As Hamilton officials predicted last year, Butler County’s largest city had a better financial “checkup” this year than for its previous 12-month budget, under an annual examination announced by the Ohio Auditor’s Office.
Auditors recently assigned Hamilton two red marks and one yellow one — similar to red flags, and caution lights — based on its 2018 spending and receipts. That is an improvement on the state-created color charts depicting the city’s estimated situation for the city’s spending and revenues in 2017, when Hamilton received four red marks and three yellow ones, with green marks in the other 10 areas.
There’s a lag between the budget years and when the data are released because it takes several months to audit a government’s finances.
Ohio Auditor Keith Faber’s staff assembles what it calls “Financial Health Indicators” for county and city governments — not villages or townships — as required by state law, which directed the office to develop standards to measure the governments’ general health. The office has compared the 17 measures to a person’s health indicators, such as their bad cholesterol, sugar levels and blood pressure.
The law requiring the measures was designed to let citizens know about warnings their local governments might be teetering toward financial trouble. Former Ohio Auditor David Yost’s staff created the measures by examining at Ohio cities and counties that fell into earlier fiscal emergencies, to see what warning signals might have been flashing three years prior to those emergencies.
Historically, governments with a combination of eight red or yellow indicators may experience fiscal stress within two to three years, the office has said.
Butler County government had four yellow marks and no red ones in 2018. That’s an improvement for a county government that has steadily been improving its financial state. For its 2015 budget year, it had four red marks and one yellow. Auditors do not release information about townships or villages.
The Butler County city with seemingly the best budget conditions is Trenton, which had only green marks in all of the 17 measures for 2018.
Among larger governments across Ohio, Hamilton County had among the most caution marks for its 2018 budget — six reds and 0ne yellow. Cincinnati had five red and two yellow. Akron had five red and three yellow.
The city of Lorain, meanwhile, had two red and two yellow for 2018, after having 10 red and four yellow in 2016.
Faber recently told the Journal-News the individual measures, while useful, can sometimes give false impressions. For example, if a government uses cash to pay down bonds, that can raise a red flag that year, even though the government is doing what generally would be considered a healthy thing.
Hamilton continued to receive red marks for two areas: Condition of the city’s capital assets, which Hamilton officials say because Hamilton is such an old city, and almost all its assets are fully depreciated. That’s a common red flag found in many older cities. On the other hand, the condition of Hamilton’s situation “is trending in a positive direction, which doesn’t appear to be the case with others,” said city Finance Director Dave Jones.
Another came because on a government-wide basis, expenses exceeded revenues for the year. Auditors say this factor “is important to be aware if a shortage in revenues to cover expenses exists.”
Assistant Hamilton Finance Director Matthew McKinney said one red mark in 2017 became a green area in 2018.
“We refunded some debt and that showed up as an expenditure on our financial statement, which put us in the red,” McKinney said. That factor measures debt-service expenditures as a percentage of total revenues.
The reason Hamilton’s debt spending was so large in 2017 was “when you refund debt, you record all that principal balance that you’re paying off as an expenditure in that year,” McKinney added. In that refunding, or refinancing, of debt, the city was taking advantage of lower interest rates to lower debt payments in the long run.
Jones said 2018 generally was a better financial year for Hamilton, with revenues outpacing spending more than during 2017. Meanwhile, he has called 2019 — which has not yet been examined by auditors — a banner year for the city because of healthy increases in tax revenues.
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