Revenue Down Expenses Up For City
“I think we’re going to have to focus on our finances in a way that we haven’t had to in several years,” said City Manager Kurt Kimball.
“By that I mean that the economic consequences befalling the state are trickling their way down to us and we’re going to have to manage through a period of relative scarcity.”
State tax projections related to the current fiscal year’s budget are for a $961 million shortfall in revenues.
The state’s updated revenue forecast recognizes a 2.1 percent gain in personal income during calendar 2001 and an increase of 2.7 percent in calendar 2002, a growth rate based on the assumption the economy will begin to improve slowly beginning in the second quarter of 2002.
In January, Gov. Engler recommended a funding level of $1.65 billion for the current fiscal year Revenue Sharing Program, which would have meant a 6.4 percent increase in funding over fiscal 2001 distributions.
The funding level has since been adjusted downward to a forecasted $1.52 billion appropriation — a decline of 2 percent from the prior fiscal year’s level.
Appropriation reductions in the program in both June and November lowered the city’s distribution of state-shared revenue by $2.5 million.
On the revenue side there’s a fairly dramatic reduction in income taxes in comparison to projections, a reduction the city has already recognized by reducing the budget.
The city saw declines in income tax collections in seven out of nine months between January and September compared to the 2000 calendar year. The city anticipates little change in income tax receipts over the next two fiscal quarters, but expects receipts will begin to move upward beginning in the second quarter next year.
The combination of those two is really affecting city revenues, Kimball said.
On the expense side, health insurance costs are still “going up off the charts,” he said, causing the city to have to slam on the brakes pretty hard. He added that the situation is no different from the private sector, which also has had to make some difficult choices and decisions to contend with spiraling health insurance costs.
Health insurance expenditures continued to rise rapidly throughout the first four months of the current fiscal year.
The city paid out nearly $7 million to cover health insurance claims and related administrative costs, representing a 20 percent increase over the same period of the prior fiscal year.
Based on financial projections prepared in February, the budget appropriation for the insurance payment fund was set at $19.8 million. The revised forecast is for a 12 percent increase in expenditures to more than $22 million.
The adjusted revenue and expense forecasts raise the current year operating deficit from $1.5 million to an expected $5.3 million and generate a projected $8.8 million deficit for fiscal 2003, which begins July 1, 2002.
“In the public sector people cling to the services they have, and while they’re not anxious to increase taxes, neither are they anxious to terminate services,” he said.
“It’s going to be rough on the city commission, I think, to deal with that because they haven’t had to deal with it in the past, at least not this sitting commission.”
Despite a lot of good things happening on the economic development front here, it’s been a tough time for everybody, Kimball added.