Audit report shows good and bad side of city finances

By: April Lehmbeck | Advertiser Times | Published August 27, 2013

HARPER WOODS — Despite seeing some positive changes in the city’s bottom line due to budget cuts and revenue from the city’s special assessment, auditors warned that if the city wants to keep out of the red, they’ll have to continue with a Public Act 33 special assessment.

The city has passed along a 9.5-mill special assessment to help with police and fire service for the last couple of years, and auditors said that those funds are essential during the audit report Aug. 12.

“Ultimately, the Public Act 33 special assessment millage is something that this community, if it wants to remain solvent, is going to have to continue to keep doing,” Plante & Moran Auditor David Herrington said. “You’ve made some tough decisions, but you’re controlling your own destiny; the state isn’t.

“That’s what you’re up against as a mature community,” he said.

Herrington made the comment after the audit report presentation and discussion of the loss in state-revenue sharing that cities have been facing for the last several years. For instance, auditors at the meeting said that the city has no control over those state-revenue sharing losses, which have created a cumulative loss of revenue of about $7 million since 2001, if things had remained constant.

As for the nuts and bolts of the audit report, the city’s financial records are in order, which leads to an unqualified opinion. An unqualified opinion is what cities strive for because it means that the numbers in the city’s records are accurate.

“It is incredibly important with all the fiscal challenges a community has these days,” Herrington said.

The auditors reviewed some slides of different portions of the audit report. In the general fund, revenues went up slightly from the year before, mostly due to the Public Act 33 millage and pension levy. The expenditures decreased a bit.

There was some good news with the city’s undesignated fund balance, as well.

“Last year, it was zero,” Plante & Moran representative Vince Mannino said. “This year, it was $1.3 million.

“That was primarily the driver of Public Act 33,” he said. “All things being equal, if we didn’t have that Public Act 33 last year, our fund balance would likely be zero in all categories.”

Even with some slight good news in the numbers, the city is going to have to do a lot more work than just keeping a special assessment on the rolls in the near future, according to the discussion.

The city’s pension fund issues are a major concern and a top priority of the city administration.

The city was forced to levy mills this past year, which brought in just less than $1.4 million. However, it didn’t take them out of the red.

“It was still not the full amount that was required but significantly better than the previous couple of years,” Mannino said. “That did still leave us with a net pension obligation of $3.3 million.”

Council member Charles Flanagan clarified some of the discussion on the issue.

“You say levy, but in actuality it was a lawsuit settlement, so the pension system sued for 1.4 million and we still owe the pension 3.3 million,” he said.

The council and auditors discussed the fact that the city could be sued again on the issue.

“Your pension fund is at 55 percent funded, which is very low,” Herrington said. “It puts you in a situation where that annual contribution is going to continue to explode without a change.”

City Manager Randolph Skotarczyk said he is going to work on that with employee groups.

“The pension issue has to be addressed,” he said referring to 2014. “What councilman Flanagan said was true. We don’t want to see another lawsuit by the pension fund that creates a levy, which means that the system has to completely change.

“We have to get our costs affordable,” he said. “It’s a tough pill.

“We certainly must resolve it so it will be done,” he said. “The projection (is) 15 years to broke. The fund will be broke, the city will be bankrupt, if we don’t correct the problem. That is the most pressing thing that I’m facing in negotiations this year.”