Commission to get budget next week
Interim Grand Rapids City Manager Eric DeLong will give commissioners their first look at the fiscal year 2010 general operating budget next week, a spending plan that will total about $125 million and have an expected deficit of roughly $8.4 million.
And DeLong pointed out at a community budget gathering hosted by the Grand Rapids Area Chamber of Commerce last week that shaving the shortfall into a more manageable figure will be an ongoing project for his office and the commission.
“There is no firm prediction of how the economy is going to act. It doesn’t mean there isn’t going to be changes during the year,” said DeLong.
City Chief Financial Office Scott Buhrer noted that recessions historically have required three months of economic growth to counter every single month of a downturn. With the current recession recently hitting the 17-month mark — the longest down cycle since World War II, and with more months still to come — a recovery may take years, possibly five or more, to fully surface.
But Buhrer said the city began dealing with difficult economic conditions in late 2001, when most of the nation was pulling out of the 10th recession since 1948, by preparing to make job and spending cuts ordered by then-City Manager Kurt Kimball. The city has since lowered its work force by 15 percent, achieved a total reduction of 4 percent in its cost of employee compensation, and cut $90 million of expenses from the general fund over the last seven years.
“Since 2003, our employees have gotten 7 percent in wage increases through 2010. That’s not a lot of a wage increase,” said Buhrer.
“They’re paying 10 percent (of their health insurance premiums). They went from zero percent to 10 percent, and that’s a pretty big shakeout for some of them,” he added.
With the unemployment figure in the city higher than the national and state averages, and with property values in the city expected to fall by 5 percent this year — the same percentage it fell by last year — the two major revenue sources the city counts on are dwindling. Income-tax revenue normally pays for more than half of the general fund expenses, but that levy was down by 3.7 percent at the end of March and down by 6 percent from March of last year.
“Our property-tax revenue will be flat for the next five years. Two of our largest revenue sources are flat or declining,” said Buhrer.
The city’s CFO didn’t think revenue-sharing payments from the state would get back to normal, either. Buhrer said the city received $14.4 million from Lansing in 2002, when lawmakers created statutory sharing following a two-cent increase in the state sales tax, but he is only expecting the city to get $9.2 million this fiscal year.
“We’re losing roughly $10 million a year from the state,” he said.
DeLong said the city may lose even more revenue-sharing money in future years because of the state’s “horrible” financial situation.
Another fiscal problem facing the city is funding the pension plan for police and fire. Buhrer said at the end of 2007, it was over funded at 120 percent. But by the end of last year, it was only funded at 80 percent. Other city employees have been moved from a defined benefits package for retirees to a defined compensation plan.
DeLong said the city will be looking to reduce the FY10 deficit through a combination of spending cuts and revenue increases, with the former to largely come from a smaller work force and the latter largely to come from increasing fees and fines.
“One of the big savings we will get this year is a large number of employees will retire by March 31, 2010. It could be up to 100 and we’re not going to replace them,” he said.
There are three separate segments to the city’s general fund. One consists of 26 services that cost the city $18.4 million and are mandated by federal or state law or the city charter. Another has 27 services worth $43 million that are required by city codes or ordinances. The third calls for 44 functions that have a cost of $68.8 million and are provided through city policies and contracts.
“These are the bulk of what we do,” said DeLong of the third segment.
Police, fire, planning, neighborhood services, economic development incentives, equal opportunity initiatives, community development, parks and recreation, and administrative services are all in the third grouping.
But policies can be amended or eliminated and contracts can be allowed to expire, so services in this segment become prime targets for reductions due to its un-mandated status.
In fact, public safety accounts for 59 cents of every dollar the city has in the general fund. This year the city will spend about $74 million of the fund’s $125 million on police and fire. Delong said the city can’t combine the two to save money because the city is too large and the training for police officers is so specialized for certain situations, like hostage taking, that the two departments have to remain separated.
The city cut spending to the current-year general fund in February by $3.4 million, which reduced the FY09 deficit to $1 million, and that amount will be covered by the account’s reserve. The city followed that reduction by chopping another $3.2 million from other funds.
“Those cuts will give us the time we need to make transitions for the next fiscal years,” said DeLong.
Deficits of $16.5 million, $22.5 million and $26.6 million have been projected for the general fund in 2011, 2012 and 2013, respectively.
“Very little of what we do pays for itself. Once you get past police and fire, you’re taking out almost everything,” said Buhrer. “In many respects, we’re ahead of the game on many fronts.”