City still on transformation track

December 11, 2011
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Editor’s note: First in a two-part series.

As the city of Grand Rapids is roughly two fiscal years into its transformation, City Comptroller Donijo De Jonge told city commissioners last week that the city’s financial position this year would have been “much worse” had residents not approved a five-year, 1.5 percent income tax increase in 2010.

De Jonge also said much of the city’s financial difficulties can be directly related to private-sector job losses that came about as the result of a sinking economy that raised the city’s unemployment rate to a recent high of 11.2 percent in July 2010. De Jonge pointed out that fewer workers means a smaller tax base with less revenue coming in from property, income and sales taxes for the city.

De Jonge also noted that the city’s debt obligations at $524 million, unfunded pension obligations of $101 million, and about $200 million in unfunded obligations for retiree health care also have affected the city’s financial position.

“Growing unfunded liabilities coupled with these uncertain economic conditions will continue to pose substantial threats to the city’s financial sustainability,” wrote De Jonge in her summary on the city’s financial condition.

But city administrators remain steadfastly optimistic that Grand Rapids will reach financial sustainability by the 2016 fiscal year, the stated goal of its five-year transformation plan. In an e-mail to the Business Journal, City Manager Greg Sundstrom reiterated that the city’s operating budget was projected at the beginning of the process to have a deficit in 2012 and 2013, be balanced in 2014, and record a surplus in 2015 and 2016.

“We are on track. We are working our plan hard. We will not kick the can down the road. We will permanently fix our financial problems. We will become sustainable,” said Sundstrom.

Sundstrom explained that the city has kept its promise to residents by dedicating the additional income-tax revenue to the transformation plan and by rehiring the 10 police officers and 15 firefighters it said it would.

“The city has begun to invest some of this new funding to transform city services. The city commission has approved just under $1.8 million to date, leaving a balance in the current years of just over $6 million after funding the police officers and firefighters,” he said.

The city’s five-year transformation plan isn’t a fix-all diagram. For instance, as Sundstrom noted, there isn’t enough revenue in the budget to rebuild every city street. But the plan does include some street and infrastructure work and it has a focus on public safety and quality of life. City administrators have vowed to be transparent and accountable during the process and engage citizens in it, plus transform the way the city provides its services. The latter has been accomplished so far largely through an increased use of technology, with many services being offered more economically online.

A few weeks ago, Sundstrom told commissioners that 198 of the 274 targets that make up the plan are under way or have been completed and he added the same can be said for 72 of the 74 value streams contained in it.

“We are well on our way to transform the organization to become sustainable,” he said.

The path to sustainability, though, may hit a bump in the fiscal-year road.

“Thus far, the city has not used any of this (additional income tax) funding for ongoing operations, but this may change before June 30, 2012,” he said of the final date of the current fiscal year.

Sundstrom also reported that the city is short of reaching the 10 percent mark commissioners set for employee wage and benefits concessions. He said about two-thirds of workers voluntarily agreed to those changes, which leaves the concession scorecard at 8.2 percent. Falling short of the goal means the current operating budget may need an infusion of $5.5 million to pay for a projected $112 million in expenditures.

“This additional operating deficit, due primarily to delays in concessions, is a one-time reduction, in that, as the concessions are received, they are structural. The concessions proceed into the future, it is just that they have been delayed,” he said.

The current situation means the city will likely have to dip into the additional income tax revenue that it hoped to set exclusively aside for the transformation in order to fill the shortfall and to keep the fund’s balance from dropping below 5 percent. Sundstrom explained that if the city fell below a reserve of 5 percent, its double-A credit rating might be downgraded, and there may not be sufficient funds to cover an unexpected emergency.

“This does not change the city’s five-year plans. We still plan to become financially sustainable by 2016,” said Sundstrom. “I am confident that this latest delay will not deter our efforts.”

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