Is the city financially sustainable

December 16, 2011
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(Editor’s note: Second in a two-part series.)

The financial sustainability of America’s most sustainable mid-sized city was a recent topic of discussion for Grand Rapids city commissioners and their top-level managers. A portion of the discussion noted that the state has sent emergency financial managers into four cities and one school district, with Lansing currently measuring whether another one will be dispatched to Detroit.

“Grand Rapids is a well-run city and is financially conservative,” said Mayor George Heartwell. He said the city has reduced its work force to a level Detroit still needs to do, noting that Grand Rapids has one employee for every 126 residents and Detroit has one for every 54.

“Detroit hasn’t shrunk enough. The state could step in,” said the mayor.

“We will not have a financial manager in Grand Rapids, period,” said City Manager Greg Sundstrom.

The sustainability issue revolved around the state of the city’s operating budget’s fund balance, or its reserve account. Right now, the city’s goal is to keep it at or above 5 percent to avoid having its credit rating downgraded. City Comptroller Donijo De Jonge told commissioners the fund balance stood at $7.7 million, which is enough to run the city for eight days.

De Jonge added that the reserve should be 15 percent of the city’s operating expenditures, but also said that most Michigan cities have small fund balances today. “So it’s just not unique to Grand Rapids,” she said. “The county’s is higher.”

At the end of September, Kent County’s cash reserve was $80 million; that pot would cover 128 days of operations.

“To date, the city has yet to achieve this 15 percent minimum fund balance. Until more robust financial policies, with spending and revenue triggers, are implemented, the 15 percent minimum is likely to remain unattainable,” said De Jonge of the fund-balance figure commissioners have approved.

Key to the city’s financial future, of course, is the economy. The recent recession, which some experts say hasn’t ended, has cost the city lots of revenue.

“Taxable income for the city has decreased by $304 million since 2004 and $724 million since 2000,” said De Jonge of the figures that haven’t been adjusted for inflation.

“Since 2007, the growth in the taxable values of property slowed and, in 2010, total taxable property values dropped by 0.2 percent, and then decreased another 2.8 percent in 2011. From 2009 to 2011, residential property tax values decreased 5.5 percent and personal property taxable values declined 0.3 percent, while commercial and industrial taxable values all had modest increases,” she added.

De Jonge said the city’s operating expenditures rose by 6 percent, or $8 million, over the past year. “Our unemployment rate has dropped over the last two years, but so has our employment base. We’ve lost 20,000 jobs the last two years,” she said.

City Commissioner Walt Gutowski, a small businessman who owns Swift Printing and Communications on the city’s lower northwest side, doesn’t see the economy turning around very quickly.

“It seems the economy is not going to jump start for a long time,” he said. “I’m thinking it may be another six years.”

The mayor reminded everyone that the city has set into motion a transformation plan that has at its core a goal to make the city financially sustainable.

“We do have a plan that takes three-and-a-half years from now to get us to when we will be financially solvent,” said Heartwell. “We do have a plan and, as commissioners, we have to follow it. The 15 percent fund balance has to remain a goal.”

Heartwell noted that the city’s five-year transformation plan could have been a more expensive journey if employees hadn’t stepped forward to undertake it. The mayor said it would have cost as much as $3 million to have a private-sector consultant direct the process.

“A commitment from our dedicated staff has made this transformation possible,” he said.

”People are working real hard, and I’m not sure the public knows that,” said City Commissioner Ruth Kelly.

“As you need to make changes, you don’t have to go to a third-party vendor and pay them. That’s a tremendous advantage,” said City Commissioner James White.

De Jonge said the city has already taken actions that will put Grand Rapids on the track to financial sustainability. She said moving off the city’s mainframe will save $800,000, and going to an Internet-based phone system will save another $700,000.

De Jonge also said consolidating the city’s emergency dispatch system with Wyoming and getting 10 percent compensation reductions from elected officials, appointed officials, top management and non-represented employees also will cut costs.

De Jonge didn’t mention that she asked for a pay cut when she took over the comptroller’s post. “I have a lot of hope and a lot has been accomplished,” she said. “If we act quickly, there is hope.”

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