City budget brainstorming begins
Grand Rapids City Commissioners recently took their first look at a preliminary operating budget for the next fiscal year, and their two-month-long grind to iron out the wrinkles in the final spending plan gets started in earnest this week.
Right now the city’s general fund, which covers most services, projects revenues of $107.2 million with expenditures at $113.3 million, which leaves an operating deficit of $6.1 million.
That shortfall wouldn’t be there if Gov. Rick Snyder’s proposed budget didn’t include ending statutory revenue sharing for cities. City Manager Greg Sundstrom said Grand Rapids will lose $6.65 million in revenue from that source for the 2012 fiscal year, if state lawmakers agree with the governor. He added that over five years — the timeframe the city projects for its operating budget — deficits will total more than $80 million without those state-distributed dollars.
“We have successfully incorporated the loss of revenue sharing into our five-year plan. We are seeking employee concessions of 10 percent. We will couple that with a 10 percent reduction in operating costs,” said Sundstrom. He added that the fiscal turnaround will occur in the 2015 budget, which will have a $3.1 million surplus, and that margin will be sustainable.
The concession the city is seeking from its bargaining units would amount to a $7.8 million reduction in personnel costs. Elected and appointed officials and non-unionized managers have already agreed to compensation cuts worth $360,000. Sundstrom said only nine workers would receive pink slips for the coming budget year, which begins July 1. Wages won’t increase until 2014, when a 1 percent hike is projected. Each department is expected to cut 10 percent of its expenditures.
CFO Scott Buhrer had hoped the city’s share of constitutional revenue sharing would rise by 4 percent, or $504,000, to help offset the loss of the statutory portion, but that won’t be the case. Because the city’s most recent population count showed a 4.9 percent loss of residents, Buhrer said the hoped-for hike will actually turn into a $150,000 loss of constitutional revenue sharing.
“We did not anticipate a reduction in our population,” he said.
Also on the revenue side, the receipt from income taxes for the 2012 budget is projected to be $55.6 million, up by $3.1 million from this year’s budget. Property taxes, though, are expected to fall by about $500,000, to $11.7 million. Buhrer said those receipts likely won’t return to this year’s level, at nearly $12.2 million, until 2017.
Buhrer said the city plans to invest $3.5 million into its street capital fund — four times higher than this year’s amount. One reason is to be able to secure grants with matching funds. Another $3 million is planned for 2013. But the fund doesn’t have a long shelf life at either amount.
“It’s not sustainable. Let’s buck up and admit it. It’s not sustainable,” said Sundstrom. He rhetorically asked last week if the city should keep 150 miles of its 600 miles of street in good condition and let the other 450 miles “go to gravel.”
Sundstrom told commissioners last week that a vital element in the city’s fiscal future is the creation of a transformation investment fund. The fund would hold temporary income tax revenues that are not required to meet police and fire staffing payments and would be spent on investments that provide the city with financial returns. The transformation investment fund is expected to be explained in detail to commissioners this week.
The city is expected to save $1.1 million in its transformation of the police department for the next budget and $730,000 from changes being made to the fire department. Over five years, $8.4 million will be saved from transforming both departments. Public safety is the largest expenditure in the city’s operating budget, accounting for 63 percent of all expenses.
“The good news is we have a much clearer picture of what we have to accomplish in our transformation,” said Sundstrom.
Sundstrom and his staff have been changing the way the city provides customer service through a variety of subtractions and additions over the past nine months, a five-year transformation plan he announced in the fall of 2009. “The last two fiscal years have been transformative,” he said. “The pace of our transformation will now accelerate as together we strive to accomplish the changes required to become the sustainable, quality-of-life city we have envisioned.”