City to begin grappling with operating budgets

April 22, 2012
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The city of Grand Rapids will begin a new tradition this week. In honor of Arbor Day, Mayor George Heartwell will unveil the city’s first-ever Mayor’s Tree of the Year.

“When I took office, it was derisive to be a tree hugger. Now I embrace it,” he said.

Heartwell said he has made his selection, but won’t reveal which tree he has chosen until Friday. But after reviewing the city’s five-year preliminary fiscal plan last week, city officials wouldn’t be faulted if they hope Heartwell has chosen a money tree.

City CFO Scott Buhrer told the mayor and commissioners last week that the 2012 general fund, which covers most city services, will end the year June 30 with expenses topping revenue by $12.6 million.

Buhrer noted that despite an earlier transfer of roughly $7.7 million from the city’s transformation fund to general operations, the general fund will close with a deficit of $4.9 million. He said the shortfall will be covered by digging into the fund’s balance, leaving that account with $8.9 million on July 1, the first day of the new fiscal year.

As for FY 2013, Buhrer said the city would transfer $5 million from the transformation fund to general operations. The proposed budget has spending at $115.7 million — about $3.6 million less than this year — and a small deficit of $275,000 and fund balance of nearly $8.7 million.

“We’re using some of the funds in the transformation fund to keep balances in the 2012 and 2013 fiscal plans,” said Deputy City Manager Eric DeLong.

“By the end of 2013, we will have just under $13 million available for new investments,” said Buhrer, referring to the transformation fund, which gets much of its money from the temporary increase in the income tax and revenues from other governments.

Buhrer said receipts from the city’s income-tax are expected to grow by 3 percent in 2013, 2014 and 2015, the final year for the temporary increase voters approved two years ago, and total about $28 million over those three years. He projected that the transformation fund would grow to have a balance of $26.8 million in 2017, the final year of the five-year fiscal plan.

The fund balance for general operations is expected to be completely depleted at the end of 2015 and be $17.4 million in the red at the end of 2017. “I’m not predicting the city will run out of money,” said Buhrer. He told commissioners, however, that the city needs to spend the $26 million that will be in the transformation fund in 2017 on ways that will reduce upcoming expenditures as general operating deficits are projected to grow after 2013.

The shortfall has been forecast at $5.2 million in 2014 and $5.7 million in 2015. The operating deficit approaches $8 million in 2016, then drops to $7.1 million in 2017. That’s nearly $26 million of red ink over those four years. Spending over those years has been projected to grow from $119.3 million in 2014 to $124.1 million in 2017.

The city’s fiscal policy is to maintain the operational fund balance at 15 percent of spending, but Buhrer recommended that commissioners reduce that reserve to 7.5 percent for the remainder of this fiscal year and for next year.

Commissioners will begin the arduous task of reviewing the fiscal plan this week. They are scheduled to meet nine times for at least 26 hours over the next few months. The commission’s final budget meeting is set for June 19.

“We’re now 22 months into a 60-month plan and we’re making good progress, but operating margins will be slim,” said DeLong. “We have achieved about 40 percent of the savings we have put into the (five-year) transformation plan.”

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