Baker Tilly gives Portage City a clean 2024 audit; flags fund balance, utility pressures

Auditors from Baker Tilly told Portage City officials that the city's 2024 financial statements earned an unmodified opinion and that the audit produced two required deliverables: the financial statements and a reporting-and-insights document.

Leah Gaffney, manager with Baker Tilly, said the auditors '2issued an unmodified opinion,'2 noting the opinion is similar to last year and indicates the financial statements include the disclosures and information required under applicable standards.

The auditors also told the council that a change in accounting standards required a recalculation of compensated absences (accrued sick and vacation). Gaffney said the change increased the citywide liability related to compensated absences by about $200,000; she said that increase does not materially affect the general fund's spendable balances but appears on the government-wide statements.

Why it matters: The presentation summarized the city's operating results, fund balances, debt capacity and utility finances, highlighting areas that could affect future budgets and borrowing.

Audit findings and internal controls

Baker Tilly reported no new internal-control deficiencies. The audit document includes a routine recommendation regarding the financial-statement close process; Gaffney said that comment commonly appears in most clients' reports because auditors assist with financial-statement preparation. The firm's other recommendations include items previously reported; where the city has acted, the auditor marked those items as addressed.

General fund and budget variances

Gaffney reported that the city's total general-fund balance declined by about $71,000 from 2023 to 2024. Nonspendable portions of the fund balance rose, driven by advances to tax-increment financing (TIF) funds and a prepaid health savings-account premium. The city had an assigned fund balance of $447,000 in 2023 tied to the 2024 budget; there was no assigned balance at year-end 2024.

When compared with the final budget, actual revenues exceeded the final budget by roughly $402,000, aided by higher-than-expected grant revenue, fire-service revenue and miscellaneous billings and rent. Expenditures exceeded the final budget by about $25,000; Gaffney said that overrun stemmed mainly from a recurring Aspirus settlement payment of $150,000.

Gaffney noted the city adopted a fund-balance policy in 2024 that calls for a minimum unassigned fund balance equal to 20% to 25% of current-year expenditures. The city's unassigned balance rose slightly from 2023 but remained slightly below the newly adopted policy range.

Debt capacity and policy

The auditors said the city was using about 72% of its statutory debt-limit capacity (the figure the presentation described as 5% of equalized property value). Gaffney warned that that level of usage is toward the higher end among her municipal clients and could constrain future borrowing and affect rates. The city's debt-service policy, she said, keeps debt service below one-quarter of current assessed value; recent years have remained within that limit.

Utilities: water and sewer finances

Baker Tilly reviewed utility operating results and reserves. For the water utility, operating expenditures exceeded operating revenues in 2023 and 2024, producing a negative operating return (Gaffney said the reported rate of return was roughly negative 4 to 5 percent for those years). The state Public Service Commission had approved a 6.5% rate of return, but higher maintenance and repairs, including well maintenance and tower painting and maintenance (which the presentation listed at about $3,370,000), drove the negative operating results. Gaffney said the water utility's unrestricted cash reserves were just under seven months of operating expenses, which she called a healthy balance. The utility's debt-coverage ratio was 1.37 at year-end, above the 1.25 requirement.

The sewer utility also experienced operating deficits in recent years. Gaffney noted a rate increase effective July 1, 2024, and said results for the second half of 2024 and 2025 should show whether operating revenues improve. The sewer utility's unrestricted reserves were about 13.5 months of expenses at year-end; capital investment funding for sewer was roughly 85% internal equity and 15% debt, according to the audit presentation.

Discussion of ambulance activity and potential new fund

During questions, a councilmember raised the city's ambulance activity and asked whether the city should create a separate vehicle-replacement or enterprise-style fund for ambulance operations, because the service is becoming more businesslike as it provides services beyond the city. The councilmember said, "I just hate going out when we need stuff and borrowing it," and asked whether setting money aside in a dedicated fund would raise any audit concerns.

Gaffney responded that separating ambulance activity into its own fund for tracking and budgeting makes sense and that the city should coordinate with the finance committee and, if borrowing is contemplated, consult the bond advisor to address arbitrage and other borrowing rules.

No formal action taken

The presentation was informational; the auditors fielded questions but no formal motions or votes were recorded during the audit presentation portion of the meeting. Councilmembers and staff discussed next steps, including finance-committee consideration of a dedicated ambulance fund and follow-up on the auditor's recommendations.

What's next

City staff and the finance committee will review the audit report and the auditor's recommendations. Baker Tilly said it will assist the city in evaluating the impact of upcoming accounting standards and will return to advise on changes as needed.