Mayor's Opening Statement for City Council  Work Session. February 18, 2009

This is our second work session to discuss budget planning. We expect to have a couple more before we will have the final budget ready for adoption in April.

If the recession keeps our revenues down as they were in October and November of last year, we can expect a deficit for this year of over $4.7 million. We have not yet received any information from the state about December’s revenues; for now, we must assume that the negative trend will continue.

The other major problem for our current budget is the accelerated costs approximating $2.3 million that are related to the early retirement program. There is some confusion about this amount – it does not represent extra costs; rather, it represents costs that would have been paid in the next few years that have instead become due this year. This situation will end in April and will then begin to reverse itself out. This situation must be monitored because it creates a demand for cash sooner than expected, but it will eventually cancel itself out.

This evening, we will continue to hear from our city manager, who has continued to dig into the details of our revenue and expense accounts. His information will illustrate that, even before the recession, our revenues have not been growing as fast as our costs have been increasing.

One issue is that fees charged for city services have not been keeping up with the actual cost of providing those services. For some city services, fees only offset a small part of the costs. As a result, a bigger and bigger percentage of the cost of those services is being funded by general revenues, like the real estate property tax and the sales tax.

Unfortunately, the revenue available from the property tax has not been growing sufficiently. The city council has not raised the real estate property tax rate in years, so our revenue only goes up as the assessed valuation of taxed property increases. That creates a difficult situation because we are required to first use the property tax revenues for pension funding, which has itself been greatly increased by changes required by the state and our own growth. That means that the portion of the property tax that is available for general city services has been diminishing.

That was acceptable when as our sales tax revenues were growing. The sales tax has become the city’s main source of revenue to subsidize city services, so the decrease in sales tax revenues that we are now experiencing strongly suggests the need for a reduction in the city services they fund. That’s not unlike a family or a business – when income goes down, some expenses must be cut, at least temporarily.

The city developed a spending pattern based on growth. We added some expensive services. I’m not just talking about the Coliseum and the Center for Performing Arts, but also about a new office building, a dispatching center, a great refuse collection program, and some spectacular parks. We just aren’t going to be able to continue to do everything during a recession. We’re going to have to set some priorities; we’re going to have to tighten our belt.

So, tonight, we need to discuss several issues:

1. What is being done right now to lessen the deficit for our current fiscal year? How do we use the early retirement program to our maximum advantage? What spending has been, or can be, frozen? Are there any programs that can be cut without a lot of study? What suggestions have we received from our employees and the public?
   
2. What can we cut in the next year’s budget? Without some more revenue or some cuts, we would be headed for another deficit, by as much as $4.8 million.
   
3. How fast do we want to recover this year’s deficit? If it is as much as $4.7 million, do we want to show that much surplus in the next year to completely recover, or do we spread the recovery over two or more years?
   
4. After we balance next year’s budget and recover from this year’s deficit, how fast do we want to build up a reserve and what should it be? Remember, that we thought that we would add some amount into a reserve fund this year, but recent events have thwarted that.
   
5. In setting our priorities, are there certain programs that should be less impacted? Public safety might be one. We also have to be aware of certain commitments and grants that could be lost. We should cut internal costs first, but that will be more difficult because we cut millions last year.
   
6. How much can we rely on tax or fee increases at a time when our residents and businesses are themselves in distress?
   

As I said at our last work session, this is a difficult time all over the world, and we are not immune here. We will need to make some tough choices, so let’s get some more information from David Hales.

• David Hales' Handouts (43.27 kb/PDF)

• City Council Work Session Opening Statement from Mayor Stockton (11.51 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