Saturday, March 15, 2008

THE BUDGET II--A PRELIMINARY LOOK

All indications are that the effects of the downturn in the economy will take at least two years to work out. This means we need to be looking beyond just the current budget and be prepared for lower or stagnant revenues for the following year. We will have to hold the line on the operating budget and look carefully at new capital expenditures.

At first glance this years budget is less than last years. It provides for no new programs or positions. There are no raises in the budget for city employees and it calls for the elimination of ICMA retirement benefit for city employees—again. There are also reductions across the board in all departments. We are increasing the school budget by 1 million, which is less than the 2.8 million dollars requested. While holding the line on local expenses the costs for insurance, and other related costs have continued to go up. Even under these circumstances the budget comes with a recommended real estate tax increase of 5 cents.

We will have discussions with staff to go over the methodology used on the revenue projections but I do not expect any significant modifications to the numbers provided. Our staff has done a good job during my time on Council in projecting revenues. While some have been making accusations of revenue excesses; as a percentage of the budget, the actual differential is only in the area of 2% to 3%.

The major concern I have with the budget is the 51 million in capital expenditures to keep us on track for the new court facility in 2010. The affect of this decision is an increase in the tax rate next year of at least 8.5 cents—an increase of at least 13.5 cents in two years. With the expected continued decline in revenues and the lack of new sources of revenue city residents would have to shoulder the entire burden of this cost. This project must be put off at least two years so that new commercial revenue sources can come on line.

Another area of concern is outside agencies budgets. The Regional Jail expenses continue to go up. Last year we were told that by providing the LEOS benefit to jail guards (I was the sole vote against this) we would remain competitive with other jail facilities. Now it seems they need a 5% salary increase as well. I remember when the new Regional Jail facility was first being discussed as a moneymaker for the region with revenue coming from space for housing state and federal prisoners. Today it continues to be a black hole that does nothing but suck in more and more revenue.

In reviewing budgets for other outside agencies I noticed that some included raises, both cost of living and merit, for employees, and in other cases new programs. While staff did not fully fund most of the requests made by outside agencies they will still need some additional scrutiny. If city employees are not getting raises, and the city is foregoing new programs, I am not inclined to provide raises and new programs for other outside agencies. We will need to take a close look at this budget again this year.

I would like to give employees a cost of living raise or restoration of the ICMA. The cost for a 2% raise would require $400,000.00. Another option would make the raise effective January 1st at a cost of $200,000.00. On the ICMA I’ve asked staff to review its current use to determine whether it can be restored at a lower match. In either case, the revenue for either raises or restoration of the ICMA will have to come from the within the current budget, i.e, taken from somewhere else and not come from any increase in taxes.

I’ve not heard any word yet from the School Board regarding the reduction in their request. In conversation prior to receipt of the budget I’ve stated that we could probably not finish the planned raises this year to bring them closer to our neighbors but hope we could make sure that we don’t loose any ground. More on this after discussions commence.

As for the new tax rate that is a discussion to have after I’ve had more time to go through the budget. Last year we asked the City Manager to go back through the budget and find further reductions. In my preliminary review any further significant cuts would probably result in a reduction in services. Based on feedback I’ve received this will not be viewed favorably.

As recently reported in the FLS we did reduce amounts in designated capital funds to cover this years budget and make some needed one-time purchases of equipment. A review of current designated reserve line items outside the Enterprise Fund is probably in order. Especially, the financial impact if we slow or push back projects. I wouldn't expect much here.

The guiding principle for this year is maintaining core services, including education, first. Understand that the revenue picture is probably going to be worse next year, which means no expansion of the operating budget and slowing or pushing back any new Capital projects even more than proposed. No further raids on the undesignated reserve for operating expenses, which will only result in a bigger raid next year while putting our bond rating in jeopardy, and increasing future debt costs.


I will continue to post as I continue my review of the budget and as budget deliberations proceed. I look forward to a spirited dialogue as this budget moves through the approval process. Concerns, suggestions and questions welcome.

2 comments:

Bryan said...

Matt - thanks for sharing a good detailed exam of the proposed budget. Any chance of delaying the '09 reassessment? It appears this would remove $167k from the budget - which is just about enough to give COLA increases to city employees. Glad to hear someone asking the hard questions, and looking out for area owners. Still miss my trash bags, but I'm getting used to buying them.

Larry Gross said...

Sometimes - it seems one of the hardest things is to decide if what is being spent is enough or not enough and of course if what IS being spent is a Cost Effective use of funds.

so.. here's a link for Fredericksburg and I'd be interested in hearing opinions on the stats:

http://www.inrich.com/cva/ric/databases/spending.html?appSession=7002220135946

here's a tinyurl of the same:

http://tinyurl.com/2mdtmn