Kenton and Upper Sandusky cited in State Auditor’s report on financial health

Nine cities, including Kenton and Upper Sandusky, and one county are showing signs of financial stress for fiscal year 2016, with nearly two-thirds of Ohio’s county governments showing an increase in the number of “critical” or “cautionary” warnings, according to the second annual “Financial Health Indicators” report.

Auditor of State Dave Yost in January unveiled the first Financial Health Indicators (FHI) to gauge the fiscal health of Ohio’s 88 counties and 247 cities and help them avoid a fiscal crisis. The 17 indicators are based on financial data provided by cities and counties in their annual financial statements, providing a snapshot of their fiscal health based on a historical analysis of other local governments that have been declared in fiscal distress.

“The aim is to provide communities and counties with advance warning of looming financial difficulties so that they can take steps to halt and reverse these trends,” Auditor Yost said.

For 2015, no counties triggered enough cautionary or critical indicators to suggest fiscal stress is occurring. For 2016, Morgan County met the threshold for fiscal stress based on historic trends. Three counties (Hocking, Jackson and Vinton) are showing early signs of fiscal stress and may be two to three years away from experiencing fiscal stress based on current conditions. One county (Lawrence) is a single indicator away from facing an elevated state of fiscal stress.

As was the case last year, nine cities have financial indicators showing fiscal stress in 2016: Akron, Canton, East Cleveland, Girard, Lorain, Maple Heights and Norwood, which showed fiscal stress in 2015, and Fostoria and Parma Heights.

Six cities (Alliance, Martins Ferry, North College Hill, Upper Sandusky, Warren and Zanesville) are showing early signs of fiscal stress and may be two to three years away from experiencing fiscal stress, based on their current financial data and trends. Thirteen cities — Belpre, Cincinnati, Elyria, Galion, Garfield Heights, Kenton, Lebanon, Lima, New Philadelphia, Riverside, Springdale, Springfield and Youngstown — are a single indicator away from facing an elevated state of fiscal stress.

“Our cities and counties are generally well-managed,” Auditor Yost said. “Unfortunately, those leaders sometimes are challenged by financial factors beyond their control: A major employer downsizing or relocating, or reductions in federal or state funding. They’re working hard to be good financial stewards, but it’s clear there is elevated financial stress in many of our local governments.”

According to county data, 55 of the 88 counties (62.5 percent) had more critical and cautionary indicators in 2016 than in the prior year, while 23 percent (20 of 88) showed improvement. Fiscal stress for 10 counties, or 11 percent, was unchanged, and data for three counties were incomplete because of inconsistent accounting bases in financial statement presentation.

Data show 111 of the 247 cities (45 percent) had more critical and cautionary indicators in 2016 than in the prior year, while 44 percent (108 of 247) showed improvement. Totals for 21 cities were unchanged, and data for seven were incomplete.

There was a change regarding how pension liabilities are reported by the entities in 2016 that could have generated a false “negative” for some cities and counties in Indicator 1and possibly Indicators 3 and 13.

The conditions include “critical outlook,” “cautionary outlook” and “positive outlook.” They are color-coded like a stop light, as red, yellow and green.

A closer look

While taken together, counties had 36 critical outlook indicators in 2015, they had 64 in 2016 – an increase of 78 percent. County cautionary outlook indicators increased 38 percent, from 132 to 182. While 70 of 88 counties had at least one cautionary or critical outlook in 2015, 78 had at least one such indicator in 2016 – an increase of 11 percent.

Cities combined for 301 critical FHI in 2016, up from 275 in 2015, for an increase of 9 percent. Cities collectively had 513 cautionary indicators in 2016, which was less than a 1 percent decrease from 518 the prior year. The number of cities with at least one critical or cautionary indicator grew 4 percent between 2015 and 2016, from 217 to 227.

The indicators that caused the greatest challenges for both cities and counties involved:

  • Capital assets and infrastructure (No. 11) for the age of and replacement of capital assets.
  • Spending exceeding annual revenues (Nos. 8 and 9).
  • The available (unrestricted) balance of all government-type activity funds, the trend of that balance and the number of days of available funding (Nos. 1, 3 and 13).
  • The available (unassigned) balance of the general fund, the trend of the general fund balance and number of days of available funding (Nos. 2, 4 and 14).
  • Percentage of revenues used to pay debt (No. 12).

Historical data indicate that entities with at least six “critical” indicators are in a state of high fiscal stress.  (For cities and counties using a cash basis or modified cash basis of accounting, four critical indicators is the threshold.) Historical data indicate that entities with a combination of eight critical and cautionary indicators may experience fiscal stress in two to three years. (For cities and counties using a cash basis or modified cash basis of accounting, a combination of six critical and cautionary indicators is the threshold.)

New FHI Enhancements:

For 2017, the FHI tool has been enhanced to allow for greater analysis by city and county officials, their residents, policymakers and the media.

The enhancements allow for the user to:

  • Select a specific group of cities or counties for comparisons.
  • Compare entities by population or overall budgets.
  • Sort data by specific financial health indicators.

The data also can be exported into PDFs for easy distribution.

“The response to the FHI last year was extremely positive, yet we knew we could enhance it to allow for greater analysis – which is, after all, why it was created in the first place,” Auditor Yost said. “The discussion around community finances was elevated after the FHI became available, and we expect it to increase this year.”

More information on the FHI, including a detailed explanation of each indicator and what they measure and FAQs, can be found here.

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