State audits from both 2014 and 2015 are leading to questions about whether Terre Haute can continue operating as a municipality.
The state’s examiner expressed “substantial doubt” about the city’s “ability to continue as a going concern” following the audit.
But Mayor Bennett says the city is already making changes, and the audits are misleading because they’re looking at the years before the city began working on improvements to the budget.
“That’s old news, it really is, and 2014 and 2015 are basically the same,” Bennett says. “The changes we made didn’t take full effect until 2016, so if they’d have done our 2016 audit, we’d be looking much, much better.”
The city council addressed the issue during a special budget meeting Tuesday night. Council members expressed concerns over Bennett’s delay in communicating a state directive to reduce spending by nearly $8 million dollars.
City Council President Karrum Nasser asked Bennett multiple times to explain when he learned of the order, and asked him why it took so long to alert the council.
“I’m getting frustrated myself, with this ‘I don’t know, they don’t know, that’s not my job,’” Nasser says.
Bennett says he received the order in February. While he knew about it at the time, he says he didn’t know specific details until May. He then waited until the city had a plan to eliminate the deficit before alerting the council to the order.
Bennett says the city has never been required to alert the city council about the state orders before.
“If we would have given them the plan, or given them the notice without the plan, I’m sure I would have been criticized for that,” Bennett says. “So we wanted to make sure we got the plan done.”
Under the state’s orders, the city is supposed to eliminate its deficit by the end of the year. Bennett says it’s unlikely that will happen, but he’s not worried about facing a penalty for failing to make cuts.
“And we wouldn’t even know if there would be a penalty for at least a couple of years, because we won’t have our audit for 2017 probably until 2019,” Bennett says.
Council member Earl Elliot says the city does have a plan to tackle some of its budget problems. He says the city will redirect funds from areas with surpluses in their budgets to areas currently experiencing a deficit.
“The objective of the strategy is to decrease those positive amounts to balance out deficit areas through fund transfers,” Elliot says. “The total funding will stay the same. What changes is where the funds are directed.”
Elliot also says the transfers would be a one-time event and would not delay current projects or hinder the areas currently operating at a surplus from accomplishing their goals. Areas experiencing a deficit include transportation, parks and recreation, law enforcement and the general fund.
This is the second year in a row that Terre Haute has operated with a balanced budget. The deficit has decreased from its peak of $9 million in 2015, and Bennett says if the city follows the budget plan, that balance will continue to fall.
A public safety tax currently under consideration could help address some of the budget issues and reduce the deficit, but it’s still under consideration.
Bennett has repeatedly cited the state’s cap on property taxes as the main reason for Terre Haute’s financial woes. He says the caps prevent the city from collecting some of the money it could be using to balance out areas lacking in necessary funding.
“As long as our assessed values don’t go up, our property tax cap credits keep getting bigger. So this year was a million dollars more just in the general fund than it was last year,” Bennett says. “That means we can’t collect a million dollars that we should be collecting because of our levy and our assessed values. And so as long as those assessed values stay down, those caps kick in sooner, which means we lose more money every year.”
That means Terre Haute has some tough decisions when it comes to spending. Indiana University School of Public and Environmental Affairs Professor Mark Levin says cities facing mounting budget concerns often have to cut services or increase taxes.
“Assuming the city doesn’t want to go out of business, and I can’t imagine Terre Haute wanting to go out of business, those are the only two things they can do,” Levin says. “Everybody thinks that there’s a third way of, you know, ‘we’re going to generate enough money through economic development,’ but that rarely happens.”
A public hearing on the city budget for the upcoming year will take place Sept. 14.