State Auditor Crit Luallen said she is looking into a growing financial mess in the City of Richmond, where the longtime city manager resigned recently after a commissioner announced the city was $2 million in the red.
Luallen is speaking with private auditors who are reviewing Richmond's finances while the city revises this year's budget. Painful cuts are projected across most agencies. There is no evidence at this time of theft or fraud, but the city's problems are serious, Luallen said Thursday.
"They've got a fundamental problem in that they've been spending more than they've been taking in," Luallen said. "That raises important questions about their financial management and how they got into the shape they're in."
The Richmond Register has called for the resignation of Mayor Connie Lawson, who also was president of the Kentucky League of Cities during a spending scandal this year that led to the resignation of the League's executive director and the adoption of reforms.
A woman who answered Lawson's phone at city hall Thursday said the mayor would not comment and then hung up.
Since Lawson took office as mayor in 2003, "spending has increased 74 percent while revenue has increased 47 percent, and that's a recipe for disaster," Register publisher Nick Lewis wrote in a Sept. 12 opinion piece.
At the Aug. 25 city commission meeting, Rita Smart — on the commission only since January — announced that she had examined the city's finances and determined that Richmond's roughly $24 million budget was in the red by nearly $2 million.
This and other deficits in recent years were covered by city officials draining most of the city's $6 million in investments, Smart said.
"We need to stop and reevaluate this budget and stop this train from running away," Smart warned at the meeting.
After the deficits were exposed, longtime City Manager David Evans resigned, taking with him his wife, who was his city hall secretary.
Rumors about the city's financial problems circulated in Richmond for months, but the city manager and other staff would not confirm them, said Smart, a bed-and-breakfast owner.
"At a couple of meetings, my fellow commissioners asked about our finances and whether we were operating in the black or in the red," Smart said. "We could not get a direct answer. So I decided to do some basic study."
Smart said she discovered that Richmond's population growth had prompted the city to spend money — for new fire stations, upgraded police protection, an aquatic fun park and other items — that it failed to collect through adequate taxes and fees.
For example, two years ago the city spent $5.4 million to build Paradise Cove aquatic center. But the fun park routinely offers free and discounted admission, and it's running a deficit, which requires the city to pay off its bond debt.
"I realized that the way we were going, we were about to run out of money," Smart said.
"It wasn't like the money was just thrown away," she added. "It was used on the kinds of things that you would expect. But nobody was looking at our spending habits and recognizing that our expenses were exceeding our revenue."
Luallen, the state auditor, said "it's entirely inappropriate" for a government to fail to disclose financial trouble, particularly to the part-time city commissioners who are supposed to help craft the city budget. Smart shouldn't have had to pry loose the information, Luallen said.
The acting city manager, Jimmy Howard, is preparing a revised city budget for this year that should be presented to the city commission later this month. Commissioners instructed him last month to cut $3 million. Howard declined to comment Thursday.
Richmond residents should prepare for higher taxes and fees and reduced services, Smart said. The city has canceled a planned Halloween party downtown and is scaling back spending on its Christmas festivities, she said.
Smart said the city manager and the mayor should have enforced fiscal discipline years ago, the first time the budget did not balance.
"As a lay person, I recognize that municipal finances are a complicated process," she said. "It's not quite as simple as your household balance sheet. But this was not hard to figure out."