Revised city forecast has more deficits

June 4, 2010
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Grand Rapids city commissioners have told City Manager Greg Sundstrom to reduce compensation for all the city’s general fund employees by 10 percent over the coming months. If Sundstrom and his staff are able to do that by this time next year, the projected savings to the city’s operating budget would be $37.7 million over the next five fiscal years.

As would be expected, though, the next fiscal year would reap the smallest amount of savings if the concessions goal is reached. For fiscal year 2011 — which starts in three weeks on July 1 — personnel costs to the general fund would be lowered by just $1.44 million.

That savings would come from a six-month reduction in compensation to employees of the 61st District Court and all other workers not in the police and fire departments — but only if a binding resolution can be reached with those bargaining units and management personnel before the year ends.

The concession would reflect a 5 percent reduction for the entire 2011 fiscal year as the decrease in payroll wouldn’t begin until Jan. 1, which is the start date for the year’s second half. For the following years, though, the reduction would be a full 10 percent each year.

Sundstrom’s office has projected that compensation reductions from police and fire employees would begin in fiscal year 2012 and be the bulk of the total savings in personnel costs at over $6 million a year.

In FY2015, which is the fifth year of the city’s most recent five-year budget projection and the last year it receives the higher income-tax revenue, the payroll concession for the general fund would total more than $9.5 million. But that number can only be reached if the city can successfully negotiate the cuts in compensation with all the bargaining units that represent roughly 1,500 employees.

If the city is unable to reach concessions with police and firefighters by the end of the 2011 fiscal year — June 30, 2011 — Sundstrom said the city would then roll back the income tax rate to 1.3 percent and lay off up to 75 from the police department and 40 from the fire department. Voters raised the income-tax rate in May for five years to 1.5 percent for residents. The higher rate begins July 1.

If the city still can’t reach an agreement with public safety units during the 2012 fiscal year, which ends June 30, 2012, then 40 more police and fire personnel will be let go.

The latest projection for the 2011 general fund was released in late May; it shows $2 million more in revenue, with almost all of it coming from an additional $1.8 million in state revenue sharing. Spending from the fund has also risen by $1.7 million since the city’s earlier estimate in March.

The increased expenditures are $2.3 million for the police pension, $1.4 million for the retirement plan for firefighters, and $3.8 million to keep the street lights on. That total of $7.5 million has been largely offset by $5.8 million in earlier reductions made to the fund.

As the 2011 general fund now stands, the budget will have $108.9 million in revenue and $109.8 million in expenditures for a deficit of $990,500. The shortfall will be covered by the fund’s balance, which will be left with $3.6 million after the transfer.

Sundstrom said that amount covers about two weeks of city operations. He also warns that the city’s bond rating could drop in the coming year, as a fund’s balance is minimally kept at 5 percent and not the 3.3 percent the general fund will have in the balance account. Forty-one city employees are now likely to be let go July 1. That total is up by four from two weeks ago.

Budget deficits are also projected for fiscal years 2012 through 2015, and will range from $1.2 million in 2012 to $7 million in 2015. Those shortfalls, though, are based on the city meeting its concessions goal.

Last fall, Sundstrom said the city had five years to change the way it delivers its services. A few weeks ago, he said that window has narrowed to two years.

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