Terre Haute ends 3 of 4 years with deficit

While Terre Haute’s current financial strain is well-documented, a look at recent years shows a sustained struggle. Since 2011, cash balances in Terre Haute’s general fund have been in arrears at the beginning and end of each year, with the lone exception the close of 2012 and opening of 2013

Beginning Ending

Year balance* balance*

2011 -$691,145 -$4,583,098

2012 -$4,533,957 $2,766,273

2013 $2,766,273 -$4,486,801

2014 -$4,486,801 -$5,482,504

*all figures rounded to nearest dollar

While the city carried a deficit cash balance that eclipsed $4.5 million into 2012, the outlook would improve as the year progressed. Terre Haute took in more than it spent, receiving more than $44.1 million in revenue, compared to $36.6 million in expenditures from the general fund.

That year, city officials sought and received authorization from the City Council to borrow just over $5 million to meet what was characterized then as a temporary cash-flow shortfall. The nine-member council unanimously approved a special ordinance authorizing the short-term loan, known as a tax anticipation warrant.

The council in 2012 also approved the transfer of $3.5 million into the general fund from the city’s Rainy Day account, contributing to a positive cash balance at the end of the year.

The improved fiscal start to 2013, coupled with $987,517 realized from the sale of Memorial Park — property at the southeast corner of North Third Street and Eighth Avenue — offered a glimmer of optimism about city finances. The positive general fund balance couldn’t be sustained, however, and by year’s end, Terre Haute would again find its general fund in the red.

Last year, the city began to co-mingle funds from the city’s Department of Redevelopment, stirring a dispute over the city’s authority to do so. While Terre Haute officials say state law designates the city controller as the fiscal officer, enabling the controller to move the funds, that authority won’t last.

A new state law, effective in July, empowers the Redevelopment Commission with authority over how Redevelopment funds are spent. The law states that the city controller “may disburse funds only after the disbursement is approved by the Redevelopment Commission.” The law also allows a Redevelopment Commission to specify the types of disbursements that the fiscal officer may make.

City comparison

Terre Haute’s 2014 expenditure per capita of $2,579.31 is similar to other mid-size or smaller cities, according to Carol Rodgers, deputy director of the Indiana Business Research Center at Indiana University. “It certainly is not at the top” of the list, Rodgers said.

Ending a year in the red is “not unreasonable,” she said, but ending consistently in the red may indicate budgetary issues.

By summer’s end, the state should have in place a better monitor of the financial health of its municipalities, Rodgers said. A new law requires the state to provide a “fiscal health indicator” for a city or county. The Indiana Business Research Center is using data from annual financial reports to create a matrix, giving a “clear understanding whether or not a community is in good financial standing.”

Once completed, the indicator will be available for public consumption on the Gateway Indiana website at gateway.ifionline.org.

Data already available on Gateway show other Indiana cities in better financial shape than Terre Haute.

• Lafayette — In 2013, Lafayette ended the year with a cash deficit of just over $883,000, as it spent more than $32.5 million in its general fund but raised only about $31.4 million. The city had a beginning year cash balance, often called an operating balance, of over $186,000, but it was not enough to cover the deficit. In 2014, spending was less than receipts, allowing Lafayette to end 2014 with a positive cash balance of more than $488,000 in its general fund.

• Bloomington — In 2011, Bloomington ended the year with a negative cash balance topping $320,000. That year, the city also spent more than it received in its general fund. In 2012, Bloomington spent just over $31.3 million, but it took in bout $36.2 million, allowing it to end the year with a healthy cash balance exceeding $4.5 million in its general fund. Bloomington has not had a general fund deficit since, through 2014.

• Fort Wayne — Last year, Fort Wayne spent more than $97.1 million in its general fund, while only collecting about $84 million. However, the city started last year with a cash balance exceeding $19.7 million, allowing it to absorb the higher expenses. The same was true in 2013, when Fort Wayne spent more than $84 million in its general fund, but collected about $82.8 million. The city, however, had started the year with a more than $6.6 million cash balance, which covered the shortfall.

Terre Haute, however, consistently puts itself at a fiscal disadvantage by starting budget years, including 2015, with a negative cash balance.

Present-day concerns

The city began this year with a deficit of over $5.4 million. To offset that, it obtained another tax anticipation warrant — a loan on its property tax collections — totaling $2.7 million. That loan — which must be paid back by the end of the year — brought the city’s total deficit to over $8.2 million.

