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Posted on: February 19, 2021

Audit shows improvements despite pandemic restrictions

AUDIT

The City of Taylor’s most recent annual financial audit continued to show improvement despite the effects of the pandemic and long-term restrictions due to the recession of over a decade ago. The report was produced by the Plante Moran team of Douglas Bohrer, Kari Shea, Bill Brickey and Nicolette Acho. This marked the first “virtual” audit done by Plante Moran and the City of Taylor, Bohrer said. An audit is essentially a third-party presentation of the financial outlook in the City. It was an unmodified opinion, or the highest version of this type of audit.

Likewise, the most recent bond ratings by Standard & Poor's rated the City with an "A" grade and "stable." Overall, the City appears to be in a sound financial state with an unassigned fund balance, or “rainy day fund,” of approximately $9M as of June 30, 2020 (the end of the last fiscal year). That amount accounts for 23 percent of annual expenditures, which represents an emergency account of approximately 84 days of operations. That figure sits in the middle of the auditor’s recommended range for proper fund balances. Over the past eight years, the City has gone from a $5M structural deficit to a $9M unassigned fund balance, a turnaround of $14M.

“As we have seen during the pandemic, it pays dividends to be properly prepared financially,” Mayor Rick Sollars said. “There are very solid reasons to have a rainy day fund, or a savings account. If your roof springs a leak, or your furnace goes out, you usually use your personal savings to pay. Government is no different. We have to be prepared by properly saving.”

The audit noted that over $18M was invested in infrastructure, equipment, water and sewer systems by Taylor governmental and enterprise funds in 2020. Also, the City issued $4.9M of Building Authority Bonds related to the new Media Center and other capital improvement. The Media Center was created at the old courthouse in the middle of the City Hall campus. That building was vacant and deteriorating rapidly, but Mayor Rick Sollars’ administration negotiated the use of PEG (Public, Education and Access) fees to create a sound financial plan to create the facility that includes not only broadcast studios and offices, but a new Taylor Veterans Museum and vast secure storage space.

In other highlights of the audit, over $9M of long-term debt was paid down during the time period. In total, pension liabilities increased slightly with the following funding levels: GERS (52 percent), P&F (63) and MERS (68). The City’s retiree healthcare liability is 3 percent funded, with its projected obligations reduced from over $330M at one point to $123M, including a $28M reduction in the audited period.

Do to the pandemic, the City used approximately $620,000 of accumulated fund balance during 2020 to offset declines in court fines and charges for services. Fines and forfeitures were down approximately $1.5M and charges for services were down approximately $800,000. Other line items declined less significantly. “The primary reason for the declines in City revenue were related to the pandemic during the fourth quarter of the fiscal year,” Brickey said. “Police patrols, tickets, etc. The reminder of the revenue remained consistent.”

While Taylor’s total taxable value continued its upward rise since bottoming out in 2017, the decade-old recession continues to handcuff the revenue stream. Plante Moran officials estimate that it will take 15 years for taxable value to return to 2010 levels, thanks mainly to the fact that Michigan has some of the most restrictive laws in the country in that area. In the state, laws like Proposal A of 1994 and the Headlee Amendment heavily restrict property taxes from rising. While taxes may fall – as they did during the recessionary period – they cannot increase at the same level. That’s why, during a period of growth, property value may increase in large margins while actual property taxes remain relatively low.

“We always include this type of research because it gives perspective on how that recession continues to impact local government,” Brickey said. “Things like Proposal A restrict annual tax increases to 5 percent or the rate of inflation. (Without that in place) the city would have seen another $2M in revenue in 2020. And because of these restrictions, you will not get back to 2010 levels for another 10 to 15 years.”

Auditors again pointed out that City government only sees less than 39 percent of every dollar taxed, with the rest going to the county (approximately 18 percent) and schools (43.4). 

Public safety continues to take up the largest chunk of the City’s general fund, with over $15.8M of the $39.6 General Fund expended in that category. 

Taylor, the largest City in the Downriver region, has one of the largest unrestricted fund balances both in real dollars and by percentage of budget. At $39.5M and 22.7 percent, the City’s unassigned fund balance compares favorably to Wyandotte (23 percent); more than Lincoln Park (17.5); and far outpaces Trenton (2.6). Romulus sets the bar high in the region with an unassigned fund balance of 78 percent. 

 Plante Moran representatives summed up their presentation with cautions related to five areas: Cost of healthcare, State of Michigan Act 51 (road) funding, state shared revenue funding, property tax values and court revenue and charges for services. The pandemic has a great effect on all of these issues. Heath care costs could increase, a common warning. The state could cut Act 51 funding because of less travel. Revenue sharing, based on the sales tax, could be decreased.

To see the entire audit, click here

To see the presentation, click here

To view previous City audits, click here


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