Oe OFFICE OF THE MAYOR Date: March 29, 2010 To: ‘The Honorable President Wilma D. Brown and Members of City Council From: Michael P. Bell, Mayor Subject: ‘Consequences of Council’s Failure to Adopt a Balanced 2010 Budget Please find attached a memorandum from Law Director Adam Loukx outlining the consequences if City Council fails to adopt a balanced 2010 Budget by the Charter mandated deadline of March 31‘. Simply put, without adoption of a balanced budget the City's ability to spend money will be limited to that amount temporarily appropriated by Council for the months of January through March. 1f Council fails to adopt a balanced budget by March 31%, the City will not have the ability to pay its employees beyond April 1". Your continued inaction will shut down the operations of the City of Toledo, including Fire and Police, ‘The time for political grandstanding, introduction of measures that do not balance the budget, and posturing for future political office is over. Instead, it is time for the members of Council to become real leaders and work with me and my Administration to balance the 2010 Budget by midnight on March 31% . aa Mighdel P. Bell, Maydr Attachment@® URGENT DEPARTMENT OF LAW March 29, 2010 TO: ‘Council President Wilma Brown and Members of City Council THOUGH: Michael P. Bell, Mayor WO 3/26 [10 Stephen J, Herwat, Deputy Mayor- Operations Cte Ins FROM: Adam W. Loukx, Acting Director (x1031) /_— SUBJECT: Failure to Timely Adopt an Annual Appropriations Ordinance Several times in the past week I have been asked as to the consequences of a failure to pass a final appropriation ordinance (.e. balanced budget ordinance) as mandated by the City’s Charter and the Ohio Revised Code. Section 46 of the Charter provides, in part, that “The annual appropriation ordinance and any amendment or supplement thereto shall be in the form prescribed by the Revised Code of Ohio, and the amounts appropriated shall be subject to the limitations therein set forth”. The Revised Code limits the ability of the City to make temporary appropriations beyond April 1 each year.! ‘The City is required to have a balanced final appropriation ordinance in place by March 31.7 While a final appropriation ordinance can be amended or supplemented after its passage’, it is clear that the City must have an appropriation in place by the time required by law. Failure to comply with the law would naturally lead to grave consequences for the City. The negative impact upon the City’s eredit could, for instance, be profound. The City could, and likely would be, sued for its failure to comply with the mandatory duties required by law. However, the most immediate impact of the failure to pass and implement a balanced annual appropriation would be that the City would have no authority to make expenditures in excess of current appropriations. 'R.C.5705.38 (A) *** On or about the first day of each year, the taxing authority of each subdivision or other taxing unit shall pass an appropriation measure, and thereafler during the year it may pass any supplemental appropriation measures asi finds necessary, based on the revised tax budget or the official certificate of estimated resources or amendments of the certificate. If it desires to postpone the passage of the annual appropriation measure until an amended certiticate is received based on the actual balances, it may pass a temporary appropriation measure for meeting the ordinary ‘expenses of the taxing anit until no later than the first day of April of the current year, and the appropriations made in the temporary measure shall be chargeable to the appropri ‘the annual appropriation measure for that fiscal year when passed."[Emphasis added} In order to be balanced “[tJhe total appropristions from each find shall not exceed the tolal of the estimated revenue available for expenditure therefrom, as eerified by the budget commission, or in case of appeal, by the board of tax appeals", R.C. $705.39, SRC, $705.40.To date, this Council has appropriated limited finds for expenditure through a series of temporary appropriations ordinances for January, February and March. (see Ordinances 656-09, -10 and 73-10 respectively). When the amounts currently appropriated through temporary measures are expended the City will not, in the absence of a final appropriation, be able to meet ordinary expenses. Accordingly, the City would be unable to legally meet obligations beyond carly April.’ Included in the inability to satisfy the City’s obligations is meeting payroll for employees beyond the amounts included in the temporary appropriation ordinances. Among the conditions that can result in a local goverment being declared to be in a state of “fiscal emergency” is the failure to make payroll to employees for more than thirty days after such time for payment.’ Absent a balanced budget by the mandated deadline of March 31", the City will reach this 30-day threshold in May of this year. Under the Revised Code, the state Auditor has the authority to declare that a local government is ina state of fiscal emergency. In the ease of the City of Toledo, the fiseal emergency declaration can be made by the Auditor after « written request by the Mayor without the concurrence of Council, a request from the President of Council when authorized by a majority of the members of Council, or by the Auditor without the City’s consent.° If the state Auditor declares that Toledo is in a state of fiscal emergency, a seven-member “Financial Planning and Supervision Commission” is appointed consisting of the state Treasurer and Director of Budget and Management or their designees, three persons appointed by the Governor, the Mayor and the President of City Council.’ Within 120 days of the initial meeting of the Financial Planning and Supervision Commission the Mayor, with the concurrence of Council, must submit a “financial plan” outlining actions to be taken to: climinate all fiscal emergency conditions, eliminate the deficit in all funds, balance the budget, avoid future deficits in any fund, maintain current payroll and other expenditures, and avoid any fiscal emergency conditions in the future.* The required financial plan cannot include measures based on additional revenues subject to a vote of the electorate.” Please let me know if you have any questions or concems. * In absence of a valid appropriation measure, the Finance Director and other members of the administration would be advised not to authorize expenditure of funds. Current figures suggest that the City would exhaust current appropriations on April 1 SRC. 118.03(A\2)(a. SRC. 118,044), 7 RC 118.058) SRC. 118.06(4)(1). PRC. 18.13E).