Act 47 coordinator critiques city budget

February 6, 2019

Johnstown’s Act 47 coordinator notes a budget shortfall, disorganization and lack of “proper controls and procedures” at City Hall in recent correspondence to the commonwealth.

In a letter dated Jan. 21, Deborah Grass of Pittsburgh-based Grassroots Solutions outlines six specific reasons the budget was “not entirely consistent” with either the Act 47 plan or the city’s Home Rule Charter.

The letter was sent to city council members, City Manager George Hayfield, Finance Director Robert Ritter and representatives with the Pennsylvania Department of Community & Economic Development, which is tasked with the oversight of financially distressed cities.

“The City did not address the projected shortfall in the amount of $455,345 between estimated 2019 revenue and projected 2019 expenditures by increasing the tax rates for either real estate, earned income tax, or deed transfer tax as required by the Exit Plan,” Grass writes for item No. 2.

“Instead of raising tax revenue to support operating expenses as required by the Exit Plan, the City is using $455,345 from the 2018 unrestricted fund balance to balance the budget. The Exit Plan states that ‘beginning in 2019 and beyond, it is mandatory that the City begin to develop budgets with limited use of unrestricted reserve funds and, if necessary, increase tax levies or reduce expenses to address projected structural deficits,’” she adds on item No. 6.

Other critiques from Grass included:

Not adopting the budget on time as required by the Home Rule Charter. This was a point of contention in December, as Hayfield took a vacation during the budget process without notifying council as a whole. “(The delay) was largely due to a budget process that is disorganized and without the proper controls and procedures in place,” Grass wrote.Rejecting a proposed increase to the deed transfer tax. Grass had recommended raising this from 1 percent to 2.5 percent. The suggestion was defeated by a 4-3 count, with council members Richard Britt, Sylvia King, Charlene Stanton and Jack Williams opting against a tax increase, and Marie Mock, David Vitovich and Mayor Frank Janakovic voting in favor of a tax increase.Incorrectly labeling earned compensation as “severance pay” for police, fire and public works employees. “The use of the term “severance pay” and the incorrect use of the chart of account codes for this purpose is misleading and incorrect,” Grass wrote. “The City should rely on the DCED chart of accounts to be in compliance with generally accepted governmental accounting standards.”Budgeting just $115,000 for fire department overtime in 2019, despite the fact that this cost the city more than $300,000 last year. “The City must monitor this account closely during fiscal year 2019 to ensure that overtime costs are contained in order to avoid significant overages in the fire department,” she wrote.

Michael Gerber, press secretary for the Pennsylvania Department of Community & Economic Development, told Our Town, the Daily American’s sister publication, that the annual budget report is standard procedure required of Act 47 coordinators.

“The purpose of these letters is to identify areas of improvement, if any, for municipalities in Act 47. Rather than be cause for concern, this letter shows the areas in which the recovery coordinator and DCED will need to focus in order to secure Johnstown’s financial future,” Gerber said.

“The city, the Act 47 coordinator, and DCED share the same goal of putting Johnstown on a path to prosperity, and are working in coordination to do so.”

Gerber added that, generally speaking, municipalities such as Johnstown can enter a process of fiscal emergency and receivership if they don’t implement their Act 47 plan within a mandated timeframe.

“Note that the time frames for exit that Johnstown is facing stem from Act 199 of 2014, which modified the Act 47 statute to encourage municipalities to exit Act 47 status more expediently,” he said.

Messages to Mayor Frank Janakovic and council members Richard Britt, Sylvia King, Marie Mock and David Vitovich — who approved the budget — were not returned.

Williams and Stanton said the letter from Grass echoed some of their concerns in voting against the budget. They noted that the $455,345 being used to cover the budget shortfall is leftover funding from a refinancing move made in 2016 that saw council take out a new $6 million loan to pay off $3 million in debt.

“(Other council members) only further demonstrate their ignorance (by) simply . . . applying the ‘rubber stamp approval’ to whatever is placed before them,” Williams said in a written response to Grass and the DCED.

Added Stanton: “While Council majority proudly passed the budget, I think they are now eating crow.”

Grass did not respond to an email seeking comment.

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