City digs into reserves once again

May 15, 2009
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City commissioners made another adjustment last week to this year’s general operating budget. This one came after state lawmakers reduced statutory revenue-sharing payments two weeks ago to municipalities in Michigan by $41 million at the request of Gov. Jennifer Granholm.

Interim City Manager Eric DeLong said Grand Rapids would lose $926,242 in payments from the state for this year’s budget, which has less than seven more weeks to run. City Chief Financial Officer Scott Buhrer said the loss amounted to roughly 10 percent of the city’s expected annual revenue-sharing total.

To make up for the loss and to plug the budget gap, commissioners agreed last week to appropriate $500,000 from the capital improvement fund and $426,242 from the capital reserve fund. Both appropriations will be transferred to the general operating fund, which pays for many of the services offered by the city.

“This is taking money from the reserves and putting it into the general fund. What we need to find is approximately $1.2 million in reductions for this year’s budget,” said Delong.

DeLong said the city also needs to maintain a reserve of 5 percent and the latest transfer drops the account below that level. He said he would let commissioners know next week how he plans to raise the reserve to a level of 5 percent, which is around $6 million.

But what may have irked commissioners last week as much as the city not getting its revenue share is learning that a number of state legislators reportedly had no idea what revenue sharing was when they voted to reduce those payments.

Mayor George Heartwell said State Rep. Roy Schmidt, a Grand Rapids Democrat and former city commissioner for 16 years, told him that, after the vote, quite a few lawmakers asked him what revenue sharing was.

“What’s this revenue sharing thing anyway?” said the mayor, mimicking the lawmakers that approached Schmidt. “With this cut, we are approaching $11 million per year that the city should have.”

In April, Buhrer said the city gets about $10 million less in revenue sharing than it is entitled to receive. The cuts began in 2002, so the city has lost about $70 million over the last seven years. The missing revenue-sharing funds have been greater each year than the deficit the city has had in its general fund budget, so a full revenue-sharing payment would have covered the deficits.

Revenue-sharing payments to the city are funded by receipts to the state from Michigan’s 6 percent sales tax from purchases that originate in the city.

“There is some urgency that we solve this $1 million problem,” said David LaGrand, 2nd Ward commissioner, of the state’s latest cut. “And it’s not going to be solved next year.”

DeLong said the difference between cities and the state is that cities, like Grand Rapids, have a vision of where they want to go and what they want to be, but the state doesn’t.

“Cities lead the world; states don’t,” said James White, 3rd Ward commissioner. “Cutting revenue sharing hurts cities. It ought to be the other way around: The state should serve the cities.”

Second Ward Commissioner Rosalynn Bliss said the latest cut comes at a time when residents are in need of more services, due to job losses stemming from the recession, yet funding to deliver those services is being reduced.

Heartwell said one alternative to the dilemma is to let a city directly collect a portion of the state sales tax, instead of having the state capture all the revenue and then distribute a city’s share. In 2007, receipts from the sales tax totaled $6.5 billion.

The city’s general operating budget totals about $125 million and had a deficit of around $1 million before revenue sharing was reduced by the state. The fund’s gap will be covered by the account’s reserve. Commissioners sliced general-fund spending by $3.4 million in February, when the deficit was over $4 million, and then made reductions totaling $3.4 million to other city funds.

The city’s current fiscal year ends June 30.

Buhrer told commissioners he expects the general operating budget will be facing a $12 million deficit for the coming fiscal year. But he warned that figure could change depending on what happens to the automotive industry in the state.

This month’s cut to revenue sharing was part of $221.8 million in reductions requested by the governor in her executive order. The state’s current general fund has a reported deficit of $1.3 billion, up from the $785 million shortfall that was predicted earlier this spring.

In another fiscal matter, the city’s Local Officers Compensation Commission awarded longtime City Comptroller Stanley Milanowski a two-year salary increase. Starting July 1, Milanowski will get a $2,000 raise to $70,000. On July 1, 2010, his salary will rise to $72,000. City commissioners did not contest the wage increases, which means the pay hikes will go into effect on the appropriate dates.

“My only disappointment with the LOCC recommendation is that the comptroller didn’t turn it down, as other city officials have,” said Heartwell. “I don’t think the compensation is out of bounds.”

Commissioners also set next week Tuesday, May 26, as the public-hearing date for proposed fee increases, including service hikes for the planning department, zoning, sign permits, historic preservation and for parking fines. All the proposed increases would give the city an estimated $13,275 in new revenue for 2010.

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