City receives draft report of clean audit

At a Springfield City Council luncheon Tuesday, the city got a first look at its annual report from auditing firm RSM US LLP.

A copy of the draft report is not yet available to media or the public, but details will be included in future reporting in Springfield Business Journal.

Kristen Hughes, audit senior manager at RSM, noted the report included a certificate of achievement of excellence in financial reporting.

“The city has consistently done this for almost 50 years now, and again, that’s viewed very favorably,” she said.

The audit reported an unmodified opinion, meaning its financial statements followed generally accepted accounting principles.

Councilmember Monica Horton asked Hughes whether a 10-year review of the city’s finances demonstrate a picture of financial solvency. Hughes countered that the purpose of the audit was not to assess solvency, though there are metrics for looking at that, like equity, cash on hand, pension plan performance and bond rating.

“There’s certain areas and ways within the financials that you can point to that say these are a good indication,” she said. “You check so many of those boxes, if that helps.”

Horton then asked David Holtmann, the city’s director of Finance, for his assessment of the city’s solvency.

“Our city is in strong financial health,” Holtmann said, adding it would not have an AA-1 bond rating from financial services company Moody’s if that were not the case.

Holtmann said the city has a standing policy of setting back 20% of its operating revenue for unforeseen events, like a pandemic or a recession, and all individual funds also carry reserves.

“From a municipal perspective, I have nothing but positive things to say about this city,” he said.

Horton asked why Springfield does not merit an AAA-1 bond rating from Moody’s.

Holtmann replied that there are two reasons.

“The first reason is our demographics on our annual wages for our households here in Springfield – mainly because of the colleges that are included in our population; that drags our overall wages down,” he said.

Lower wages in general are also part of that reason, he said.

The second thing, Holtmann said, was that the city could merit a higher credit rating if it had higher reserves.

Councilmember Craig Hosmer asked if the rating were influenced by the city’s heavy reliance on sales tax as well.

“They do look at that,” Holtmann said.

The audit included one material weakness in the city’s failure to recognize a $1 million loss from a lease termination at the Springfield-Branson National Airport – something that was missed but then corrected. Hughes called that an isolated issue that did not signal pervasive control issues.

The city is operating with a budget of $529 million this year, according to its website.

Hughes showed some slides that compared Springfield to similar-sized cities. One showed the mix of general revenue sources across 15 cities, including Springfield, and it showed Springfield relies very heavily on sales tax, which makes up almost 70% of its general revenue – more than the other cities included. Most cities have a heavy reliance on property taxes, while for Springfield, those make up only a little more than 10% of its revenue.

Another slide showed that the city’s general fund has enough unrestricted cash on hand to operate for 88 days. Hughes did not offer an assessment of whether that figure was sufficient. Other funds in the city have more cash on hand. By comparison, the airport can function for 948 days with cash on hand – more than two and a half years. The city’s sewer fund has a rainy-day cushion of 723 days and the refuse disposal fund is good for 505 days.