“That is why you need a positive balance of $9 million or $10 million at the start of the year, to weather that drop until you get your property tax money,” said Earl Elliott, a Terre Haute CPA who previously served as a special consultant to the City Council.

Republican Elliott now hopes to join that governing body. He defeated the current District 2 representative, Bob All, in the recent primary election, and will be listed on the ballot in the November general election.

Elliott believes Terre Haute’s deficit is compounded by the fact that the city only receives 15 percent of its property tax funding, or about $900,000 a month, in the first five months of the year. However, the city has debt of about $2.7 million per month or $13.5 million in the first five months, he noted.

“General fund projected disbursements for the first five months of the year exceed general fund projected cash receipts by about $9 million,” Elliott said when addressing the City Council last week. Broken down, that is a deficit of $1.8 million per month for the first five months of the year, he said.

Mayor Bennett in April told the council the city owed $2.6 million to vendors for bills in February and March, but had begun sending out $2.2 million to pay those vendors from pooled fund accounts. As of May 1, the city still owed more than $730,000 for bills that were 60 days past due.

“That puts pressure on the positive balances of the other funds, when you co-mingled bank accounts to be able to cover those sorts of deficits,” Elliott told the council.

The mayor has repeatedly stated those bills would be caught up when the city receives more than $9 million in property tax money at the end of June.

Elliott points to the city’s 2015 budget, which shows nearly $60 million in proposed expenditures, with approximately $49 million in total revenue. “For all of those funds, that is nearly $11 million more of expenditures than revenues,” he said.

That gap concerns council President John Mullican, as well.

“I think over the last several years, I have seen a downward trend in our cash position,” Mullican told the Tribune-Star, “and overall, expenses versus revenues, the trend is troubling.”

Mullican earlier sponsored a resolution that requires the city controller to provide monthly cash balance statements to council members by the 21st of each month. The cash balance is for the previous month.

The council has received statements for the first three months of the year. The March report shows the city’s general fund with a $10.5 million deficit. The Terre Haute Transit Utility, alone, was $132,592 in the red.

“There is no transit that operates with a profit. All transit is a public service” to provide those who do not have, but need, transportation to work, doctors or shops, said the city’s transportation director, Brad Miller. “Transit is heavily subsidized. It is a quality-of-life issue, and you decide if you have it or not. But if you have it, you have to put money into it,” he said.

The city does receive federal money that reimburses 80 percent for capital expenses, such as new buses, Miller said, as well as 50 percent of operating expenses such as salaries, benefits and cost of business. “We also receive a state subsidy based on ridership that helps offset costs,” he said.

Besides the general fund, other areas tend to run budget deficits, too, including the city’s golf courses. The March cash balance statement showed Hulman Links $3.2 million in the hole, while Rea Park was at negative $812,000.

Hulman Links has remained in a deficit budget the past four years, ranging from more than $1.93 million in 2011 to over $3.1 million in 2014. Likewise for the Rea Park golf course, with deficits ranging between a low of $586,040 and a high of $772,178 during the time period.

Looking ahead

One area from which the city receives annual income is the County Economic Development Income Tax, commonly referred to as EDIT.

Elliott believes the city will need to dip into EDIT funds to pay bills this year, speculation the mayor refutes.

Bennett told the council last week the city will have about $3 million remaining in EDIT at the end of this year, “making it the third year in a row” that has occurred, the mayor said.

Elliott agrees the city has had year-end EDIT balances of $3 million the past two years, and he understands the city is projected to receive this year additional revenue totaling more than $4.85 million in federal grants and reimbursements. He says, though, that budget pressures tell a different story.

“I am looking at $5 million in and $8 million out, which just about takes care of the balance,” he said. “A (general fund) that would experience a $1 million or $2 million decrease again continues to put pressure on other funds to have positive balances, so that our co-mingled bank account balances are positive.”

While Elliott acknowledges that most of the city’s financial challenges usually peak in May, pointing to springtime loans and recent co-mingling of bank accounts, he believes the situation has worsened.

“This year, in April, we are scraping by to pay our bills,” he said. “We have spent so much more than we have taken in for a number of years, now all of a sudden, we don’t have much of anywhere to go, as I see it.”