Cities Challenged to Address Buildings, Infrastructure, and Other Capital Needs
Columbus – Auditor of State Dave Yost today released a report on the latest Financial Health Indicators for Ohio’s cities and counties which shows 100 cities are spending more than they take in and are relying on reserves to stay in the black. The data also show delayed investment by many of Ohio’s 247 cities into capital assets, such as buildings, infrastructure, and other large capital purchases.
Overall, the FHI show that cities and counties are taking steps to properly manage their finances and are reaping the benefits of a strong state economy, Yost said.
However, for the three years, the Auditor’s Office has published the FHI, certain indicators have been problematic for cities across Ohio. Those indicators assess an entity’s year-end balances of its unrestricted assets; whether net expenses are exceeding general revenues for government activities; whether capital assets are nearing the end of their life expectancy; and whether there are enough unrestricted net assets to cover the entity’s bills for 30 days of operations.
“The newest FHI data show early signs of increasing stress in some local governments,” Yost said. “Although most local governments are doing OK, I’m concerned to see these trends during a period of economic expansion.”
Overall, there has been a 33 percent increase (from 12 to 16) in the number of cities that are either facing fiscal stress or are one indicator away, data through Sept. 30 show. This is determined based on historical data from entities that have fallen into fiscal distress. (Read more about how the calculation is made here.)
Seven cities are experiencing fiscal stress according to the indicators (Akron, Alliance, Canton, Fostoria, Norwood, Parma Heights, and Powell), and nine others are a “critical” indicator away from that same stress level (Bowling Green, Cincinnati, East Cleveland, Lorain, North College Hill, Riverside, Upper Sandusky, Warren, and Youngstown).
In addition, six cities (Bedford, Euclid, Lima, Mount Vernon, Reading, and Springdale) are showing early signs of stress, meaning they appear to be two to three years away from fiscal stress. And five cities (Lakewood, Maple Heights, New Philadelphia, Olmsted Falls and Wickliffe) are one indicator away from showing early signs of stress, based on their FHI.
Reports for Ohio counties found none reaching enough “critical” indicators to suggest they were facing fiscal stress through Sept. 30, although one (Highland) is an indicator away from fiscal stress. No counties met this condition in 2015. Hamilton County is showing early signs of stress (meaning it appears to be two to three years away from fiscal stress) and Coshocton County is an indicator away from showing signs of stress.
Auditor Yost noted that there are multiple factors that drive the FHI data. The health and diversity of the local economy, and thus its tax base, may be the most significant factor. Local spending decisions and the quality of local government management are also factors. And the distribution of poverty impacts the demand for services as well as the ability to raise money.
“In 2011, we began a research and development project to create an objective, validated assessment tool to measure the health of local governments and give advance warning of fiscal trouble,” Auditor Yost said. “The tool shows us when a problem needs our collective attention.”
While the FHI provide a look into a specific city’s or county’s fiscal health, they also provide a way for state policymakers to better understand what’s happening across the Buckeye State. If there are issues across the state with a specific indicator, that information can be used by state legislators and the executive branch to dig more deeply to determine root causes of the problem.
According to the most recent data, the most ‘troubled’ financial indicators are Nos. 1, 9, 11 and 13.
Indicator 1 assesses the year-end balance of the unrestricted net assets of a city, and there has been a 46 percent increase in those reflecting a ‘critical’ outlook in this area and a 31 percent increase for those with a ‘cautionary’ outlook. The number of cities that have lower stress for indicator 1 has fallen from 163 to 136. If an entity’s unrestricted net assets/position is declining or is negative, it leaves little or no room for unexpected expenses; therefore it is a sign of fiscal stress.
Indicator 9 assesses whether net expenses are exceeding general revenues for government activities. There has been a 49 percent increase in cities reflecting a high level of fiscal stress for this indicator, from 67 cities in 2015 to 100 for FY 2017. Another seven cities are reflecting a cautionary outlook, up from two in 2015.
There has been a slight increase in the number of cities with a high or critical outlook of financial stress regarding capital assets (Indicator 11). Some 20 cities today have high financial stress in this area, up from 17 two years ago. A high percentage indicates asset replacement is imminent, and the entity may be delaying replacement of assets or significant repairs for cash flow purposes.
There has been a 46 percent increase in the number of cities facing high fiscal stress with regard to having enough unrestricted net assets (cash, investments, land, etc. minus liabilities) to cover average daily expenses for 30 days. In 2017, 19 cities were “critical” in Indicator 13, up from 13 in 2015.
The FHI reports for 27 of the state’s 247 cities show a trend toward fiscal stress as they have had an increase in the number of “critical” or “cautionary” indicators in both 2016 and 2017. The original FHI report was based on 2015 data. The vast majority of these cities are not experiencing overall fiscal stress based on their FHI.
On the county level, the FHI reports show 15 of Ohio’s 88 counties have experienced a progressive increase in signs of fiscal stress as they have had an increase in the number of “critical” and “cautionary” indicators since the initial 2015 data was released. Only one of these counties is currently showing signs of overall fiscal stress.
A full copy of the report is available online.