State Auditor report shows three Pierce County governments ‘declining’ financially

Three Pierce County local governments are on a list of 57 municipalities across the state that have shown signs of declining financial health over the last two years, according to the State Auditor’s Office in a new report.

The cities of Lakewood and Sumner and the Town of Eatonville made the list, based on audit reports from October 2012 to May 2014.

The report is the second of its kind from the auditor’s office and takes a snapshot of how local governments, including cities, counties, regional hospitals and fire districts, are faring financially as the economy climbs out of the Great Recession.

The first report was issued in November 2012. The number of agencies categorized in “declining financial condition” has decreased since then, but there is still cause for concern, said Sheri Sawyer, assistant director of the office’s Local Government Performance Center.

Those included on the auditor’s list are not necessarily failing financially, Sawyer said. But they did show problems when measured against 10 indicators of financial stability. The most common problem was declining or negative fund balances, expenditures that exceeded revenues, and inter-fund transfers to balance the budget.

Eatonville had one indicator from its 2012 audit of declining or negative fund balances.

Sumner also had one from 2011 showing a reliance on interfund loans to balance the budget.

Lakewood had declining or negative fund balances during audits in 2011 and 2012. It used money from other funds to balance the general fund in 2011, and its general fund expenditures exceeded revenues a year later.

“Last year we did learn that we have been drawing down our reserve fund balances to maintain our operating expenses,” said Lakewood City Manager John Caulfield, who started the job nearly a year ago in Pierce County’s second-largest city. “By the end of (this) year, operating expenditures will align with our operating revenues.”

Lakewood’s reserves were 3 to 5 percent of its operating budget last year. Reserves will be closer to 10 percent by the end of this year, and in 2016 it will be 12 percent, Caulfield said.

The city is crafting a six-year financial forecast to ensure expected revenues line up with expenditures, he said.

“We’re headed in the right direction. We have an understanding of the challenges we face both internally and externally, and we're addressing them,” Caulfield said.

In Sumner, the city-owned golf course accounted for 35 percent of the city’s 2011 interfund loans, according to city spokeswoman Carmen Palmer. The City Council voted to sell the course to an Iowa-based company last year.

“It was a significant drain on the city’s financial health,” Palmer said in an email Monday. The sale, which has yet to be finalized, will generate $53 million. The city plans to use the money to pay off its remaining $5.8 million golf course debt.

In Eatonville, declining property values have made it hard to balance the budget. An expansion of the town's fire department several years ago also put additional strain on town finances.

Eatonville’s financial situation has improved and property taxes have increased after a 42 percent drop in home values over the last several years, according to Mayor Mike Shaub. Town spending has been significantly reduced to correspond with the decline in revenues.

“We’re going in the right direction. We’re putting the policies in place,” Shaub said.

The auditor’s report isn’t meant to fault or shame cities that are struggling financially, Sawyer said.

“Our hope is by getting the information out there in a more collective way, other policymakers, maybe at the state level, would recognize ‘Hey, local jurisdictions are still struggling,’ ” she said.