Audit reveals strong year, challenges
Tue 29 Jan 2008 17:49
The books are closed and the numbers are in for the 2007 fiscal year.  As Cities and Counties close out their audits and verify where they stand, local governments are seeing how well they did when projecting their budgets and sticking to them.
As for the fiscal 2007 year, I am happy to report that the City of Greensburg had another strong year.  However, it is always helpful in understanding the budget and the audit when you have some historical background as a reference.  So, as you review each section of this report I will attempt to supply a reference to some of the past data and how that has changed or fluctuated over the past several years.


2007 Fiscal Audit
Management Discussion and Analysis

By Mayor George “Lisle” Cheatham, II

  The books are closed and the numbers are in for the 2007 fiscal year.  As Cities and Counties close out their audits and verify where they stand, local governments are seeing how well they did when projecting their budgets and sticking to them.
As for the fiscal 2007 year, I am happy to report that the City of Greensburg had another strong year.  However, it is always helpful in understanding the budget and the audit when you have some historical background as a reference.  So, as you review each section of this report I will attempt to supply a reference to some of the past data and how that has changed or fluctuated over the past several years.
  Once again, the City was able to make significant investment in our infrastructure during the year.  For the Fiscal 2007 Year the City of Greensburg expended over $850,000 grant revenue for Current Expense, Municipal Aid; as well as, Operation and Maintenance.  To continue the growth and revitalization of the community it is imperative that the City continue to aggressively seek additional outside funding from both private and public sources.  As we move into the Fiscal 2008 Year, the City has accumulated over $1.2 million in additional grant awards for utility improvements, economic development, and downtown revitalization.  The future of Greensburg and Green County is directly tied to our ability to keep this momentum going.
  However, from a financial aspect the window of opportunity to move this community forward is limited. There are black clouds on the horizon and they are not of the City’s making.  Just as we have been adversely impacted economically over the past decade by policy decisions made at the federal level with NAFTA, GATT and more recently the CAFTA, the City of Greensburg and local governments all across this great Commonwealth are being squeezed by poor policy decisions made at the State level.  Based on the State’s own projections, the City of Greensburg has about a three to five year window of time before our ability to financially support our economic and revitalization efforts will have to be severally curtailed.
The problem of course is the monstrous deficit that has been created by the state legislature in the County Employee Retirement System.  The first question I’m sure that pops into your head is, “If it is the County Employee Retirement System, how did the state legislature create the problem?”  Well the answer is quite simple.  The legislature has no problem spending money especially when they don’t have to come up with the funds to pay for it.  The legislature over the past several years has continued to increase benefits, especially health care benefits in a way that is not only mandated upon local governments but legally and contractually guaranteed to the employees.  Just between 2005 and 2006 alone the deficit in the (CERS) system has exploded by $1.6 billion dollars to nearly $3.7 billion. 
  So what does that mean to Greensburg, you may ask.  Just to give you an idea of what the cost increase to the City  has been over time I will first point out that the City has the same number of full-time employees today has it had four years ago.  In 2003, the required contribution rate for all full-time employees was 6.34%.  That meant in 2003, the City of Greensburg made contributions of $43,725. to the employees retirement fund.  For Fiscal Year 2007, that required contribution rate had increased to 13.19% which meant, after taking into account the modest cost of living adjustments given of 3% or less over the past four years, the City of Greensburg paid into CERS $132,965. last year alone. 
If that’s not bad enough, the projected contribution rate is expected to grow to over $259,000 in just the next 10 years.  These are not one time costs.  The 2008 Fiscal Year will experience over $60,000 in additional cost due to increases in retirement contributions, higher health care cost, and cost of living adjustments alone.  To add a little perspective to this number, each year the City elects to take the 4% increase in property tax revenue the City generates approximately $5,400 in additional revenue – a far cry from the $60,000 needed to off set the annual labor cost increase.
  As I stated above, the CERS crisis is the single largest threat to the long-term financial viability of the City barring a significant increase to the Occupational and Net Profits Tax.  So what is the solution?  There is no one answer, it is going to take several small changes in the system both from a legislative stand point to change how benefits are paid to future employees and how those benefits are paid for by both the employer and employee as well as how the City chooses to manage its employment and benefit practices.  The one unknown that can make the biggest difference for the City of Greensburg financially not to mention the citizens of our community will be the success or failure of our efforts in economic development. And as we can see from the world around us that becomes a bigger challenge everyday.

