Ohio Auditor Dave Yost explains a new tool to indicate whether cities and counties are heading to fiscal emergency.

Middletown heading for fiscal cliff, state auditor warns

Mayor acknowledges financial stress, but questions auditor using year-old data.

Thirty-one Ohio cities, including Middletown, show signs of elevated financial stress — an indication that they could be on the highway to deep trouble, especially in the event of a recession, according to Yost, a Republican who just announced he is running for attorney general. Middletown was the only Butler County city on the list.

MORE: Report shows Ohio cities, counties struggling in choppy fiscal waters

Using 2015 data in 17 key areas, such as fund balances, revenue trends and debt, the state auditor issued a report to cities and counties on how they’re doing. Yost said he doesn’t like putting local governments into “fiscal emergency” status so he wanted to give cities and counties data that might help them head off trouble.

“Think of this as a fiscal physical,” he said.

Mulligan said an inquiry by the Journal-News on Wednesday was the first he had heard about the auditor’s report, and said he appreciated the state official’s input. However, Mulligan emphasized the report was based on year-old information, and noted city tax receipts are up since then.

“I don’t know if I would say it’s dire,” Mulligan said of the city’s finances. “(Yost) was looking at … year-end 2015 information, and I would agree that it would show some concerns, but in ‘16, as we’ve reported, we’ve had the highest level of tax collections in probably 20 years, number of projects coming on-line in the city that we’re feeling good about.”

RELATED: Income tax revenues up in Hamilton, Middletown

A large percentage of Middletown’s assets need replacement or significant repairs, and it faces a declining ratio of revenue to cover expenses, the report said.

“We certainly have some pending costs with infrastructure improvements, especially with (Environmental Protection Agency)-mandated combined sewer overflow issues we need to address,” Mulligan said.

Still, Mulligan said things are looking up in Middletown.

“I think it’s certainly a good warning to be prudent about expenses and fiscally responsible, and I think we’ve tried to do a good job of that, balancing our costs, which are primarily employment costs, with trying to be fiscally responsible.”

City Manager Doug Adkins in late December told city council recent budget issues caused by the fact Middletown is self-insured for health care of its employees and costs the past two years have prompted the city to borrow $2 million from its general fund. If such budget issues continue, he warned, layoffs may be required. Already, the city has frozen hiring for most positions until at least June.

MORE: Middletown budget plight could spur layoffs

One reason local governments are feeling financially pinched has been Gov. John Kasich’s cuts this decade of local government funds.

“They’ve certainly dialed back and cut the local government fund support, as well as other things that have impacted municipalities, like the estate tax, and things like that,” Mulligan said.

Another city in the region that Yost said is showing financial stress is Springfield, which is about a 60-minute drive from Middletown.

“I would say we probably have a lot in common with Springfield, as a kind-of older, established, industrial city,” Mulligan said.

Overall, 82 percent of counties and 92 percent of cities have at least one cautionary or critical indicator, according to Yost.

“The bottom line is I’m a little bit concerned about the effect of the next recession,” Yost said at a press conference Wednesday. “But a lot of it will depend on the nature of that recession — how widespread the pain is among Ohio’s local governments.”

Kent Scarrett, executive director of the Ohio Municipal League, said the report and data “puts a finer point on what we’ve been talking about. That there are great challenges out there in different communities and it’s incumbent on us as local leaders and state leaders to try to address these.”

Yost’s report comes just before Ohio Gov. John Kasich is set to unveil his two-year state budget plan, in which local funding levels will be debated.

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