Harper Woods examines 2018 finances

By: Brendan Losinski | Advertiser Times | Published August 20, 2019

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HARPER WOODS — The results of Plante Moran’s 2018 audit of Harper Woods are in, and representatives from the management consulting services company made a presentation regarding their findings at the City Council meeting Aug. 12.

David Harrington, an office managing partner for Plante Moran, gave the presentation and reported that Harper Woods is making incremental progress, but it still has a long way to go and has few additional options to explore for increasing its revenue.

“The general fund improved its fund balance but still has a long way to go until it has an adequate amount of reserves for the future,” said Harrington. “There’s significant unfunded liability — over $75 million — for health care and benefits. Unlike many other communities, there are no cash reserves, so Harper Woods will need to keep taking advantage of the public safety millage as it has been doing for the last few years to maintain a balanced budget.”

The report was largely in line with what city officials were expecting, and they concurred with Plante Moran’s assessment.

“We weren’t surprised at all,” said Harper Woods Finance Director John Szymanski. “We were expecting it and knew we had a challenge after last year. We had a low fund balance after the previous year, and we knew we had to work on that. The continued problems with Eastland Mall caused an even more pronounced turndown in tax revenue, so we knew we were facing challenges.”

Harrington reported that Harper Woods saw $12,238,000 in revenue in 2018 and $11,679,000 in expenses. This meant an increase in the city’s available fund balance — the city’s “savings” it has at hand in case of emergencies or unpredicted expenses — which had been dangerously low in 2017.

The city made this progress by making what Szymanski described as tough decisions.

“We had to institute hiring freezes or delaying hiring when positions were vacant. We had to forgo some raises for current employees and delay purchases of new equipment,” he explained. “This was a pivotal year. We are hamstrung with legacy costs due to pension and retiree health care costs. We are currently in arbitration with the police and fire unions, trying to correct these problems. If they are successful, it should go a long way to stabilizing and growing our fund balance and becoming more fiscally stable again.”

Legacy costs, or the pensions and other benefits given to retired city employees, take up a significant portion of Harper Woods’ budget — a situation common in older municipalities. Both men said these costs are the largest obstacle the city will have to confront when managing its finances.

“Legacy costs show over 40% of Harper Woods’s budget,” Harrington said. “In a  mature community like Harper Woods, you have so many retirees, so you are paying for a lot of benefits for a lot of retirees. There are more retirees than current employees, so that is why communities similar to Harper Woods have these costs as such a burden. Cities, including Harper Woods, are looking for ways to reduce these costs without reducing benefits to its retirees.”

Szymanski said the city is working hard to create a plan to ensure legacy costs will be funded without raising taxes or cutting services or current employees.

“We have filed corrective action plans with the state and we are finalizing those plans to stabilize things,” he said. “It will just take time. We haven’t laid off anybody or cut any wages. We are running with the staff we have and making do with the resources we have.”

Despite the challenges, both Harrington and Szymanski said the city is moving in the right direction.

“Our financial situation is improving, but it will be a slow process,” said Szymanski. “As the commercial situation improves, the city’s situation will improve. Citizens can expect to see improved roads and other improved infrastructure in the coming years, particularly in water and sewer. We ask that people be patient because they will see improvements as we move forward.”

“Harper Woods is doing everything they should be,” added Harrington. “They are looking at costs, they have made cuts, they have looked for alternate forms of revenue, so at this point all they can do is keep it up.”