Fiscal 2007
  As always, when reviewing the financial condition of the City, it is best to break the discussion into at least two parts – the General Fund or as sometimes called the Current Expense Fund (CEF) and the Water and Sewer Fund also referred to as Operation and Maintenance (O&M).  The General Fund takes in all aspects of City Government such as Administration, Police, Fire, Public Works, the Renaissance Main Street Program and Community and Economic Development Departments. And O&M strictly deals with the operation and maintenance of the Water and Waste Water Departments.

General Fund
   The City has worked to maintain a solid reserve fund of over $415,000 in cash and savings within both the General Fund and the Municipal Aid Fund, but the City also carries over $278,000 in accounts receivable into the new fiscal year, up from $239,434 in the last fiscal year.  These are mostly funds due to be reimbursed from grant expenditures and unreimbursed 911 expenses.
  Total CEF and Municipal Aid revenue saw a decline of $66,700 from the 2006 Fiscal year.  This was mainly due to two issues.  In 2006, the City conducted an occupational and net profits tax amnesty program that generated over $50,000 in one-time revenue from businesses that had not been current with their tax payments.  It is important to note, however, that for Fiscal 2007 Occupational and Net Profit Tax revenue, while down from the 2006 figure of $396,307 to $388,562, it is still a significant increase from the 2005 Fiscal year number of $299,667.  This is without question a direct result of increased compliance brought about by the City’s “Tax Amnesty and Audit” program implemented in the previous year.  The second was due to a decline of 21.96% or $32,201 in franchise fees.  Half of this decline is due to timing of franchise fee payments and deposits but the other half is due to changes made by the State of Kentucky in the telecommunication tax reforms.  The hold harmless provision in the reforms did not adequately fund the old harmless fund and has impacted all local governments across the state.  The current estimate is that the state hold harmless account is under funded by an estimated 16%.  Both KLC and KACO are working to correct this problem in the upcoming legislative session.
  Total CEF and Municipal Aid revenue for fiscal 2007 was $2,095,681 compared to $2,162,381 in the previous year.  For historical reference it is worth noting that total revenue generated has increased from just over $1 million in 2003, $1.35 million in 2004, and $1.16 million in 2005.  Again, this shows the financial impact of aggressively pursuing grant funding has on the budget and operations of city government.  Bottom line revenues exceeded expenditures within CEF and Municipal Aid by $99,367.

Water and Wastewater Department (O&M)
  O&M saw revenue growth of 3.73% from $901,568 to $935,175 for Fiscal 2007.  It also saw expenses grow by 3.32% from $857,209 to $885,669 after adjusting for depreciation.  With depreciation and grant funding taken into consideration O&M saw a loss of ($90,929) down from the 2006 Fiscal year loss of ($102,302).  Again to add prospective, this is by far the best overall performance for O&M in several years.  The 2003 fiscal year loss was in excess of ($127,000).
  The improved performance is attributable to three main factors.  The first is the rate increase implemented in the fall of 2005, the first in nine years. Secondly, are the efforts made over the past four years by the Public Works Department and our engineering firm to cut the City’s water loss rate from over 30% per month to below 12% per month on average.  And last, the structural changes within City government that shifted several thousand dollars in labor cost to other departments.
In order to continue the needed upgrades to the City’s utility infrastructure, revenue issues will have to be addressed in the new fiscal year.  The tap fees must be realigned taking into account today’s cost. The meter deposit currently being applied should be changed to a meter fee in order to implement a regular meter replacement program. And as noted above, when increases in revenue and day to day costs mirror one another, no revenue is available to address infrastructure improvements to either the water or sewer systems.
The City of Greensburg once again turned in a solid financial performance for the fiscal year of 2007.  The total net assets of the City of Greensburg increased by $281,722. to $4,906,356. – this continues the strong overall net asset growth the City has experienced over the past four years.  During this time frame Net Assets have increased by over $1.7 million dollars – from $2,892,924 at the end of fiscal 2003 to the current $4,906,356 at the end of fiscal 2007.  This performance will not be repeated considering today’s economic and funding environment.  Most importantly, due to the effects of retirement, health care and other labor cost pressures, the City of Greensburg like most local governments across the state will be under increasing financial constraints that ultimately are unsustainable without legislative relief, increased economic growth, tax increases and/or dramatic cuts in services and programs.

