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'Critical,' 'cautionary' outlooks in fiscal study of city

By MARC KOVAC and ERIC MAROTTA Capital Bureau, Editor Published: February 15, 2017 12:00 AM

COLUMBUS -- An analysis of the city's finances by the Ohio Auditor of State's office rates one of the city's "financial health indicators" as "critical" and two other measures as "cautionary."

Republican state Auditor Dave Yost last month unveiled what he's calling a "fiscal physical" of local governments' financial books, with hopes that 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 address them.

"The changes you make in a budget and your revenue and your spending, your cost structures, you 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 announced the fiscal tool Jan. 25 during a press conference at the Statehouse.

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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 nearly 250 cities.

Macedonia's "critical" indicator is the ratio of general revenues versus expenses. According to the report, the city's revenues were exceeded by its net expenses in 2014 and 2015.

"This has been going on for a number of years," Macedonia Finance Director Rhonda Hall told the News Leader. She said figures for 2016 are not included in the report because the latest state audit has not been completed.

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However, she said 2016 "should not be as bad," but added more revenue is needed if the city is to progress.

"We're probably at a break-even amount," she said. "If we don't get more revenue, something has got to give ... services might need to be cut.

"The roads will never get fixed. We don't have the kind of money required to fix roads," she added.

Yost cautioned about pulling individual indicators out of context.

"You can't look at just one out of 17," he said. "This is everything. This is all put together. You've got to look at all the factors together. Having one or two lights might mean absolutely nothing It's important to look behind the numbers."

The city had a cautionary rating in income tax revenue, which Hall said represents 67 percent of the total revenue for the general fund.

"There's no other way for us to generate revenue," Hall said.

The city had another cautionary rating in a category Yost had voiced concern about -- the condition of capital assets. Many cities and counties were ranked as "cautionary" on that indicator, meaning they have aging vehicles, equipment and facilities that may be in need of repairs or replacement.

"The deferral of capital investments is tried-and-true strategy when you're in a recession," Yost said. "When the recession comes, revenues shrink, you don't replace the roof at city hall, you patch it and you wait for better times.You don't buy a new fleet of cruisers, you patch them up and keep them on the road and hope that next year revenues are a little bit better and we can replace the cruisers then. So being this far into a recovery and having this number of governments that are still deferring capital investment is troubling to me."

He added, "What it tells me is while local government leaders have done pretty well managing the choppy waters, at the end of the day, they're not really flush. Most governments are not in a position where they can take additional revenue losses or operating cuts."

According to 2015 financials, 16 cities and one county met thresholds to be considered under "high fiscal stress." Thirteen other cities and two counties were close to meeting that threshold. And overall, a majority of counties (82 percent) and cities (92 percent) had at least one cautionary or critical indicator.

"The bottom line is local governments have done, by and large, a pretty good job on some choppy water," Yost said. " The disruptions that we've seen in the economy over 40 years in Ohio, migrations from manufacturing into more of a service and information-based economy, the increases in productivity, all have impacts on those local communities on the revenue streams and demands for service. We also have the impact of policy changes at the federal and state government levels that impact the revenue streams."

The full results are available through the auditor's website, online at OhioAuditor.gov.

Marc Kovac is the Dix Capital Bureau Chief. Email him at mkovac@dixcom.com or on Twitter at OhioCapitalBlog.

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