No way could this be correct.

That is City Hall’s response to a finding by the state auditor of public accounts that Richmond is one of five localities — including Bristol, Petersburg and two unidentified counties — that are facing the most severe financial stress.

The Free Press disclosed the finding in the Aug. 31-Sept. 2 edition.

Seeking to erase any concerns about Richmond’s financial health, Mayor Levar M. Stoney’s financial staff pushed back against the APA conclusion, describing the financial stress test that state Auditor Martha Mavredes used to rank the state’s localities as creating a “distorted” picture of localities’ fiscal health. They also said it favors small localities that are not growing and also don’t do much borrowing.

While Ms. Mavredes is suggesting that Richmond’s concern may be overblown, City Finance Director John Wack, in an email Tuesday to the Free Press, made the case against the APA finding.

Noting that the APA did not define “fiscal distress,” Mr. Wack stated that he and his staff “believe the methodology applied by the APA is limited and is distorted when looking at how some Virginia localities ranked compared to others.”

As evidence, he pointed to the APA list, noting “five of the 10 counties with the worst scores on the (APA stress test) are actually rated AAA by the national credit rating agencies.

“Meanwhile, the City of Emporia, which was previously ranked as the most fiscally stressed city by the state Commission on Local Government, has a very high (APA) score of 75.3 percent, which for comparison purposes is much higher than Henrico County at 48.2 percent.”

Henrico County’s bonds have a triple A rating; Emporia received an A- rating on the most recent bond issue for its Industrial Development Authority. Richmond has a double A bond rating.

The bottom line: The APA test results “do not appear to correlate with what we believe are the best determiners of ‘fiscal distress,’ ” Mr. Wack stated.

Instead of relying on the APA finding, “We feel that the nationally recognized credit rating agencies have developed methodologies that better reflect a government’s ability to pay for its obligations,” Mr. Wack stated.

“In particular,” he continued, “rating agencies factor in the changing demographics of all localities, such as unemployment, household income and population, to determine whether the local economy appears to be healthy and growing. The APA ratings don’t take (such factors) into account,” he said, “and instead appear to favor small localities that aren’t growing but may lack significant debt burdens.”

Ms. Mavredes did not respond directly to Mr. Wack’s comments after the Free Press provided her with a copy of his email.

She stated that the aim of her office’s stress test is to establish an early warning system to “identify possible local fiscal distress” that did not duplicate the work of the bond rating agencies and was distinct from the Commission on Local Government’s model.

“Our model is intended to be a starting point to flag localities that warrant additional follow-up,” she stated.

“The additional follow-up,” Ms. Mavredes continued, “will focus on information related to budget processes, debt, borrowing, expenses and payables, revenues and receivables, staffing and any other external variables contributing to a locality’s financial position, to further determine whether the locality may be in a position to experience fiscal distress, either now or in the future.”

Her office also will look at annual audits and other information.

She stated that “after consideration of all of this information, we will determine whether or not we believe a locality would benefit from additional assistance and/or intervention, and if so, would refer the locality to the governor and the chairs of the money committees of the General Assembly.”

She stated that this effort “is intended to provide assistance to any localities with identified needs, not to be a punitive exercise. Localities are not required to allow us to perform further review; if they say that they are not interested in us working with them, that is allowed in the legislation.”

She noted that the creation of the APA model stems from legislation approved last year by the General Assembly. The bill grew out of concern about the near financial collapse in Petersburg and an interest in determining if any other localities could face similar problems.

Ms. Mavredes told the legislature that the early warning system the APA is using is modeled after a similar program in Louisiana.

Mr. Wack said he and his staff would continue to analyze the APA’s calculations and “will be following up soon with City Council regarding our results.”

He said the office also is working on responses to 34 questions posed in the APA’s Fiscal Assessment Follow-Up Questionnaire.

The responses, he stated, will show the APA that Richmond has a structurally balanced budget, has maintained strong bond ratings, does not use tax or revenue anticipation notes to maintain a positive cash flow, is using a mixture of tools to collect delinquent taxes and continues to comply with its internal debt and fund-balance policies.