City A Lone Arranger

May 4, 2007
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GRAND RAPIDS — City Manager Kurt Kimball sees the task of putting together the general operating budget for the upcoming fiscal year as a lonely one. Not in the sense that he has to compile it by himself, as his staff, department heads and the seven commissioners will all contribute. But in the sense that he can’t count on the state to make a positive contribution, meaning the city has to go it alone.

“For generations, intergovernmental revenue sharing has been an essential partnership between the state of Michigan and its local governments. No more. It is clear that our partnership has been broken; that no one in Lansing intends to honor past good-faith agreements,” wrote Kimball in a letter to the City Commission.

“Years ago, the state stripped taxing authority from local governments with the promise of revenue sharing. Now the writing on the wall suggests the state intends to deal local governments out of the statutory revenue sharing program and keep this money we gave up to help solve its own budget problem,” he added.

Kimball reported that Lansing has already cut more than $30 million in revenue-sharing payments to the city, and he expects more to be sliced before the current fiscal year ends on June 30. And the worst may still be coming.

“The entire remaining balance of our statutory revenue sharing, another $8.2 million, is on the block. If statutory revenue sharing is, in fact, eliminated, the state cannot dodge responsibility for creating an $18 million hole in our annual General Operating Fund budget,” he said.

Over the last six fiscal years, the city has cut nearly $79 million from that budget to accommodate the revenue and spending choices lawmakers and the governor have made in the state’s capital. On top of the cuts, the city has raised certain fees and other charges by $5.4 million and lessened the city’s work force by 282 positions, for a total job reduction of 24 percent. Fifty-two police officers and 28 firefighters were among those who were put out of work due to what the city claimed was dwindling revenue from the state.

Those statistics form the background for the upcoming budget process that begins this week and is likely to continue for most of the month. Kimball has scheduled two budget sessions with commissioners, with the first taking place on Tuesday and the second set for two weeks from Tuesday.

Kimball said he expects revenue to the general operating budget to be $117.3 million for the coming fiscal year or about $6 million short of the $123.1 million worth of expenditures he is expecting. But on the revenue side of the ledger, the city is supposed to get $21 million in state-shared revenue that accounts for 18 percent of the budget’s total income. Only the revenue from income taxes is a larger single source for the city’s general budget.

If Kimball is correct, though, and the state balks on its revenue payments, then the $6 million shortfall could easily triple. To meet the projected deficit, Kimball wants employees to agree to a 6.4 percent reduction in compensation over the next two years: $2.6 million in FY08 and $5.2 million in FY09. He also wants to reduce health care benefits for retirees.

As the budget sessions begin, the general operating fund balance is at $13 million. If the state doesn’t share revenue as the city expects, that reserve account will dip to $7 million.

Kimball wants the state to replace all the SBT revenue, $1.9 billion, in its new business tax. If Lansing cuts the personal-property tax, as business groups have asked for, then he wants the state to hold municipalities harmless from that reduction.

Kimball also wants the state to renew its commitment to infrastructure improvements and not eliminate tax credits for the renovation of older urban buildings. He also hopes to see the state increase its resources by $1 billion, among a handful of other items on his list.

But Kimball isn’t counting on any of those actions coming true. In his mind, the city has lost its partner and now finds itself alone.

“If we are to survive and prosper, to become the world-class city we deserve to be, it will be necessary to steel our resolve to accomplish it ourselves,” he said. “Strategies that focus solely on the state to solve our problems are doomed.”

Where The Money Will Come From

Here are the projected revenue sources for the city’s FY2008 General Operating Fund budget. Total revenue to the fund is expected to be $117.3 million.

Revenue
Source

Total
Amount

Percent of
All Revenue

Income Taxes

$57,801,530

49.2%

State-Shared Revenue

      $21,394,640      

18.2%

Charges for Services

$15,496,869

13.2%

Property Taxes

$12,511,764

10.7%

Other Funds

$5,749,546

4.9%

Other Sources

$3,046,679

2.6%

Interest Income

$1,385,000

1.2%

Source: City of Grand Rapids, FY08 General Operating Fund Budget, April 2007     

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