Akron told the state auditor’s office Wednesday that the city has made progress in addressing concerns the auditor raised two months ago, but more time will be needed to fully tackle them.
The city filed a four-page response with Auditor Dave Yost’s office, outlining how it has addressed the audit that put Akron in a newly created “fiscal caution” category. Yost required the city to develop a plan within 60 days.
“We are working hard to try to meet the conditions — to try to do what the auditor would like to see done,” said Finance Director Diane Miller-Dawson. “We pointed out the concerns he raised didn’t occur just this year.”
Yost, who released Akron’s 2010 audit on Oct. 5, ordered the city to fix poor accounting practices that led to an $87.8 million fund deficit. He said Akron has been undertaking capital projects without the revenue to pay for them and faulted the city for having too many funds. He deemed the deficit and accounting problems “a serious matter,” but not “a crisis.”
In Akron’s response, the city said it has handled its finances the same way since 1981 and “the discontinuance and correction of the fiscal practices and the budgetary conditions that prompted the declaration of fiscal caution cannot be accomplished in just 60 days.”
Akron noted that it has decreased the number of funds from 740 to 140 and issued about $54.3 million in bonds and notes to reimburse the cost of capital projects — both steps that decreased the funds with negative balances. The city, however, is still expecting to have 20 funds with negative balances totaling about $25 million by the end of this year. And, the city projects it will take four years — until 2015 — to completely erase these deficits.
“It’s just a plan,” Miller-Dawson said. “We’re very conservative in our plan. It’s something we think we can accomplish.”
The city will have money elsewhere in its budget to cover the deficits, with more funds having positive than negative balances, Miller-Dawson said.
“We have money in the bank account,” she said. “We end the year with cash in the bank. We have ended every year with cash in the bank.”
She expects Akron to end this year with a carry-over of about $5 million, which is about the same as last year.
Miller-Dawson said eliminating the fund deficits will take awhile because Akron needs to generate additional revenue. She said income tax collections have been up, but property taxes are still down and the city is expected to lose $4.5 million next year in local government funds it receives from the state.
“We have to manage the deficits in lieu of shrinking revenue,” she said. “That is a challenge we will be faced with.”
The steps the city said it has taken or will take include:
• Issuing bonds and notes before beginning capital projects, rather than after.
• Eliminating the use of subfunds within larger, umbrella funds and further decreasing the overall number of funds. Miller-Dawson would like Akron to drop to about 100 funds, but she said this won’t happen by the end of the year.
• Depositing grants and contracts into the funds from which the money will be spent.
• Making sure that no funds with negative balances incur additional deficits. The city won’t spend more than the allocated revenue.
• Reducing the negative fund balances to $20 million by the end of 2012; $15 million by the end of 2013; $5 million by the end of 2014; and zero by the end of 2015.
Miller-Dawson said she doesn’t know when the auditor will provide feedback on the city’s response or whether it will be deemed adequate.
Carrie Bartunek, a spokeswoman for Yost’s office, said her office will review Akron’s response and compare it to the conditions that put the city into fiscal caution.
“We will get back to them and let them know if it does address our concerns,” she said.
If the response is adequate, Bartunek said, the auditor’s office will monitor the city’s progress and request periodic updates. If the plan is found lacking, she said, the auditor might “consider it necessary to move further to prevent further decline” and place the city in the next designation — fiscal watch — that includes state intervention.
Akron is no longer the lone city in fiscal caution. Yost put Portsmouth, a city in the southern part of the state along the Ohio River, in this designation last week. The auditor’s news release faulted Portsmouth for a deficit in its general fund of about $530,000 and other negative fund balances that resulted in “noncompliance with Ohio laws.”
When Akron’s audit was released, Yost predicted other municipalities would end up in fiscal caution, given the economy and the reduction of local government funds provided by the state.
“I would expect we will have a burst of entities that end up in fiscal caution,” he said.
Stephanie Warsmith can be reached at 330-996-3705 or swarsmith@thebeaconjournal.com.