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January 25, 2013

Auditors applaud city’s finances, warn of tax changes

Warren could lose more than $2 million if voters OK personal property tax change

By Brian Louwers
C & G Staff Writer

WARREN — Auditors gave elected officials a glowing review of the city’s financial position last week, but at the same time warned of the potential for lost revenue if personal property tax changes become a reality.

The report offered by accountants with Plante & Moran, PLLC at the Jan. 22 meeting of the City Council focused on Warren’s last full fiscal year that ended on June 30, 2012.

“The city is really doing well financially,” said Beth Bialy, a Plante & Moran accountant and audit partner who leads the firm’s government practice. “You have been able to have fairly stable results even in this economy, where we’re seeing decreases in property taxes and some of the other revenue sources.

“You’re very well positioned moving forward, and in a nutshell, I’d say the city has been very fiscally responsible with the dollars you do have.”

Bialy said the audit confirmed that the city had budgeted to lose about $11 million last year but, in fact, only lost $5 million.

“While it was a loss, you were able to contain it, even when you had these declining revenues,” Bialy said. “Revenues were under budget, as mentioned, but you were able to bring the expenditures under budget, as well.”

The audit found Warren’s fund balance — $13 million remained unallocated last June — was at an “appropriate level” for the city at roughly 16 percent of the $93 million general-fund budget.

The city also managed to pay down roughly $3 million in general obligation debt and kept its credit rating intact, despite another drop in revenue from property taxes, which fell 7 percent in the 2011-12 fiscal year but still amounted to 65 percent of the city’s total cash intake.

Warren’s largest expenditures, by far, went for police and fire services. The audit found 70 percent of the city’s general-fund expenditures were earmarked for public safety activities.

Still, the auditors reported a total drop of $15.5 million in expenditures throughout a three-year period.

While the auditors commended the city for its financial status in light of ongoing challenges, the report also made mention of potential trouble on the horizon.

Plante & Moran CPA and audit partner Bill Brickey said Warren received $11.5 million in personal property tax (PPT) revenue last year. Recent changes enacted by the Michigan Legislature, however, would phase out the PPT if voters approve a proposed plan to replace it in 2014.

If the tax is phased out during a period of years and replaced, the city would eventually only be eligible to receive a reimbursement of up to 80 percent. That would mean a loss of more than $2 million for Warren, which relies heavily on the PPT that is currently assessed to businesses, including General Motors Co. and Chrysler Group LLC for equipment investments at the GM Tech Center, GM’s Powertrain Plant and Chrysler’s Warren Truck Assembly Plant.

“Obviously it would be significant dollars for the city of Warren,” Brickey said. “As more details come out on that, we’ll certainly update you and management. In future years, it will be important to look at what impact that has on your general fund.”

Brickey said a report detailing the findings of the audit identified a list of journal entries that needed to be made in the city’s books to bring them into compliance with current rules and regulations. He said the issues were “not a problem,” but that they were required to bring the financial reporting up to date.

Brickey said the firm also prepared a Schedule of Expenditures of Federal Awards outlining all federal grant funding Warren received and spent during the fiscal year.

You can reach C & G Staff Writer Brian Louwers at brianlouwers@candgnews.com or at (586)498-1089.