Ontonagon council confronts financial instability

Ontonagon President Tony Smydra made a quick adjustment to the agenda at the regular meeting on Oct. 26 and introduced Joe Verlin of Gabridge & Company, the auditing firm that had completed the village audit. Verlin was present, via video conference, to discuss the recently completed audit and to answer questions.

Verlin informed the council that the audit report had been submitted to the Michigan Treasury Department, on time.

The assets of the village total $4.7 million dollars, but there is a deficit (liability) of $6.4 million.

In the current year, the village has a general fund deficit of $232,346. The general fund balance decreased by $525,117 from last year.

In summary, there isn’t enough in the way of assets to generate enough revenue to offset what is being spent.

“Your revenues remain flat and our expenses are going up,” Verlin told the council.

Since March 31, the village has increased property taxes from 11 mills to 15 mills, a slight increase in revenue for the new fiscal year.

The pension liability was mentioned and Verlin told the council the obvious—that they have little flexibility in the general fund. The MERS pension liability is a virtual albatross around the fiscal neck of the village.

The general effect of Verln’s review of the audit on those who were present was one of almost shock.

“Coming up with some sort of long-term solution is paramount,” were final words of advice from the auditor.      

Verlin said that he sees some signs of improvement with the tightening of internal controls in more recent times. Several findings from the auditor have already been addressed by the council and the new village manager.  He also cautioned the council that the Michigan Treasury Department may well take action to force the village to take corrective action.

And in fact, the treasury department has taken an interest. Following the auditor’s presentation, the village manager began his report, during which he informed the council that the village has received a request from the Michigan Treasury Department commenting on the recent audit which they have reviewed.

The department noted the obvious: actual expenditures exceeded the amounts authorized in the budget; deficiencies were mentioned in the audit report, and it was noted that expenditures have exceeded revenues for the last three years. Treasury is asking for an explanation for this trend.

The treasury is now demanding, within 30 days, a detailed Corrective Action Plan or else specified penalties will be applied which could include imposing the Revised Municipal Finance Act of 2001 which could prevent the village from borrowing money, and submit to an audit to be performed by the Department of the Treasury (at the village’s expense).

In addition to what appears to be an ultimatum from the Treasury, the village was also notified that the Treasury intends to withhold state revenue sharing funds until an acceptable deficit elimination plan is in place.

Specifically alluded to were the following village funds:

GENERAL FUND—$232,346 over budget

LOCAL STREETS FUND—$309,140 over budget

MARINA FUND—$267,172 over budget

Again, the Treasury Department is demanding receipt of a plan to eliminate the above deficits within 30 days from Oct.5 or the penalties will be imposed.

Manager William DuPont will attempt to work out some understanding with the Treasury department. The MERS liability now exceeds the total revenue of the General Fund.

Smydra expressed the position that the village will do what is necessary to work things through—there is still room for optimism.

Under Financial Reports, which is a new addition to the regular council meetings, more details about the financial status of the village are now available, thanks to new accounting practices that have been put in place. This very comprehensive report informed the council, almost to the penny, of the revenue and liabilities of the village.

         Also under general reports were:

         •  Water and Sewer Committee: A meeting with the state park will be scheduled. Water rates have not been increased or adjusted since the park was first provided water service through the regional water system.

         • Building Committee: Don Chasten reported that a house on the corner of Mercury Street and Old Rockland Road now belongs to the village through the regular process of non-payment of taxes. This property was the former Southside Elementary School built in 1906. The property has long been neglected and it may have to be demolished.

         Under unfinished business:

•  Hospital MERS Update:  the ever-present liability for the pensions of the former employees and retirees of the Ontonagon Memorial Hospital (now owned and operated by Aspirus of Wausau).

Village Manager DuPont informed the council that the village currently owes MERS $137,165.52 of which $45,887.51 was due on Sept. 20. A partial payment of $15,000 was made on Oct. 12 and it is planned to make a further payment of $25,000 in early November.

An information meeting regarding the MERS buy-outs will take place on Nov. 8 from 10 to 11 a.m. There has been some interest shown in this alternative.

Congressman Bergman had met with the village manager to discuss the MERS situation, but there has been no word as a result of this meeting.