Chillicothe released from fiscal caution by state

CHILLICOTHE - Slightly more than six years after being placed on fiscal caution by the State of Ohio, the City of Chillicothe has officially shed the designation.

Ohio Auditor of State Dave Yost Thursday morning announced that the fiscal caution the city was placed under on Oct. 23, 2012, due to deficit fund balances and failure to perform basic bank reconciliations has been lifted.

The audit of 2011 financial statements leading to the designation found deficit fund balances of $157,368 and $193,130 in the police and fire pension special revenue funds, respectively, found no evidence of bank reconciliations being performed throughout 2011 and found no indication its account journals and ledgers had been reconciled with the bank between May and September of 2012.

A local accounting firm, Whited, Seigneur, Sams and Rahe, was hired by city leaders in September 2013 to help get caught up with the backlog of bank reconciliation statements in the treasurer’s office. According to a Thursday letter from Yost to Mayor Luke Feeney, the state noted that the city's 2017 audited financial statements revealed the deficit fund balances in the police and fire pension funds had been eliminated and that reconciliation of accounting journals and ledgers had been caught up through September of this year.

As a result, Yost said the city "has made satisfactory progress to correcting the deficiencies" and the fiscal caution status "has been terminated."

"The citizens and leaders of Chillicothe deserve credit for reversing the city's financial downslide," Yost said. "Today, their hard work is rewarded with a fresh start."

The fiscal caution designation was created by Yost and the General Assembly in 2011 to provide municipalities an early notice of financial concerns before they reached a fiscal watch or fiscal emergency stage. Yost, in a February 2016 meeting with Feeney and Chillicothe Gazette editor Mike Throne, had said he expected the designation to be lifted by the end of that year, but that didn't happen.

Feeney said the issue was a focus of his when he became city auditor prior to his term as mayor and credited the work of former city auditor Tom Spetnagel Jr., current auditor Kristal Spetnagel, former Mayor Jack Everson and Treasurer Jeremy Siberell as contributing to the effort to get the designation lifted. He added that much has changed in the city's financial picture since 2012, including residents' passage of a pair of income tax levies for roads and safety services in 2015.

"Over the past six years, we've gone from almost nothing in the bank to healthier cash reserves," he said. "We completely modernized our accounting and operations software, improved the services we deliver and even rolled out some new ones. We've seen downtown come roaring back and our local major employers grow stronger.

"Being released from fiscal caution isn't an end point, but another step in the right direction. A better fiscal standing will improve our standing with credit agencies and make our capital projects more affordable, which is crucial as we discuss our facilities and infrastructure investment."

The third annual report of the city's financial indicators produced by the state show concerns in only two of the 17 indicators reviewed, both in the critical outlook range. The report utilizes data provided by cities and counties in their annual financial statements and plugs it into 17 indicators that have been identified as the most important in determining signs of potential future financial issues.

The two critical range areas remaining include the ratio of general revenues to net expenses and the condition of the city's capital assets, concerns that Alan Davis, former city council president with a financial management background, has voiced several times in recent years and as recently as Monday's City Council meeting.

The general revenues versus net expenses issue has been in the critical outlook category since the first financial indicators were issued in 2015, while the capital assets issue had been listed at cautionary status in 2015 before elevating to critical in 2016 and 2017. In 2016, the city had two critical and two cautionary indicators, but has taken steps to clear the two cautionary indicators from the record.

Based on historical data, six critical indicators out of the 17 are what it takes to be considered in a state of high fiscal stress and a combination of eight critical and cautionary indicators would be indicative of possible fiscal stress within the next two to three years.