The "Please do your homework...or else" letter from Betty Montgomery

July 18, 2006

The Honorable Thomas Williams
Mayor, City of Norwood
4645 Montgomery Road
Norwood, OH 45212

Re: Financial Recovery Plan

Dear Mayor Williams:

As you are aware, the Auditor of State’s Office (AOS) declared the City of Norwood in a state of fiscal watch on October 7, 2004. Guidelines for local governments in fiscal watch are outlined in Chapter 118 of the Ohio Revised Code. These guidelines indicate that the Auditor of State shall provide such technical and support services to the municipal corporation after a fiscal watch has been declared to exist as the Auditor of State considers necessary. We believe that we have provided the necessary technical assistance to enable you to complete a financial recovery plan and perform other formal planning that would facilitate the City’s removal from fiscal watch status.

First, staff from our Local Government Services (LGS) Section has worked with City officials in a number of capacities to improve the City’s fiscal condition. In fact, as early as November 12, 2004, LGS staff met with you and other City officials to discuss the progress of your financial recovery plan as well as cash flow issues facing the City for the remainder of 2004 and 2005. We also received a letter from the Chairman of Norwood City Council on July 11, 2005, requesting our assistance in gathering information for various assumptions that Council was considering adding to the recovery plan. In response to this request, we provided detailed reports in the assumption areas outlined by Council. Further, on several occasions, we encouraged the preparation of planning documents, such as a formal financial recovery plan and cash flow analysis. Most recently, on April 4, 2006, LGS staff attended a Council meeting to ensure that everyone was aware of the potential for cash flow problems during 2006. We once again reinforced the need for a cash flow analysis and the importance of completing the recovery plan.
Second, we conducted a comprehensive performance audit that was specifically designed to assist the City in several operations areas where savings and revenue enhancements could be realized. In fact, the audit which as issued on February 23, 2006, identified over $5.7 million in annual savings and/or revenue enhancements. Granted that many of the recommendations included in the performance audit would require negotiation with collective bargaining units, these recommendations, if implemented, would certainly help the City improve its financial position. Further, many of the analyses and recommendations from the performance audit could be used as part of the City’s formal financial recovery plan.

Overall, the OAS has absorbed hundreds of hours in personnel time to provide the necessary assistance for the city to begin its financial recovery. Despite all of the efforts and costs, however, we have not seen a final draft of any financial recovery plan, cash flow analysis, or any financial planning document. The City continues to suffer financially, and a formal financial plan must be implemented. We understand officials have made some efforts in certain areas, but we remain steadfast that there must be formal planning.

Therefore, given the City’s reluctance to conduct formal planning and the guidelines of Chapter 118 of the Ohio Revised Code, we will offer these last services. If the City prepares a financial forecast for FY 2006, we will examine that forecast as to its reasonableness. We will also assist the City in the preparation of its OCBOA reports for fiscal years 2004 and 2005. Once the forecast examination and OCBOA reports have been completed, we will cease to provide services to the city until a recovery plan has been adopted by Council. The plan should outline actions that the City plans on taking to eliminate deficits and when those actions will take plane. The plan should quantify cost savings or revenue enhancements for each action for the remainder of fiscal year 2006 and should identify the extent of the recovery expected by year end. It should be very clear that the responsibility for this plan and the ultimate financial health of the City rests with the City and its elected officials and not the Auditor’s Office.

We understand that the City will have to make difficult decisions to achieve fiscal recovery, including potential staffing reductions; nevertheless, we feel strongly that the city should already have in place a draft recovery plan or other financial planning documents.
If you have any questions, please don’t hesitate to contact me at (800) 282-0370) or directly at (614) 728-7108.

Sincerely,

Betty Montgomery
Auditor of State

Robert R. Hinkle
Chief Auditor of State

RRH/jc