Mayor's Opening Statement for City Council  Work Session. February 9, 2009

This work session was originally to discuss Alderman Fruin’s proposed code of conduct for city council members. However, I believe that we have a more important issue to discuss, and the alderman has agreed to defer his topic. Instead, we will first discuss finances. To begin, I want to summarize the budget situation and suggest how we should go about resolving it.

We now have a new city manager and he has – as we hoped – hit the ground running. One of the main reasons we selected David Hales was his financial expertise. Since his first day two weeks ago, David has been putting a lot of time into the city’s budget, and we are already seeing the results. He’s analyzed our finances from a different perspective, and he’s already put together some ideas for changes.

The city is in the midst of developing a new budget for the fiscal year, May 1, 2009 through April 30, 2010. As usual, the expenditures that are being requested exceed the available revenues, and it’s necessary to set priorities and just say, “nice idea, but we just can’t afford that right now”. We work things out, and the budget gets balanced on time. In fact, that’s what we did for this year when we reduced the current city budget by about $2 million compared to 2007-08.

We thought that we had solved the problem. But, the situation is now reemerging, because of the severe recession and some other reasons:

1. For the first five months of this fiscal year, the city’s revenues fell somewhat short of projections. David feels that our estimating methodology is too simplistic and has been over-optimistic. He has already suggested that we change to a more accurate way of making projections.
   
2. More critically, starting with the sixth month, our sales tax revenues were dramatically down. For example, the state just told us three weeks ago that October, 2008 state sales tax collections were down 18.8% under October, 2007, and home rule sales tax is down by 13.0%. We have now been informed that November’s results are down by 13.2% and 14.9% respectively. Sales tax is the city’s primary source of revenue, so declines of this size are a major problem. This shows that economic problems are hitting here; we are not totally “recession-proof” in Bloomington. If this continues over the remainder of the year, we will have a revenue shortfall in the millions.
   
3. Our utility tax and our share of the state income tax are also down. Worse, the state is considering a bill that would take away city revenues – kind of an 8% state tax on cities – to help balance its $9 billion state budget deficit to the detriment of local government.
   
4. Our overall expenses are up. This includes huge cost increases in things we use a lot of, like energy, salt and asphalt. And the severe winter means that we are using more salt, more fuel, more asphalt in potholes, and more overtime for our employees.
   
5. Some items that were approved by the city council were somehow not put in the budget (e.g., airport subsidy) or not enough was budgeted (e.g., extra cost for asbestos found during the Coachman demolition). The good news is that some accounts are way under budget; over $1.7 million was not spent as authorized and can offset some of these higher expenses. For example, David has decided to delay any replacement of retired deputy city manager Brian Brakebill.
   
6. Projects that were approved years ago continue to cost money. As one example, after showing an improvement over its first year, the Coliseum’s loss is projected to be slightly higher this year.
   
7. The city’s early retirement program is shifting more costs into this fiscal year. As a larger number of people retire than normal, some costs, that would have in been paid in future years, are instead coming due this year. Although the early retirement program will cut payroll in the future, we do have prepay settlements this year, and that will take cash flow of an extra $2.3 million. This is a one-time problem; the need for payments will end in April and savings will then begin.

These factors not only affect next year’s budget, they also need immediate attention in this year’s budget.

When we set our current budget, we cut expenditures, raised the garbage/recycling collection fee by $2 a month, made a small increase in liquor taxes, and added 25 cents sales tax to each $100 in purchases (excluding groceries, drugs, and vehicles). It was balanced, and we even thought we’d have a small surplus that could be carried over as a reserve for future years. But the situation is changing, and we must adapt.

We could raise taxes, but that’s difficult to do when our residents and businesses are also struggling with the economy. Some adjustments in fees may be more appropriate because not raising fees for services, when our costs are going up, only worsens the deficit. Fees should be related to our cost for providing the service.

Unlike the federal government, we cannot print money. We’re in the business of providing local services, and it’s not our role to stimulate the national economy. Borrowing to offset a deficit is not the best option either, because it just delays the problem.

So, it’s clear to me that the city first needs to do what most people and businesses are doing – tighten our belts. We need to make more expense cuts, but that will be difficult because the easier cuts were made last year. Additional cuts this year will be more painful and some may have an impact on city services. No matter what we cut, we will hear some complaints.

Our revenue reductions don’t appear to be a one-month fluke, so we must prepare for the longer term. We need to start now, without hesitation. If things improve, we can always restore some services, but we may also find that we can live without some things.

Let’s start today in discussing how we will react. For example, should we expand our hiring freeze to include all jobs, with the possible exception of public safety? That would take maximum advantage of our early retirement program.

In a situation like this, everything needs to be on the table. As one specific example, I believe we should look at the Bloomington dispatching center. I was opposed to splitting from Metcom, but that was done just before I became mayor. I think we’ve given it a fair trial, and we now know that it is costing more than before and, from what I hear, the results are not that much better. With a new acting police chief and a new city manager, this is the perfect time to review that decision and maybe admit that it was a mistake.

Other areas might include slowing down some park development, and some cost reductions in our refuse collections. We can look at fleet vehicles and our insurance coverage.

With a new city manager and some new staff, we have a great chance to make a shift in our culture. Also, our early retirement program will create more opportunities than usual to not replace employees, whose salary comprises 60% of our budget. I would urge the council to grasp these opportunities and work together with David and me in meeting this economic challenge head-on and without delay.

So, let’s hear a little more detail from our city manager, and then roll up our sleeves and get into what we are going to do about the situation.

• David Hales' Projection Handouts (34.16 kb/PDF)

• City Council Work Session Opening Statement from Mayor Stockton (15.52 kb/PDF)

If you have any suggestions on how the City can further reduce expenses, please submit your comments below or email us at councilbudgetinput@cityblm.org