The state has told both Stow and Munroe Falls that the two cities should look at some aspects of their finances, with particular emphasis given to Munroe Falls, according to recent state auditor reports.

Ohio Auditor Dave Yost unveiled what he's calling a "fiscal physical" of local governments' financial books, with hopes that officials will use the information to make changes before they face budgetary crises.

The goal of the financial health indicators is to help county and city governments anticipate areas of potential fiscal difficulty before it's too late to address them.

"The changes you make in a budget and your revenue and your spending, your cost structures, your debt structures, those things are all things where if you have more time to do them, they have much more limited impact on services and citizens," Yost said.

Yost announced the fiscal tool Jan. 25 during a press conference at the Statehouse. It should be noted that the "preliminary" reports issued for the cities and counties are based on financial data only through the end of 2015.

Over the past five years, Yost's office has pinpointed 17 indicators, identified as part of local governments' financial books, that could be checked to determine the financial health of a city or county.

His office then ranked those indicators as "critical," "cautionary" or "positive," for Ohio's 88 counties and nearly 250 cities. Critical "signals a potential for high fiscal stress" and cautionary indicates a situation that is not as serious, but "of which the entity should be aware." Positive indicates there are no concerns.

According to a preliminary report for Munroe Falls, the city is critical on two indicators, cautionary on four and positive on 10, with one indicator, "budgetary non-compliance and/or unreconciled/unauditable financial records," considered "not applicable."

Mayor James Armstrong told the Stow Sentry the city is uncertain why that one item was not evaluated, but it may be because the report is only preliminary at this time.

"That was a question I have because it concerns our accounting methods," he said.

Stow is cautionary on three indicators and positive on 14.

Mayor not surprised by findings

Indicators in which Munroe Falls is considered "critical," include an evaluation of operating deficits compared to the budget size and an evaluation of whether available revenue is enough to cover expenses.

Armstrong said the results reflected what he has said, almost since taking office at the beginning of 2016.

"You can't continue to have more in basic expenses than you do in revenue. [The auditor report] didn't surprise me at all," he said.

In November, voters approved a 2-mill capital improvement levy that is projected to bring in about $214,000 annually, but rejected a 2.8-mill police levy and an increase in the city's local income tax rate from 2 percent to 2.25 percent which are projected respectively to raise about $300,000 and $276,000 annually. Both failed ballot issues will be on the May 2 election ballot.

In the meantime, the administration is trying to meet City Council's request to whittle down a nearly $500,000 projected general fund deficit that is eating into cash reserves by $300,000.

"I stay up late nights because there really, based on the current structure, is no place else to really cut," said Armstrong. "There aren't any employees to lay off. We don't have a big staff to begin with and it's very concerning."

Armstrong said he understands that there is a distrust of government.

"[City residents] don't have to just take my word for it, the state auditor is saying the same thing," he said.

Stow 'seemed to do a fine job'

Stow's cautionary indicators include concerns over available unassigned fund balances, a cushion of money not appropriated for a specific purpose; concerns about operating deficits and how they compare to the budget size; and the size of debt payments compared to revenues.

Stow Finance Director John Baranek told City Council on Jan. 26 that these cautionary ratings are due to factors outside the city's control and the city's efforts to pay down debts.

"Some of [the cautionary indicators are] because we are making an effort to pay our debt down quicker and different things like that which goes into those ratings," said Baranek. "We've been able in the past to react to economic downturns and some different things we experience that we don't have any control over as a city government and that Council doesn't have any control over."

Councilor Brian D'Antonio said he was pleased overall with the results of the report.

"Stow certainly seemed to do a fine job," he said.

Neither of the cities is considered to be among those cities in "fiscal distress," which an auditor's report on the financial health indicators said "scored poorly in at least nine of the 17 indicators, and all had at least six indicators with 'critical outlook'"

According to 2015 financials, 16 cities and one county met thresholds to be considered under "high fiscal stress." Thirteen other cities and two counties were close to meeting that threshold. And overall, a majority of counties (82 percent) and cities (92 percent) had at least one cautionary or critical indicator.

"The bottom line is local governments have done, by and large, a pretty good job on some choppy water," Yost said. " The disruptions that we've seen in the economy over 40 years in Ohio, migrations from manufacturing into more of a service and information-based economy, the increases in productivity, all have impacts on those local communities on the revenue streams and demands for service. We also have the impact of policy changes at the federal and state government levels that impact the revenue streams."

The full results are available through the auditor's website, online at OhioAuditor.gov.

Marc Kovac is the Capital Bureau Chief. Email him at mkovac@recordpub.com or on Twitter at OhioCapitalBlog.

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