Audit shows Radford City ended FY2024 with negative unrestricted balance; electric and water funds under pressure

Radford City received an unmodified (clean) audit opinion for fiscal year 2024 but city staff and auditors warned the City Council that unrestricted reserves were negative and several enterprise funds have trended downward, leaving the city on a multi‑year path to rebuild reserves.

Corbin Stone, an auditor with Robinson Farmer Cox, told the council the firm issued “what we call an unqualified or unmodified opinion which means we believe the financial statements are correct.” Stone and staff walked council members through fund‑balance shifts, accounting adjustments and a set of management recommendations.

Why it matters: The auditors said unrestricted (available) fund balances were negative by roughly $4.5 million at June 30, 2024, largely because the city used federal American Rescue Plan Act (ARPA) funds in earlier years and then recorded a short‑term revenue anticipation note (RAN) of about $4.5 million that appears on the balance sheet as a liability. At the same time, the city faces roughly $56 million in long‑term obligations, including school debt and retirement/post‑employment liabilities. Stone said the city’s long‑term obligations are “about $56,000,000,” and annual debt service on school debt is roughly “$1.5 to $2,200,000 a year.”

The audit presentation highlighted several specific pressures:

- Electric fund: Net position fell and the fund ran a deficit in FY2024. Stone said wholesale electricity costs rose about 11% in 2023 and about 15% in 2024, contributing to a negative electric net position (the auditors cited roughly a $433,000 negative balance). Council members and staff noted that the city historically transferred about $3–4 million a year from the electric fund to the general fund; those transfers are no longer sustainable at current cost levels.

- Water and sewer: Operating expenses outpaced operating revenues by approximately $800,000, reversing a long‑running trend where those enterprise operations had been net positive.

- General fund and reserves: General fund unrestricted cash balances went negative in FY2024. Auditors told the council the city’s fund balance is below recommended minimums (auditors said a minimum target is about 10% of total budget) and that ARPA and the RAN temporarily masked structural gaps in recurring revenues versus expenses.

- Assessed values and revenue growth: Auditors showed long‑term assessed‑value growth of roughly 1.9% per year, which they said is well short of recent inflation. That gap, the auditors warned, will put pressure on the tax rate unless revenues or services change.

Management and technical recommendations

Stone and audit staff gave a series of recommendations for accounting, controls and budgeting: move to a single general ledger/system (auditors recommended consolidating legacy AS/400 records into a modern general ledger such as Munis or an interfaced tax/assessment module); reconcile and better document capital assets and parcel ownership records; clear out uncollectible receivables where appropriate; correct data errors sent to the actuary to refine post‑employment benefit liabilities; and ensure all required disclosure forms (economic interest and real estate disclosures) are completed and reviewed.

City staff agreed the situation will require multi‑year action. Craig Meadows, a city staff presenter on finance and budgeting, and Calista Linkus, who the auditors recognized for assistance compiling the audit, told council members cuts and revenue changes could not reasonably close the gap in a single budget year and that a mixed approach—some revenue increases, some service adjustments—will be necessary.

Council action and next steps

The council allowed Councilmember Guy Wolford to participate electronically after Wolford said he was “at my home here in Radford and feeling kinda poorly and didn’t wanna bring whatever I’ve got to you guys.” The participation request was made, seconded and approved by voice vote.

Councilmembers directed staff to prepare more detailed what‑if modeling for a forthcoming work session. Staff said they will supply figures such as revenue generated by one penny on the real‑estate tax rate and the revenue equivalents of changes to utility or solid‑waste fees so councilors can weigh options in the next budget cycle. The council scheduled a budget work session for Wednesday that will include a closed session on personnel and further budget discussion.

Quotes from the meeting

“We believe the financial statements are correct,” Corbin Stone said, summarizing the audit opinion. “You did receive what we call an unqualified or unmodified opinion.”

“I appreciate all the Calista’s hard work and getting this report to you,” Craig Meadows said when introducing the audit presentation.

“I’m at my home here in Radford and feeling kinda poorly and didn’t wanna bring whatever I’ve got to you guys,” Councilmember Guy Wolford said when requesting permission to participate remotely.

Key clarifications and context

- ARPA and RAN: The auditors reported the city received roughly $8.6 million in ARPA funds in 2022 and used portions of those funds in FY2022–FY2023. The revenue anticipation note recorded in FY2024 was cited as about $4.5 million and is the main near‑term liability that reduced unrestricted equity on the June 30, 2024 books.

- Utility transfers: Historically the city transferred roughly $3–4 million per year from the electric fund to the general fund; those transfers have materially reduced electric net position over time and are not sustainable under the current cost structure.

- Pension and post‑employment liabilities: Auditors noted potential variability in actuarial estimates and recommended verifying the data submitted to the actuary; they cited the Virginia Retirement System (VRS) discount/assumption used in projections and warned that cost‑of‑living adjustments will tend to raise future liabilities.

What the audit does not do

The audit provides the financial statements and recommended adjusting entries; it does not itself change policy, set tax rates, or force immediate service cuts. Council and staff must decide how to address the structural gap through a mix of revenue increases, service adjustments and multi‑year planning.

Meeting context and engagement

The presentation was a work session item and drew detailed questioning from council members about the size of the RAN, the timing for paying it down, and options for balancing the FY2025–FY2026 budgets. Auditors said the city should expect a multi‑year effort to restore reserves and refine budgeting processes; staff proposed a goal of reducing the RAN by roughly $1–2 million per year as a reasonable multi‑year start.

Ending

Councilmembers scheduled additional budget work sessions and asked staff to return with precise revenue estimates (pennies on the tax rate, dollars per utility rate point, etc.) ahead of the FY2026 budget process. Auditors made their detailed historical reports and contact information available for follow‑up questions.