Audits expected to show utility funds in the red

NILES – Upcoming financial and performance audits are expected to show massive deficits in the city’s enterprise funds, according to records obtained by the Tribune Chronicle. The records also show the city’s recorded balances are less than what’s really in the bank.

Niles taxpayers, who this year were hit with income tax and water rate increases, now face the possibility of even higher utility rates.

Meanwhile, the results of state-conducted financial, performance and special audits are likely to be turned over to investigators.

The deficits are highlighted in emails, some containing an aura of panic, that City Council President Robert Marino sent to other city officials. For example, on Oct. 1, Marino, referring to state auditors, wrote, ”Interestingly enough, they shared with me that our water fund balance of 12-31-12 was -$2,258,218.41. (It appears as though we are well on pace to deficit spend in the neighborhood of $800,000 – $1,000,000.00 this year.).”

Marino noted that the city’s general fund was about $6.2 million, and that the budget shortfalls in the city’s utility departments were being covered by the general fund.

“With pace of deficit spending I can’t imagine our General Fund sustaining this type of stress,” Marino wrote in an email reprinted verbatim here. “It appears to me that the administration has a few choices. Develop a plan that significantly increase water and sewer rates, significantly cut spending in both departments, or both.”

In a followup email to chief project manager Nita Hendryx and regional liaison Jim Armeni of the state auditor’s office, Marino again expressed his concern over the city’s finances. The email, reprinted verbatim: “Recognizing our deficit spending, the existing water fund deficit and stress on our General fund clearly demonstrates the need for the Administration, Auditor’s Office, and Council to develop a long range budget plan. While (the city) await our Performance Audit, I believe all in attendance recognize the fiscal urgency and need to immediately begin developing plans.”

Three months after Marino’s email, the city’s general fund balance was $4.6 million, a drop of about $1.6 million .

The city in February raised water rates 12 percent and plans to raise sewer rates 15 percent per year until 2017.

In an interview last week with the Tribune Chronicle, Marino said he was shocked when state auditors presented the financial figures because, he said, city officials previously painted an inaccurate picture of the finances.

”Council was told by (Mayor Ralph Infante and Auditor Chuck Nader) that our fund balances were not a problem, and that the numbers they quoted were ‘just on paper.’ We could not get a definitive answer on our city’s finances.

”We honestly had no idea (how bad the city’s deficit was) when we learned about the negative fund balances during a meeting in October.”

Nader said last week that he had alerted city officials to the deficit.

”I’ll tell you this, (the deficit in the water department) did not happen over the course of one year,” Nader said. ”It wasn’t just ‘boom,’ here is this deficit. I was not shocked at all (by the figure). Every year, an audit comes out, and every year it showed that we were getting further and further in the hole.”

Councilman at-large and Finance Committee Chairman Steve Papalas said last week that the city’s utility deficit can be traced back to the Mahoning Valley Sanitary District, which sells water to the city, raising the rates it charges Niles. The city did not pass those rate increases to its own customers, Papalas said.

”Rather than raise our rates, we kept absorbing the difference, which is fine as long as there’s fat in the water department,” Papalas said. ”Council raises sewer rates, but it is up to the mayor and the service director to raise water rates. Everyone was aware that rates have not gone up, but (Infante) said he was comfortable with the way things were.”

Infante said Thursday that the deficit, which he noted is the result of years of accumulation, came about because of his desire to keep utility rates down for citizens.

”We ate (the MVSD rate increases) because our customers already get killed on utilities like gas and electric,” Infante said. ”We raised the rates recently, but we only did that because we didn’t have a choice.”

Marino said that it was the state financial auditor’s initial report that prompted council to begin the process of arranging a performance audit, which has stretched beyond its original estimated completion date because of problems with the city’s books and a lack of cooperation from city officials.

The ongoing performance audit and corresponding financial audits have since resulted in the indictment of a former clerk in the treasurer’s office and the launching of a special audit.