Council receives and discusses financial audit
By Carolyn Marnon – “June 30 was seven months ago, so a lot has happened over the summer and through the fall and into the winter and so the audit, it’s a little bit of old news at this point, but it does bear going over it,” said Brian Camiller of Plante Moran when discussing the results of the City of Wayne Financial Audit conducted by Alan C. Young and Associates, P.C for the budget year that ended June 30, 2020.
A financial audit provides an opinion on whether the financial statements of an entity are being fairly and accurately portrayed.
“The City continues to have a structural deficit. That means you have expenses that you can’t get away from that are greater than the revenue that you can count on. Between the people and the legacy costs and the overhead, when you start the year you know you’re going to spend more than you take in.”
The General Fund ended up doing better than was budgeted. This was because some of the open job positions in the City were not filled, department heads are doing well with staying under budget, DPW has been directing their activities to those within the water and sewer fund and the streets fund and trying not to utilize general funds, the COVID pandemic “helped” to reduce certain spending, a refund in the spring from the MMRMA (Michigan Municipal Risk Management Authority) and delayed capital improvements. “All of those things helped not spend as much as planned, but it’s not enough to get you back to even for the year. It’s good; we didn’t lose 2.5 million, but we still lost a million, so it’s only so much good,” said Camiller.
In six of the last nine years, the City has spent more than it’s taken in in the General Fund.
City Manager Lisa Nocerini noted, “The City is definitely moving in the right direction. I don’t suggest robbing Peter to pay Paul ever again. That’s what this City did for many years. It’s a really bad thing to do. Don’t get back into that practice. We have to fix our structural deficit by looking in other directions. We have not $50,000 or $25,000 or $100,000 problems; we have millions and millions of dollars problems and those stem from the pensions. The pensions, unfortunately, are very difficult for us because we don’t have a magic ball. I think everyone probably understands that by this point. We’ve had people collecting pensions for 45 years plus. That’s a problem. It’s not that they don’t deserve it, please don’t get me wrong on that. But what city can sit and pay a pension for 45 years when taxes are fluctuating as much as they have, and they are going to continue to fluctuate because our economy is very unstable. Our economy has been showing instability for many years. You lose 45% of your tax base back in 2008 that is very difficult to recover. I don’t know if it’s even possible to recover from that recession. So we have to be creative. We cannot afford to bring back retiree health care.” She stressed that the City has already made a lot of hard decisions and will have to continue to do so while also looking for additional revenue streams, whether that be a 345 millage or a merger with another city on services.
According to the 2020 Financial Audit conducted by Alan C. Young & Associates, P.C., “The City’s primary revenue sources, property taxes and state-shared revenues, continue to grow at approximately the rate of inflation, 1.5% to 3% annually. Unfortunately, this is not sufficient to eliminate the structural deficit the City has in place. The massive taxable value losses the City incurred during the Great Recession cut taxable values in the City by approximately 45 percent. The City continues to cut costs or freeze spending where it can, but remaining expenses such as pension contributions continually increase. Even with the changes to retiree healthcare benefits noted earlier, the City’s revenue streams are not adequate. The City of Wayne has a revenue problem, not an expenditure problem.”
The audit also reported that “New additions and improvements included road resurfacing, police and fire equipment, security cameras, election equipment, a new roof for the library, repairs to the Fire station parking lot, the beginning of the new Veteran’s Memorial, Mildred Street water main, sewer slip lining, sewer inspection system, and two trucks for Water and Sewer. In total, the City added $2.0 million of new capital assets.”
It continues, “In May 2020, the City approved the original budget for the new fiscal year beginning July 1, 2020 (FY2021). That approved budget, based on the amended FY2020 budget at that time, assumed FY2020 would finish with the City’s General Fund having only $38,765 of remaining fund balance. Approved revenues and expenditures for the original FY2021 budget were $15,165,150 and $19,000,856, respectively. As adopted, this budget for FY2021 projected an ending fund balance deficit as of June 30, 2021 of ($3,796,941). A deficit of that magnitude would result in the General Fund running out of cash before the end of FY2021. As such, the City made the determination to begin paying only 25 percent of its monthly pension obligation to MERS. Subsequently, MERS filed a lawsuit against the City of Wayne for breach of contract. Ultimately, that lawsuit was settled in Wayne County Circuit Court on November 12, 2020 when the Honorable Judge Edward Ewell mandated a judgement property tax levy be placed on the City’s Winter 2020 tax roll for $4,753,409.”
Finally, “The City continues to look for ways to reduce costs internally, share services with surrounding communities, and other cost saving initiatives; however, these opportunities are very limited. The City of Wayne has been dealing with significant financial hardships dating back to the beginning of the Great Recession in 2008.”
You can find the Financial Audit on the City’s website: https://www.ci.wayne.mi.us/index.php/city-departments/finance/2-uncategorised/35-financial-dashboard