Non-Financial Highlights
Our continued focus on overall community development as an economic development strategy has continued to prove successful as we have seen nearly $1.0 million in community development projects begun and/or completed over the last fiscal year.  We have worked hard over the past several years to fund and build a “Livable Community” that can be sold to new business and industry, tourists as well as new residents.  It is now time that we as a community focus on selling that product.  To that end the City has hired a professional Economic & Community Development Director who began work at the start of the 2008 Fiscal Year.  It should be noted that the process of economic development is by its very nature a slow process and will have to be given time to work over the long term.  So we must set realistic goals to in order to evaluate the programs effectiveness.
The past year has also seen the continued resurgence in our downtown with several new businesses, as well as continued private investment.  The City’s Renaissance Committee sponsored the city’s first fully locally funded façade grant program from proceeds raised through memorial paver sales in the downtown district.  The Renaissance Committee made $16,000 available to downtown businesses and property owners to fix and do needed repairs to the outside of their buildings.  Eight grants were awarded in the amount of $2,000 in the form of a 50-50 grant.  We must continue to maintain and support this program going forward.
The Heartland Micro-Enterprise Park has continued to show positive results with ten local businesses currently housed at the facility and new inquiries almost on a daily basis.  We were fortunate to receive nearly $200,000 in grant funding from GOLD and the local Industrial Foundation to make needed repairs and to remodel the facility.  This project got underway in 2006 and will continue through the 2008 fiscal year.
Finally, 2007 saw the Green River Paddle Trail and Cabins complete its second year of operations.  During the second year of full operation we have seen over 900 paid canoeists – over a 300 person increase from the first year.  The second year also saw a continued occupancy rate of over 24% in cabin rentals.  During Fiscal 2007 the Green River Paddle Trail and Cabins generated $31,766 in gross revenue and turned a profit in just its second year of operations.

Future Events
The 2008 fiscal year will see several old projects come to an end and several new projects begin.  The final phase of “Streetscape” will begin in late 2007. This will complete the Streetscape projects begun four years ago.  Also, the Greensburg Hwy 61 / East Connector project will be completed by late 2007, which will open new property for development along Industrial Drive and Carlisle Avenue. 
Other projects not directly related to the City will begin construction in late 2007 and early 2008 as well.  These projects will directly impact the City as well however – the new Green County Justice Center located along W. Court St. and the Green County Primary School which will be constructed on the site of the “Old Greensburg Elementary School”.
All of these projects will continue to push the City’s resources to supply adequate infrastructure as well as regulatory enforcement required to manage these new growth issues.  By the mid 2008 Fiscal Year, the City should be in a position to adopt its new “Five Year Comprehensive Plan” and the planning zoning changes recommended.  It will be very important that the City manage these issues well from the start or we will create larger issues and problems for the community later on down the road.
In order to do this, we must make the needed changes with the City’s financial and utility software in late 2007 and more importantly provide and require the needed training to allow our employees to make the best use of the technology we currently have as well as new technology on the horizon. 
In closing let me simply say, I believe both the financial future and the overall future for Greensburg is bright, provided we continue to plan and manage our assets in a conservative manner and focus on our opportunities and our strengths.  However, given the fiscal constraints facing both the federal, state and local governments over the long term, the City of Greensburg only has a narrow window of time – possibly less than five years – to put itself in a position of growth and long term financial stability before the longer term fiscal demands on our resources force us to make serious changes in how we operate city government.
As always, the City of Greensburg looks forward to working toward the brightest future possible for our residents and our community!

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