financial and accounting conditions that led to the declaration include deficit fund balances at December 31, 2010 and 2009 in the amount of $87,820,000 and $116,981,000, respectively. The city also has negative cash fund balances, appropriations exceeding available resources, and has failed to properly certify estimated resources -- all of which constitute significant deficiencies, material weaknesses and material noncompliance with Ohio law as established by audit.
Under the declaration and under Revised Code 118.025, the city has 60 days to submit to the Auditor of State a plan to correct the budgetary conditions that led to the declaration of fiscal caution, including eliminating deficit fund balances.
The authority to declare fiscal caution was established earlier this year in the course of changes made during the budget debates to Ohio's laws governing local government finances. Auditor Yost had argued that cities, counties, villages and townships should not be faced with sudden declarations of fiscal watch and fiscal emergency. Instead, these political subdivisions should have access to the same tool provided for school districts, allowing a declaration of fiscal caution. Under fiscal caution, the subdivision is given earlier notice of financial concerns and an opportunity to make adjustments to avoid a declaration of fiscal watch or emergency.
In addition to the declaration, the fiscal year 2010 financial audit for the City of Akron was released. Both documents may be accessed online at www.auditor.state.oh.us.
Response from the City of Akron:
Each year, the City's finances are audited by the State. Although the City has met all of its financial obligations, has paid all its bills, has made all its debt payments, has continued to meet all payroll obligations, has maintained a positive cash balance, and has balanced the budget, the Auditor of State declared the City to be in fiscal caution with respect to the City's accounting procedures and system for certain funds.
A little history is necessary to understand the auditing process and the City's accounting methods.
The City's finances are an open book. The City has used the current fund structure for over thirty years. In fact, the City has received the GFOA Certificate of Achievement for Excellence in Financial Reporting for more than 25 consecutive years. However, this Auditor has taken exception to the City's account structure.
The City has always established separate funds for every project believing that it is a more transparent system which allows the tracking of revenues and expenditures of specific projects. Often, projects funded by grants (such as American Recovery and Reinvestment Act grants) or assessments are paid for by the City first, and then the City is later fully reimbursed. Projects funded this way will show a negative balance until reimbursement from bond proceeds, assessments or grants are received.
Our account structure provides for transparency in government. As explained above, every time the City receives a state or federal grant, it creates a new fund so revenues and expenses for that grant are easy to audit. This has been an acceptable practice for local government in Ohio for years. All previous auditors who have reviewed the City's books recognized this, and the City has always received unqualified ("clean") audit opinions, which is the best you can receive, including this year.
Rather than debating the merits of one accounting system over another, the City is addressing this Auditor's concerns, reducing the number of funds, making changes in the City's accounting and budget practices, and issuing debt to eliminate existing negative balances.
Global Economic Conditions
One cannot discount the hurt caused by the length and depth of the recent recession. No community has been spared. The City's income tax collections, its largest source of revenue, decreased by nearly $2 million in 2008 as compared to 2007, and decreased by an additional $9 million in 2009. Property taxes have decreased. To make matters worse, the State and Federal governments have cut revenues to cities. The State cut Akron's local government fund allocation by nearly $2 million a year in 2009 and 2010, compared to 2008, and the State has outlined the total elimination of local government funds in the future. Further, the State
eliminated personal property taxes and the estate tax. Federal Community Development Block Grant funds have been reduced. Total revenues to the City decreased by over $39.2 million in 2009. While revenues were up in 2010, these revenues are still $30.5 million less than in 2008.
The City has been proactive in responding to the recent recession. Akron, more than any other city in the State, has worked with surrounding jurisdictions including the county, townships and other cities in Summit County to promote regionalism and consolidate services in order to improve efficiency and save taxpayer dollars. The City and Summit County consolidated their Weights and Measures, Building and Health Departments and copy centers. The City has also entered into agreements to provide motor vehicle and equipment repair and service for Summit County and other local governments. Each of these efforts reduces costs and increases service.
The City also implemented the Voluntary Separation Program to reduce its workforce and save payroll costs. These are all long term solutions, but with short term costs. These efforts are starting to pay off. The short term costs have been paid and the City is already beginning to realize the benefits of long term savings.
Akron's financial position is better today than it was in 2009. Income tax receipts for the first half of the year are up over $4 million compared to the first half of last year. We have reduced expenses, while still paying our bills, our employees, and our debts. Revenues have grown; however, we still recognize the need to continue to be financially cautious, and to seek out cost savings. We will continue to work with this Auditor on a plan to make changes in the City's accounting and budget practices.