The city of Richmond had a deficit of more than $3 million for the fiscal year ending June 30, 2009, according to an audit released Wednesday.
The audit, released by the Kentucky Auditor's Office through an open records request, officially confirms Mayor Connie Lawson's prediction in her January "state of the city" address that there would be about a $3 million loss.
A financial overview shows that the city had a loss in operating income of $3,212,722, according to the audit performed by independent auditors Mountjoy Chilton Medley in Lexington.
"With the uncertain economic climate in the city, state and nation, it is of utmost importance that the city control expenses," the audit says.
On Wednesday, Lawson cited the following examples to show the city has taken measures to reduce the deficit:
■ The city now has 275 full-time employees — about 30 fewer than it did in October.
■ The city also has reduced expenses by about $110,000 a month.
■ A city merger with county/Berea dispatching services will save about $700,000.
"If we stay on this track, we will be OK," Lawson said.
Lawson said she hasn't looked at the audit "to any great extent" because she has been busy with other city officials drafting a new budget for 2010-11. That budget, which will be discussed at a special called meeting on Tuesday, will be balanced, Lawson said.
State Auditor Crit Luallen spoke with Lawson by phone Tuesday about the audit. Lawson said she assured Luallen the city is taking measures to improve its financial condition. They plan to meet at Richmond City Hall to discuss the audit, but Lawson said a date had not been scheduled.
In the meantime, the audit will be discussed at a finance committee meeting May 21.
With nearly 33,000 residents, Richmond is Kentucky's sixth largest city, according to figures from 2008. Its relatively rapid growth was a contributing factor in its current budget problems, the audit says.
"The city has been in a period of addressing the future needs of the city to meet the demands of growth," the audit says. "This necessitated the purchase of vehicles, purchase of property and the construction of buildings to meet those needs."
The audit also noted "rising retirement contribution costs and health care costs will continue to be of great concern to the budget." In the early part of 2007, Richmond City Commission voted to add more police and firefighters and increased their salaries in order to be more competitive with other cities of similar size in Kentucky.
The audit notes the city revenues increased by 3.3 percent from 2008 to 2009, but expenditures increased by 8.6 percent during the same period.
Revenue for the fiscal year ending June 30 "is projected to be flat at best unless taxes are increased or other revenue is identified," the audit says. "Expenditures may increase for the fiscal year ending June 30, 2010 due to certain expenses beyond management's control."
The audit noted "the city does not have appropriate procedures in place to ensure that the annual budget is accurately prepared."
Several revenue accounts had shortfalls, but "the budget was not amended during the year to account for these shortfalls," the audit says. As a result, a large deficit was created.
In its response to the audit, the city says "the previous city manager prepared the budgets." City Manager David Evans retired last year after the deficits were exposed by a city commissioner. Evans could not be reached for comment.
The audit says the interim city manager requires the finance director "to be more directly involved with the budgeting process for the fiscal year 2010-11. The department heads will have more input and be held accountable for their department's budgeted line items."
Also in the financial statement findings is a note that the city purchased a vehicle in 2009 for $37,632 for which bids were not obtained. That violated a state law requiring the city to advertise for bids for expenditures of more than $20,000.
In its response, the city said the vehicle, a Chevrolet Tahoe for the fire chief, was purchased by the previous city manager. "The interim city manager intends to follow all bidding requirements," the city said in its response. "We will also review our purchasing ordinance for any procedure updates that are deemed necessary."
Lawson, who is running for re-election, has two opponents — Jim Barnes, a former city commissioner, and Ritchie Mesalam — in Tuesday's primary election. Asked if voters question her about the deficit, Lawson said, "Not really."
Mesalam could not be reached for comment, but Barnes said the city's financial condition is the crux of his campaign.
"It's just out of control," Barnes said. "It's all just irresponsible spending. It's hard to run the cattle back in once they're out of the gate."