PDT Staff Writer
The city of Portsmouth may lay off employees as the result of a higher than originally predicted budget deficit. Portsmouth Mayor David Malone issued a memo about possible layoffs to department heads on Tuesday.
“There are some things that we are discussing and looking at but they may not pan out,” Malone said Wednesday morning. “We’ll have an overall budget meeting next week possibly with all departments. I’ve asked them to revise their original budget so that we can look at the worst case scenario, based upon the discussion that went on in the (City) Council meeting.
State Auditor Dave Yost’s office has identified multiple adjustments due to unallowable allocations made by the city of Portsmouth. Portsmouth had projected slashing the city’s deficit to $700,000 for 2012 and clearing it off the books by the start of 2013, but the State Auditor’s office now says the city must pay back to several enterprise funds monies that were used as Central Service Cost Allocations, known to city officials as charge-offs, to other funds within the city. That will balloon the deficit from $700,000 to $1.1 million next year, forcing Malone to have to make some decisions on how to cut the budget even more than originally anticipated.
“When we told the state that we were going to reduce this, did we tell them we were going to take two years?” Sixth Ward Councilman Steve Sturgill asked.
“We didn’t tell them,” Malone said. “They told us.”
Portsmouth City Auditor Trent Williams said this puts pressure on the city’s original plan.
“We agreed on a program to reduce the deficit by half in the first year and by half in the second year, from $700,000 to zero,” Williams said. “So this puts a little problem in that plan.”
Citizens can expect to see a reduction in city services.
“Is there any way to reduce that $1.1 million without making cuts in services,” Sturgill asked.
Williams said he did not see a way. He said if everything goes as planned the city is still facing a $700,000 deficit at the end of 2013.
“So the state kind of outlined a plan for us, then changed the rules, basically,” Third Ward Councilman Nick Basham said.”We had an approved plan and budget.”
Williams said the state only monitors the city’s plan.
“The state doesn’t approve our budget,” he said. “They approved our plan. So long as the budget goes as we expected, then we would have been on target for that plan. They don’t actually approve it. They review it, basically after it’s finished. You’re looking at the 2011 budget when you had about $1 million in charge-offs, and they wanted us to reduce it down to about $600,000.”
The adjustments include decreasing the General Fund balance by $718,917; decreasing the Capital Improvement Fund balance by $17,587; decreasing the Community Development Fund balance by $4,329 and decreasing the Sewer Fund balance by $7,957. As a result of the findings, Yost ordered the city to increase the Flood Defense Fund balance by $83,784; increase the Street Maintenance Fund balance by $174,570; increase the Water Fund balance by $399,617 and increase the Sanitation Fund balance by $90,819.
The adjustments were the result of a current audit of the city of Portsmouth for the period of Jan. 1, 2011 through Dec. 31, 2011.
“Ohio Revised Code Section 5705.10(H) states that monies paid into a fund must be used only for the purposes for which such fund has been established,” Charles F. Barga, CPA, Chief Auditor the the Athens Region, said in correspondence with Portsmouth City Auditor Trent Williams. “A Cost Allocation Plan was developed in order to allocate fiscal year 2011 costs to various city departments.”
Those allocations are commonly referred to as “charge-offs.”
Barga’s testing referred to the fact that the city’s Cost Allocation Plan included various indirect costs such as fringe benefits and utilities which may be subject to allocation. However, Barga said the city only posted allocations pertaining to wages.
“The approved Cost Allocation Plan included an iteration factor in the calculation to reallocate indirect costs received back into expending funds. This allows for the potential to post the same expenditure multiple times,” The letter said. “The Cost Allocation Plan used total expenditures by department from calendar year 2010 to allocate some indirect costs. These 2010 expenditures included the 2010 unsupported allocation adjustments posted by the city. As such, the percentages used did not accurately reflect departmental portions and were not supported by any other reasonable methodology.”
Barga said the city posted allocations from departments not included in the CAP; Fire Department Fund 101.223; Traffic Lights Fund 101.331; Grounds Maintenance Fund 101.333; Community Development Fund 101.661; Engineer Inspection Fund 101.663; Street Maintenance Fund 231.335; Water Collections Fund 604.774 and Flood Defense Fund 621.225.
Williams said the state reacted to the charge-offs because of the lack of a reasonable methodology to explain the need for those funds to be transferred, and told Council the city has to comply.
“It really bothers me as a local elected official that first we had one plan of CIP money a local judge didn’t find palatable,” Basham said. “So we came with another plan, and we thought this out. We worked the budget out. We came up with numbers that within years we could be back at least to a level. And now it’s almost like having the rug pulled out from under you. It’s the state telling the local government basically what you can and can’t do and at the same time telling us we can’t have a deficit. So what if we just don’t do anything with this? If we leave it the way it is, what is the State Auditor going to do?”
Malone suggested the city might then be put into fiscal watch status.
“We need to look at the worst case scenario which includes layoffs,” Malone said on Wednesday morning. “(City Auditor) Trent (Williams) doesn’t seem to think they will accept any explanation as far as the charge-offs that we use, and, based on that, we’re just assuming that we’re going to have to go ahead and deal with that $400,000. It’s possible that could change, but we don’t know of it. It’s going to be well after our budget is finalized and approved anyway. So we’re just assuming that we have that deficit and we just have to deal with it.”
Frank Lewis may be reached at 740-353-3101, ext. 232, or at firstname.lastname@example.org