State auditor report shows stressed Newark finances

• The city of Newark received nine positives, five cautionary, two critical and one not applicable.
• The city of Heath received 15 positives, one critical and one not applicable.
• The city of Pataskala received 15 positives, one cautionary and one not applicable.
• Licking County government received 16 positives and one cautionary.

COLUMBUS - A tool designed to help Ohio’s 247 cities and 88 counties better assess their financial health and make sound budget decisions went live Wednesday, with Newark showing an elevated level of financial stress.

Republican Auditor Dave Yost rolled out what he calls a “Fiscal Physical” database of financial health indicators developed by his office, a compilation of information he said shows “there’s not a lot of wiggle room in the fiscal health of our local governments.”

The project has initially identified one county, rural Fayette, and 15 cities with elevated fiscal stress levels. Another two counties and 13 cities, including Newark, are one indicator away from a level that’s elevated. The database is searchable and public.

Historical data indicates entities with at least six “critical” indicators or a combination of eight “critical” and “cautionary” indicators have ended up in a state of high fiscal stress, according to Yost. Newark had five cautionary indicators and two critical indicators for a total of seven.

The two critical outlooks for Newark were a decline in unrestricted net assets and its ratio of general revenue to net expenses.

City Auditor Steve Johnson said the report is good to see, but that it's information the city already knows.

"We know where we're weak and where we are strong," he said.

Johnson said there is no reason for anyone to panic, but that the city's finances are stressed. He said the report legitimizes the city's need for more tax revenue in the coming years.

An income tax levy was rejected by nearly 55 percent of voters in November, but the city has not ruled out going back to the ballot in the spring, Newark Mayor Jeff Hall previously told The Advocate. The deadline to get an issue on the May ballot is Feb. 1.

Yost said he challenged his staff to identify warning signs to help cities or counties identify potential problem areas in advance and to measure their fiscal stress levels. He said he hates the part of his job where he has to declare municipalities are in fiscal emergency.

“It’s statutory, there’s objective method for it, but I just hate getting there,” he said. “I understand the challenges that are faced when you get into that kind of situation where your back is against the wall and you’re the local elected official and you’re left holding the bag for many decisions by outside forces that have been gathering for years, maybe even decades.”

Their work evolved into 17 common indicators that Yost’s report measures with a green, yellow and red warning system similar to that used in traffic lights. Among other things, the system flags a lack of investment in capital and infrastructure, spending that exceeds revenue, declining year-end revenue balances and declines in property-tax revenue.

Licking County Commissioner Tim Bubb, said the auditor's assessment showed Licking County in a pretty good financial position, but he relies more on the opinions of Moody's, Standard and Poor's and the county's bond counsel.

The county received 16 positives and one cautionary, for its ratio of debt service expenditures to total revenue.

"It's an arbitrary set of standards they've applied to cities and counties," Bubb said. "It's just a number they pick. I take it as a good report for Licking County. I think it's a compliment to us."

Heath received one "critical," for its ratio of general revenue to net expenses. Pataskala had one "cautionary," for its unassigned fund balance of the general fund.

Heath Mayor Mark Johns said the auditor's report shows the effect state government cuts have had on municipalities across Ohio. Heath will have an income tax levy on the May ballot.

“That’s what the data is saying," Johns said. "The numbers don’t lie.”

Heath did not have as many cautionary or critical indicators as some cities. In all, 92 percent of cities and 82 percent of counties have at least one “cautionary” or “critical” indicator.

“What I and other Heath government leaders have been saying to our residents is Heath is not at the same point other municipalities are, but we are traveling down the same road. Unless the residents of Heath invest a little bit more in their community, we'll be at the point others are."

Yost said it may not tell individual local governments anything they don’t already know, but it can serve to provide a statewide perspective on the health of local governments. The unveiling comes days before Republican Gov. John Kasich introduces what he says will be a tight budget. It’s unknown whether his spending blueprint will include another economic hit to the state local government fund.

Ohio Municipal League Executive Director Kent Scarrett said Yost’s fiscal fitness information will be part of cities’ messages to the governor as budget talks progress.

Advocate reporters Kent Mallett and Maria DeVito contributed to this article.