Report: Terre Haute must tighten financial practices

May 6—Terre Haute has some work to do on its financial practices and bookkeeping, and the city's mayor says that work has begun.

At Thursday's City Council meeting, Mayor Brandon Sakbun asked Tim Berry, managing director of Crowe LLP, to present the results of a contracted study of the city's past financial practices.

Berry pointed out where the city had strayed in handling its finances and offered suggestions on how to proceed more efficiently in the future.

For example, the city's handling of its Group Health Fund came in for criticism.

The General Fund, Berry's report said, "historically under-appropriated health expenses resulting in a negative balance in the Group Health Fund. ... The fund has never been properly budgeted or managed on an annual basis by the city."

Crowe's report also called into question the city's management of its two publicly owned golf courses, Rea Park and Hulman Links.

Some of the city's financial issues go back as far as two decades, while some cropped up as recently as five years ago, Sakbun noted.

The intent of the Crowe study is to help the city receive a clean audit from the Indiana State Board of Accounts, which it hasn't managed to do in years, largely due to negative fund balances being non-compliant with state board standards.

Sakbun said the study was in no way politically motivated but a logical, pragmatic move.

"Whether it's the private sector in a merger and acquisition of two companies, or the public sector changing of two administrations at an executive level, you should always conduct an internal review of policies," he said.

"Before you say, 'Hey, here's where we want to be four years from now,' you have to understand where we are today but equally important, you've got to understand how we got there," said the mayor.

Sakbun said he'd looked into the city's financial history himself, but found Crowe's study illuminating and helpful.

"They really helped in the policies and procedures we can implement to avoid these situations," the mayor said. "We had already made a large amount of changes with internal policies, with reporting. ... Having multiple negative line items on an account, that creates concern with your audit from the State Board of Accounts, and that's the important conversation.

"Yes, we report to the taxpayers, but we also report to state government and we need to show what we're doing to correct these deficiencies," Sakbun added.

Berry on Monday said of Sakbun, "By casting a light on these issues, he has created transparency, which often brings attention and corrective action," such as, for example, regarding "continued negative balances with no internal controls."

Sakbun, in an interview, addressed some of the most impactful parts of the report.

"I was really concerned with how we were budgeting for group health and then previous changes in appropriations or spending and how it was input," he said.

"It's not illegal or negligent — it's that just from a budget perspective, we have to document everything not just for the taxpayers, but to be a professional organization."

Sakbun noted that negative numbers affect a city's bond rating, "just like an individual's credit score. We need our credit be as strong as possible so we get the best rate when we do a bond."

One suggestion from Berry that Sakbun said he has begun to implement involves establishing Payment In Lieu Of Taxes (PILOT) agreements with large property tax-exempt organizations to cover the cost of public safety services provided to them.

For example, in Bloomington, Indiana University helps the city's fire and police departments, and other universities pay for pedestrian safety and traffic lights in and around their areas.

"We are considering large [PILOT] agreements with property tax-exempt corporations," Sakbun said. "Meetings have been scheduled to see what we can do to find a payment in lieu of taxes."

Some of the measures the city has begun to implement are wide-ranging, such as reviewing all fees charged by the city and developing appropriate internal policies and controls, while others are more modest but equally necessary, such as reviewing the city's current financial software, which Sakbun called "pretty archaic."

Many of the current woes have been attributed to the Indiana Legislature in 2008, just after previous Mayor Duke Bennett took office. It adopted property tax caps, cutting the city's revenue by $35 million, or about one-fourth of the city's pre-cap income.

"The previous administration was dealt a tough set of cards their first couple of years and some decisions could have been done differently," the mayor said. "But after studying and analyzing decisions made by the administration, I will not spend time pointing fingers or casting blame. The city's focus is on moving forward and I'd ask the community to be on board with that, as well."

Sakbun also touted the need to grow the community, and the success it has had so far — it received $16.9 million for building permits for April 2024 investment in Terre Haute, in contrast with April 2023's $5.3 million.

"Growth prevents problems like this in the future, and we're going to continue to fight to grow," he said. "Our community and school corporation has seen declining population. It is a tall challenge to tackle."

Another challenge suggested by Crowe Consulting was placing the public golf courses at Rea Park and Hulman Links under private management.

"Hulman Links has not had a positive outcome since at least 2010," Berry said in an interview. "They dug a hole that they did not address 15 to 20 years ago, when the problem was manageable. Bringing outside management would eliminate risk, but maintain the intention of bringing golf to the city."

Sakbun said bringing in new management has been discussed in the past, and that he intends to retain the courses' current employees.

"This [Hulman Links] is a very expensive course to maintain, and that's why the private sector [generally] handles that, not the public," he said.

Sakbun acknowledges that much work lies ahead in the future, but expects the results to be fruitful.

"Over the next 18 months, we'll do what we can to get the books back on track," he said. "From a community development standpoint, I'm not at all worried because of the American Rescue Funds Act passed by the Biden Administration. Honestly, state dollars and federal dollars have been coming in where they hadn't in the four years prior."

David Kronke can be reached at 812-231-4232 or at david.kronke@tribstar.com.