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1/20/2013 10:05:00 AM
Marion faces fiscal cliff

Matt Troutman, Chronicle-Tribune

They might differ sharply on the details, but the city of Marion administration and its critics both agree on one thing — there’s simply less money to go around.

Last week, the city of Marion asked to temporarily borrow money in three public meetings, bringing its current fragile financial state into the spotlight.

The city of Marion started the year with $320,000 in its general fund, but just over $44,000 in total cash reserves in its primary bank account.

With no money, and bond payments looming, Mayor Wayne Seybold requested the Marion City Council suspend its rules and pass a request for up to $12.8 million in bond anticipation notes to cover cash flow until it receives its spring property tax draw.

The council amended this to $7 million to ensure the administration could cover expenses for half a year but would have to report again in May or June on the city’s finances before it requests more short-term loans ahead of fall property taxes.

If Tuesday and Thursday are any indication, Seybold and the administration face more hard questions from the council about the city’s finances, a $5 million deficit in its health insurance reserve, potentially costly long-term debts and whether it’s too reliant on tax warrants.

A tale of two cities

Richmond in Wayne County shares several similarities with Marion. The city has a population of 37,000, according to the U.S. Census, compared with Marion’s 30,000.

There are differences in the two city’s other budget funds, but their 2012 certified general fund budgets are comparable — $19.5 million for Marion, $17.6 million for Richmond.

Last year, both cities faced financial pressure from rising health costs.

Marion went over its health insurance budget by $2.3 million, but its health insurance reserve was already $2 million in the red to start 2012. It ended with a $5 million deficit.

Richmond Controller Tammy Glenn said health insurance costs were $1.5 million to $1.7 million over budget in 2011. That more than doubled in 2012, leaving just $220,000 left in its insurance reserve, and only after a special appropriation to keep it positive.

Glenn said the insurance situation created difficulties with its firefighters union, which Seybold referenced during Tuesday’s council meeting. She said the union was seeking more control over the insurance reserve.

City Corporate Counsel Don Gallaway said last week that negotiations with the city’s four unions were still ongoing, but that all were covered by the city’s new health insurance plan.

Like Marion, Richmond also ended up changing health insurance plans in December.

Seybold insisted several times during Tuesday’s city council meeting that, other than the massive deficit in the health insurance reserve, the city held the line and spent under its 2012 budget.

He said the tax warrants would be necessary regardless of the city’s financial state because essentially it was paid only twice per year in the spring and fall.

Glenn said Richmond had its own budget troubles coming up — $2 million lost to tax caps and having to operate under the 2012 budget after the Richmond Common Council rejected the proposed 2013 budget, a loss of $500,000 — but the city has only once in her memory taken out a tax warrant.

She did note Richmond does let some funds have a negative balance midyear before the spring property tax settlement.

Falling revenues

Seybold said Tuesday that property tax caps kept the city from being able to raise the funds to cover the shortfall caused by insurance.

He said the city has lost $6 million over the past five years in property taxes.

According to Grant County treasurer’s records, the city lost more than $1 million in 2012 due to property tax caps circuit breaker credits. Richmond lost $2 million.

City officials have said in addition to the skyrocketing health insurance costs, and a $500,000 state-mandated extra employee retirement payment, that property tax collections were at 88 percent in Marion, down from the usual 92 percent.

The city based the percentage on the state’s certified levy for $14.5 million in property tax revenue. It only received $12.8 million.

However, Grant County Auditor Roger Bainbridge said the actual collections are based on adjustments made months after the state certifies the levy. This “abstract levy” is done in March and makes adjustments for deductions.

“That’s what I refer to as a ‘levy hit.’ You take a hit when you assume (the state certified levy) is the same as the (abstract) levy,” he said.

Grant County Treasurer Sarah Melford compared it to the difference between “gross” and “net” income. Essentially, the city of Marion was not accounting for normal deductions.

According to Grant County auditor records, if collection percentages are based off the abstract — or “net” income — then the rate would go from 88 percent to 97 percent.

Different types of debt

Joselyn Whitticker, D-At-large, said the city needed to start tracking its revenue, and expenses, more closely.

She raised these concerns several times, but Gallaway pointed out they sometimes lacked details.

At one point during the Thursday city council meeting, she said she calculated the city was $11 million “in debt.”

Gallaway asked for the “specific information” on which her concerns were based and Whitticker said she would provide that to the administration and media. As of Friday, she had not.

Gallaway pointed out there are different types of debt and different types of bonds. Many, if not most, debts have specific funding sources and long timeframes for repayment.

For example, three bond payments due Jan. 15 that required the city to borrow from Marion Utilities were all originally taken in 2005:

o$5 million park bond, of which $3.9 million remains to be paid by 2026. This helped pay for the Splash House and projects in Matter Park.

o$6.6 million, redevelopment district COIT (county option income tax) revenue bond, of which $5.3 million remains to paid by 2030. According to the Indiana Gateway website, this funded “public infrastructure improvements and (refunded) certain bond anticipation notes.”

o$1.5 million taxable insurance funding notes, of which $550,000 remains to be paid by 2015. This covered unpaid health claims from 2004 before Seybold took office.

According to the Indiana Department of Local Government Finance 2012 local government debt report, Marion owes $16 million in outstanding principal and interest.

This might seem like a hefty sum, but among cities in the state, that total ranks 74. Marion Community Schools has $39.2 million, which includes $21.7 million in outstanding lease payments.

Marion’s 2011 State Board of Account audit lists $11.6 million in other types of long-term debt.

Some of these were bonds and loans the city has been paying off on a yearly basis or are tax increment financing (TIF) district projects, which are ultimately not city debt, while others are savings that have not been utilized or expenses that might not end up with the city.

The 2010 bond anticipation note purchased the former Hobby Lobby building and land near Interstate 69 and Ind. 18 adjacent to Ivy Tech. Like all bond anticipation notes, development needs to occur in five years — by 2015 in this case — before it becomes long-term debt and at least part of it will be covered by Tree of Life Bookstore’s recent purchase of the Hobby Lobby building.

With Earthbound Recreational Vehicles’ failure to meet obligations on a $2 million bank loan backed by the city, this could be another debt added. The city has pledged county economic development income tax money to cover what collateral — some of which was released with the administration’s permission — cannot. It has already paid $155,000.

So far, an auction of the company’s assets grossed about $180,000.

Future plans

Seybold on Tuesday said the city has experience rebuilding its cash reserves in the past. He said he came into office facing $1.5 million in unpaid health bills and spent years building up the reserves.

The change in health insurance plan, he said, would help the city’s financial situation. Apex Benefits Group projected it will save the city $3.1 million.

Seybold also said the firefighter and American Federation of State, County and Municipal Employees unions proposed freezing employee levels for the year, saving money because the city budget for more employees than it currently has.

Related Stories:
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• Marion surrendered loan collateral for bankrupt Earthbound RV
• Earthbound RV shuts down in Marion

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Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR


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