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Sterling Heights

December 19, 2012

Another audit, another squeaky-clean report for Sterling

By Cortney Casey
C & G Staff Writer

Plante & Moran representatives were in the house Dec. 4 to present the city with its annual early Christmas gift — a clean audit.

Mark Hurst, governmental accounting and auditing partner, confirmed to City Council that Sterling Heights, per usual, had earned an “unqualified opinion” on financial statements and accounting procedures for the 2011-12 fiscal year.

“It’s the highest level of assurance that we’ll give on a financial document,” he said. “It means that, based upon our roughly 900-1,000 hours of looking at the details of the books and records of the city of Sterling Heights, that our firm … was comfortable, as independent auditors, giving you this highest level of opinion on your financial documents.”

While many of Plante & Moran’s clients require “significant adjustments” to their financial documents, that’s not the case for Sterling Heights, said Hurst.

Throughout the years, the auditing staffers “have gained a tremendous amount of respect for the city’s ability to manage its own books and records and to manage its long-term forecasting, as well,” he said.

In another scenario that’s become the norm, Sterling Heights earned recognition from the Government Finance Officers Association for excellence in financial reporting — for the 24th consecutive year, said Leslie Reinhart, the city’s controller.

As is customary, Brian Baker, Sterling Heights’ finance and budget director, outlined some of the financial details of the past, present and future.

“The audit showed no surprises; as expected, we’ve managed finances well in light of the declining revenues, and we’ve taken many steps now to lessen the revenue losses that we are seeing impacting all communities,” he said.

Quipping that “it wouldn’t be audit night without a PowerPoint presentation,” Baker showed slides comparing Sterling Heights’ current financial status with years past.

Compared to the $78.5 million anticipated for the current fiscal year, 2012-13, the city had general-fund revenues of $87.1 million in 2009, he said.

Operating tax revenues de-creased by $12.3 million, or 25 percent, during the last five years, “and it’s fallen to its lowest levels in 10 years,” he said.

Baker chalked up the decreases to lower property assessments stemming from the housing market declines, and reduced revenue sharing from the state. 

Total expenditures also are down during the last five years and are at their lowest level in the last nine years, he added.

Baker noted that, while most expenses have decreased, three long-term costs — police and fire pensions, general employee pensions and retiree medical benefits — continue to rise. But he insisted the city has made “substantial progress” on addressing them and noted that much of the increased cost has been incurred due to the stock market losses of 2008.

With those liabilities removed, “controllable costs” decreased by $12.3 million during the last five years, he said.

Baker noted that, despite savings measures taken, reserves are declining, as the city has been drawing from them for the last few years.

Hurst warned that the current level of reserves — ending 2011-12 with 6 percent of next year’s budgeted expenditures — is nearing the point where it could eventually affect the city’s bond rating.

“Six percent would be on the lower end of the threshold that those bond rating agencies that gave the city the AAA rating, the highest rating you can get, would expect,” he said. “What it does demonstrate is that it does need to be continuously watched.”

Baker reiterated that the city has been working to reduce its costs for years by reducing staff through attrition, use of part-timers and, this year, layoffs; securing concessions from unions; reorganizing; requesting savings from vendors; eliminating retiree health care for new employees; and more.

Hurst acknowledged the challenges but suggested Sterling Heights is in a better position than many of the other municipalities whose finances he’s evaluated.

“If I was to sum up what I have seen as an external auditor who comes in and out of a lot of communities, it’s very apparent to me that the city administration, the City Council, that you’ve got a long-term plan, that you’re following the long-term plan,” he said. “I cannot begin to stress how important that long-term plan is to surviving this downturn in revenue.”

The 133-page Sterling Heights Comprehensive Financial Annual Report that contains the audit is available online for review at www.sterling-heights.net, as well as in hard copy at the Sterling Heights Public Library.

You can reach C & G Staff Writer Cortney Casey at ccasey@candgnews.com or at (586)498-1046.