Petersburg's required yearly financial report is now six months late. What does it mean?

PETERSBURG — The city's annual financial audit for the fiscal year 2021 is now over six months late, making Petersburg one of the last localities in Virginia to submit its report to a state oversight committee.

An Annual Comprehensive Financial Report, or ACFR, can sometimes be overlooked by the public eye, but it serves as critical documentation in understanding a locality's financial picture. Where a government's yearly budget documents show predicted future spending and revenues, an ACFR shows the actual financial activity that happened during a fiscal year. Its tabulations are an important piece in monetary transparency for the public and credit agencies.

Virginia localities are required to submit their ACFR to the state Auditor of Public Accounts on a yearly basis. The deadline for the most recent ACFR in FY 2021 was due Dec. 15, 2021. The APA notified Petersburg in February that the city was late in submitting it's reports.

Petersburg's response from Director of Finance Stacey Jordan said that delays were caused by the impact of COVID-19 and added workload from new federal regulations, and that it expected to have the report submitted by March 31, 2022. The report is still outstanding.

Petersburg is one of nine localities - of 133 - that had not yet submitted its annual report as of Wednesday, June 15. The state auditor's records show that between 2016 and 2020, 23 total localities submitted their reports over 60 days late. Many of those municipalities were late every single year.

The APA said that it had received an additional communication from the Petersburg on May 15 to update its office on progress of the report. It's FY 2020 report was also submitted late in February 2021.

Petersburg's recent past with financial trouble

Petersburg is only a few years outside of a financial meltdown in 2016 when it discovered that cash reserves had gone $8 million in the red, having been recorded at above $15 million four years earlier.

The city's bond rating - which shows the city's credit worthiness to lenders - was downgraded from an A+ in 2012. It eventually bottomed out at a "non-investment grade" BB rating with a "negative" outlook.

In the years since, Petersburg has increased its bond rating seven notches back to an A+, four increments away from Standard and Poor's strongest rating of AAA. The city's cash reserves were also reported at $12 million in its 2020 audit.

Still, the financial meltdown is recent enough that it lingers in the local memory.

A Petersburg spokesperson said that all of the necessary documentation has been turned over to the city's external auditors and that preliminary data has been sent to credit rating agencies.

She said that the finance department attributed delays to new requirements in federal reporting requirements that have been enacted this fiscal year, and that other slowdowns came from a disconnect in reconciliations with the Treasurer's office in FY 2021.

"It is the Treasurer's responsibility to reconcile cash for the fiscal year. The previous treasurer did not do that. The new treasurer had to come in and reconcile the cash which put us behind," said spokesperson Joanne Williams.

Implications of a late financial report

Regional Economist Dr. Terance J. Rephane of the University of Virginia's Weldon Cooper Center for Public Service said that it isn't altogether uncommon for an annual financial report to be submitted late.

"There are legitimate one-off reasons," Rephane said. "But if these things are happening every year that's more of a fundamental problem in terms of your staffing or even your administration."

Rephane served two terms as a city councilor in Cumberland, Maryland. While in office, that locality faced three straight years of delays in its yearly financial audit. In that case, it was sparked by the sudden departure of a key finance staff member and their replacement by an internal hire that didn't pan out as expected.

He added that ACFR delays are often faced by smaller cities and counties that have smaller staffs, where turnover in one key position could create a big impact or unexpected changes in the processes or reporting are harder to adjust to.

Rephane said there is potential for a bond credit rating to be affected by a late report, though, there are many other factors that would come into play.

For example, Manassas Park's credit rating was dropped five points from AA+/Stable to BBB in 2011. It faced a number of financial problems like a massive decline in revenue and a high debt burden. However, its rating was suspended at one stage by Standard and Poor, partially because of its failure to produce an annual audit for several years in a row.

Petersburg said that the initial numbers submitted to the credit rating agency were not met with any alarm bells or pushback. A final presentation from auditors isn't expected until late summer to early fall.

Rephane said that localities across the state generally fared pretty well through the pandemic, despite some of the initial fears about finances. The increase of housing prices helped bolster revenues from property values. Petersburg was no stranger to that, with citywide property values rising 13.43%. At the same time many cities and counties laid off about 5% of staff and tended not to hire them back, which reduced expenditures.

Petersburg's director of finance is expected to give an update on the progress of the ACFR at the next city council meeting on June 21.

You can reach Sean Jones at sjones@progress-index.com. Follow him at @SeanJones_PI. Follow The Progress-Index on Twitter at @ProgressIndex.

This article originally appeared on The Progress-Index: Petersburg's annual financial audit for FY 2021 is six months late