Trending
Part 2: Addressing Fiscal Challenges in the City of Marietta
The City of Marietta, Ohio, faces significant fiscal challenges, as highlighted in the recent City of Marietta Performance Audit conducted by the State of Ohio Auditor, Keith Faber. This essay aims to analyze the financial numbers revealed in the audit report and propose strategic measures from a government perspective to address Marietta's fiscal woes.
The good news is the audit clearly states Marietta does not have a revenue issue. The audit report reveals a concerning disparity between expenditures and revenue in Marietta's municipal budget. Despite generating sufficient revenue, Marietta grapples with inefficiencies in spending and fund allocation (Faber, 2024, pp. 7). This imbalance underscores the need for prudent fiscal management and strategic resource allocation.
In calendar year (CY) 2022, Marietta's total expenditures exceeded revenue by approximately $1.5 million, with personnel-related expenses accounting for over 81% of the total annual expenditure across the general fund (Faber, 2024, pp. 4). This disproportionate allocation toward labor costs raises concerns about the sustainability of Marietta's budgetary framework.
A healthy municipal budget for labor and fringe benefit costs is about 70%. At the time of the performance audit report, the City of Marietta number was 81%, with the latest contract this spring, moving the number to about 83%.
It would be refreshing if the City had a plan to reduce this number to 75% in 12 months and down to 70% in 18-24 months. The rationale is we need the 30% portion of the budget for materials, tools, equipment, pavement repair, street resurfacing, steel, parts, vehicle fuel, fleet purchases, hardware, software, office equipment, etc. ... things needed so the workers can perform their duties and deliver quality products and services to the citizens, i.e, the customer. In addition, the impact of purchasing during a high inflation period strains the 30% portion.
Both private and public sectors use cost accounting systems to measure the labor, equipment, materials ratios for optimal work outputs. Let's look at the impact and what is at stake. General fund payroll (benefits included) for one 2-week pay period is $422,000. One 2-week pay period (benefits included) for all City funds is $738,000. When we talk about saving a few thousand or even ten thousand here or there, they are nice attempts at cost savings for the current fiscal year, but we need to address sustainable, repeatable, fundamental savings over the financial horizon of many decades (Faber 2024, pp. 14-15).
The absence of a formal cash reserves policy further exacerbates Marietta's financial challenges. The Government Finance Officers Association (GFOA) recommends maintaining at least 17% of annual operating expenditures in cash reserves. However, Marietta's cash reserves have fallen below recommended levels, jeopardizing its financial stability (Faber, 2024, pp. 16-17).
To address Marietta's fiscal vulnerabilities, a multi-step approach is proposed:
Step 1: Implement just half of the comprehensive restructuring plan to realize annual savings of approximately $1,647,503 (Faber, 2024, pp. 35). Or implement one quarter this year, and one quarter of the recommendation next year. (one quarter implementation would save $823,752).
Step 2: Capture additional savings of 4% from non-payroll process improvements, yielding an estimated $865,000. This can be achieved with work process improvements and employee innovations. This is a conservative number for the first few years in both public and the private sector. That would capture approximately $865,000.
Step 3: Increase tax revenue collection by 4%, generating approximately $592,000 in additional revenue. A recent presentation by the Regional Income Tax Agency (RITA) explained due to the City's size of collections, we are not large enough to share the IRS connection, but RITA can accomplish the work because of their multi-municipal partnerships.
These strategic measures aim to bolster Marietta's financial resilience while ensuring sustainable service delivery and infrastructure development.
Total savings, or free cash flow would be about $3.1 million. One possibility of the proposed $3.1 million in savings listed in steps 1 through 3 is to set aside $2.1 million for the cash reserve the first year. Then take the other $1 million and divide it up into 4 equal parts for the four wards and put $250,000 of value into each ward. Alley repairs, sidewalk repairs, catch basin maintenance, stump removal, tree planting, pavement restoration, etc. ... these are value items the customer is seeking.
It's key to remember, we do not have a revenue problem. We have an allocation problem. Equal or better services delivery can be achieved. Effective cash flow management is critical for financing local projects and reimbursable grants. Without adequate cash reserves, Marietta risks project delays and missed opportunities for infrastructure improvements.
In conclusion, Marietta's fiscal challenges require urgent attention and strategic intervention from a government perspective. By addressing expenditure patterns, enhancing cash reserve management, and implementing strategic measures to increase revenue and reduce costs, Marietta can achieve long-term financial stability and ensure the well-being of its citizens.
In part 3 we will look at work processes, measurements and outputs that deliver quality products and services to the citizen customer. We will also look at the different types/levels of planning required in high performance organizations.
Thank you for reading.
Wm. McElfresh resides in Marietta and served 39 years in State Government. He is a Certified Public Manager in the State of Ohio and a LEAN Greenbelt. He is also a graduate of the Executive Leadership Academy, Voinovich School of Government and Public Affairs (currently named Leadership and Public Service), Ohio University.