News From Terre Haute, Indiana

News

July 7, 2013

Terre Haute only has $41K in general fund

City must borrow to meet day-to-day expenses for the remainder of year

TERRE HAUTE — The City of Terre Haute is living on millions of dollars of borrowed money.

According to the city’s controller, Leslie Ellis, the city’s critical “general fund” had a cash balance of approximately $41,000 at the end of June, meaning the city must borrow to meet day-to-day expenses for the remainder of the year.

The actual June 30, 2013, general fund balance has not yet been calculated, but Ellis said it will be about the same as the balance last year on June 30, which was $40,417.

The city’s “general fund” covers most of the city’s day-to-day expenses, such as salaries for city workers. To have a cash balance of just $41,000 means the city has spent much of its June, bi-annual property tax distribution already. That distribution was $11.5 million, according to figures provided by the Vigo County Auditor’s Office.

This situation is not new and is why the city borrowed $5 million in “tax anticipation” loans this year and last year. Using these borrowed dollars, the city has been able to meet its salary and other daily expenses until its next big property tax distribution. That allows the city to avoid laying off large numbers of city workers, said Mayor Duke Bennett, in an interview last week in City Hall.

Indiana local governments receive property tax payments twice a year — in June and December. The June payment is typically the larger, because some people pay their May and November property tax payments all at once.

Not a perfect world

Borrowing money is not free — it involves interest and administrative costs — but it beats making “massive” layoffs, Bennett said.

Last year, the city’s first $5 million loan included just less than $50,000 in interest and administrative costs, City Controller Ellis told the Tribune-Star at the time the loan was approved by the City Council.

Larry DeBoer, a Purdue economist and local government finance expert, wrote in a 2006 essay that a city’s general fund balance on June 30 should equal about half of that city’s expected property tax levy. For Terre Haute in 2012, that would have been about $12 million. However, in a recent interview with the Tribune-Star, DeBoer noted that borrowing, as Terre Haute is doing, can also work, as long as a city receives enough in property taxes to pay back the loan.

Having such a large cash balance, Ellis told the Tribune-Star last week in a joint interview with Mayor Bennett, is possible only in a “perfect world.” She pointed to Indiana’s property tax caps, enacted in 2008, as the reason. Wealthier cities such as Fishers and Carmel may have such large cash balances, she said, but not Terre Haute.

Still, even compared with most other Indiana cities, Terre Haute had a very low cash balance in June 2012 as a percent of the city’s certified budget, according to state figures.

Among roughly 500 cities and towns listed on the Department of Local Government Finance “Gateway” website, only a handful — including Bloomington, New Albany, Greenfield and Hammond — had lower cash balances in relation to their certified budgets.

The Vigo County government, meanwhile, which is separate from the City of Terre Haute, had a June 2012 cash balance of $23 million — approximately half of what it spends in a year’s time and in line with what DeBoer recommended for cities and towns in his 2006 essay.

Where the tax caps hit hardest

When discussing the city’s budget, Bennett repeatedly states that the city’s general fund would be flush with cash if the tax caps did not exist. Indeed, Vigo County was among the hardest hit in the state from the caps, according to a recent Ball State University study.

That study shows Vigo was the fourth-hardest-hit county in the state in terms of the impact of the property tax caps. The three counties hit hardest were Madison, Delaware and Fayette.

Anderson, the biggest city in Madison County, has experienced painful cuts in its budget since the caps took effect, said Sam Pellegrino, the city controller. This year, the city was forced to cut eight positions from the fire department, he said. Other layoffs and attrition have also taken place in the most recent years, and the city is still scraping by. Anderson has had to use ambulance fees, which are supposed to pay for equipment, to pay salaries. It has also been forced to borrow from city-owned utilities, Pellegrino said.

Dealing with the tax caps has been “extremely painful,” Pellegrino told the Tribune-Star last week.

According to the “Gateway” website, Anderson’s general fund cash balance at the end of June 2012 was $6.2 million. Muncie, the biggest city in Delaware County, the second-hardest hit by the tax caps, had a cash balance of $8.9 million. Connersville, a small city of just 13,000 and the biggest city in Fayette County, had a balance of $3.2 million.

Each of those was far greater than Terre Haute’s $41,000 balance.

However, cash balance figures can be misleading and don’t tell the whole story, warned Vigo County Treasurer Jim Bramble. A city or county may have a general fund balance of $1 million on June 30 and have $1.1 million in bills due the following day, he said.

However, when shown Terre Haute’s June 2012 general fund balance of just $41,000, Bramble indicated it was a possible cause for concern. “If it hasn’t improved [by June 2013], I would say they’ve probably got a problem,” Bramble said.

Another setback to a balanced budget

Terre Haute’s city finances suffered another big blow in 2013: A 7.5-percent drop in assessed land value. That cost the city about $1.7 million in revenue, Bennett said. That means the city will likely end 2013 with a negative balance in its general fund, once again.

Terre Haute ended 2012 with a negative general fund balance of $2.2 million. If not for the drop in assessed values, the city would have broken even by the end of 2013, Bennett said. Now, that may have to wait until the end of 2014, he said.

“We’re not going to be able to make up $2 million,” Bennett said.

To get to a “balanced” general fund budget by the end of 2014, budget cuts and new sources of revenue will be needed, Bennett said. Laying off city employees is “a last resort” and one he hopes to avoid. The city has 52 fewer positions now than it had in 2008, he said. One source of savings could be in opening a city employee health clinic, he said. Bennett also pointed out that the city will continue to receive payments “in lieu of taxes” from the waste water treatment plant to the tune of at least $2 million annually.

Also under consideration is implementing a $9 per month trash hauling fee in the city. That measure, however, would have to be enacted by the Terre Haute City Council.

Bennett said the city may also need to dip into its Rainy Day Fund at the end of 2013 and will need to borrow again in 2014 — although he estimates about $4.5 million, not $5 million the city borrowed each of the past two years.

“So, we made progress,” Bennett said. “We closed the gap.”

According to the “Gateway” website, the City of Terre Haute’s government expenses are in line with similar cities in the state. Government spending in Terre Haute is about $1,400 annually per person living in the city. That’s about the same as Elkhart and Anderson and less than Muncie, where the city government spends about $1,700 per capita.

Reporter Arthur Foulkes can be reached at 812-231-4232 or arthur.foulkes@tribstar.com

 

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