Budget

From  Alderman  Arnett

The Annapolis City Council will meet tonight at 7 p.m. in the Council Chambers. Public hearings will be followed by a legislative session. 

We are finally at the end of a grueling set of City council Finance Committee meetings (almost every day since receiving the Mayor’s Budget), with the Committee set to report its recommendations on the Mayor’s Budget to the full Council this Monday. The Committee meetings have been tough because of three changes in City Manager and some senior staff changes, — with resulting philosophy and presentation changes; and because of many major changes in the Budget – a big property tax rate increase among those. But, changes in the Budget presentation have been most revealing, as I will explain next.

With the receipt of the Mayor’s Budget, the Finance Committee was also given a breakdown of the new spending and revenue in the Mayor’s Budget in terms of the impact on the tax rate in cents per hundred dollars of assessed value (see below).

Here is how the Mayor’s Budget breaks down by dollars and by cents per hundred of property taxes, with a cumulative increase increases and decreases shown.

                                                                                          Dollars        Cents   Cum.

                                                                                                              /100      Inc.

Existing Structural Deficit

·         Fully funding pension plan                                   $490,000         0.7      0.7

·         Retiree health insurance                                        300,000         0.5     1.2

·         Under funded VEBA account                                 275,000         0.4     1.6

·         Underfunding of Fire staffing and overtime            650,000         1.0     2.6

·         Underfunding of Police staffing and overtime        750,000         1.1      3.7

·         Underfunding of Public Works staffing                   100,000         0.2     3.9

·         Non-personnel unrecognized spending               1,010,000        1.5      5.4

                                                                                      $3,575,000        5.4

Mandatory Principal and interest payments                  $1,993,845        3.0      8.4

Other Mandatory (steps and health insurance)             $1,434,681        2.2     10.6

Pay-Go funding for streets, sidewalks, etc.                   $2,950,000        4.5     15.1

 

Union negotiation contingency fund                                 $938,339        1.4     16.6

Total mandatory new spending                                    $10,891,865      16.6

Additional spending – non-mandatory

·         New positions                                                        $561,608         0.9    17.5

New spending offsets

·         General Fund cost savings                                               ($650,993)      (1.0)    16.5

·         New revenue other than property tax                      (743,811)      (1.1)    15.4

·         Tax Increment revenue increases                        (1,320,000)      (2.0)    13.4

·         Increase in property assessments                           (839,180)      (1.3)    12.1

·         Increased Income tax revenue                            ($1,400,000)     (2.1)      9.9

I understand that this is fairly dense and complicated information and that I’m glossing over many fine points, but for those who wish to follow it, this discussion will explain a lot about where we are in the City’s financial position and why a tax rate increase is all but unavoidable. [I must note here that cuts in services, with attendant staff cuts, is another way to address the structural deficit. That is, rather than raising revenue to cover increased spending, spending can be reduced to meet the lower revenue level. More on this in a later missive.]

Net spending in excess of revenues requiring a property tax rate increase is equal to a 9.9 cents per hundred of assessed value increase in the property tax rate, as recommended by the Finance Committee. If passed by the Council, the rate will go from the current rate of $0.649 to a $0.74.8 rate, still a 15+ percent rate increase. The tax rate in the Mayor’s Budget is $0.779, about a 20 percent increase.

In fairness to the Mayor, the Finance Committee, in conjunction with the new City Manager found $1.4 million dollars of income tax revenue not included in the Budget numbers available to the Mayor when he had to present his Budget. That’s an important difference and one could presume that, with that new information, the Mayor would have asked for a 10.9 cent tax rate increase.

I believe that focusing on the tax rate is not a productive exercise at this point. Rather the focus should be on the unavoidable spending increases needed to wipe out the structural deficit (5.4 cents) and to pay for new mandatory spending 11.2 cents). Fortunately the new spending is somewhat offset by some new revenue (7.5 cents).

So how did we get into this position and are there an endless series of tax rate increases in our future?

By definition, a structural deficit is spending beyond ones means on a continual basis.  Households do it and so do cities. We have long known that City revenues have been growing slower that City spending. After our near bankruptcy at the beginning of the Cohen Administration, the Council formed the Financial Advisory Commission. That body warned early on of our structural deficit problems. Back then the City needed a big raise in the property tax rate to come back into a sound financial position. However, that tax hike did not truly address the structural deficit problem. Since then many tactics have been used to cover that problem, but those forestalling actions are coming home to roost now.

The new City Manager has stated that she will never again present the Mayor, and thus the City Council, with a Budget containing a structural deficit, and I believe her. But, the seeds for more spending pressures are in this Budget already. We will need to continue to increase contributions for the pension plan and retiree health insurance. The employee unions are pushing hard for cost of living adjustments (COLAs) in addition to the existing overly large step increases already received by employees. The Pay-Go for streets and sidewalk repairs is partially funded by the Capital Reserve Fund and as we wean ourselves away from running down that fund, pressures on the general fund spending will need to be covered by cuts elsewhere or increases in revenue from somewhere. Unless the Administration and Council can find the will to cut some services, I predict that the pressure to raise the property tax rate will return.

This dialogue has been long and I may have lost many of you by now, but I must write a bit about the Capital Improvement Fund.

The Finance Committee is recommending to the Council that no new capital bonds be issued until we spend down the existing moneys from bonds issued but unspent, about $9 million dollars. Further the Committee recommends that the amount of PayGo dollars spent for street repaving be raised from $2 million a year to $3 million. The useful life of a City street before it needs repaving is about 20 years. The City has about 90 miles of roads and repaves about three miles each year with the $2 million allotment. That pace replaces streets every 30 years, not 20 years. So the Finance Committee recommends that the capital budget for street repairs be raised to $3 million per years, which puts us back on a 20 schedule. The Finance Committee, and thus the Council, is still awaiting more information on the cost to replace the Truxton pool, rebrick Main Street, and replace the Public Works Facility that was on Spa Road. Until there is new information on these projects, The Committee recommends that they stay in the Capital Improvement Project (CIP) plan in their current form.

I must also tell you that the Finance Committee has yet to receive three major pieces of important information: the number of fulltime persons employed by the City, with a distribution by department; the status of the City General Fund and Enterprise Fund balances; and the five year projections of the appropriation budget, which allows us to be sure we know where we’re headed in the out years. I’m presuming that we will be getting this data soon.

Lastly, the Finance Committee, along with the Mayor are planning to hold a meeting at Maryland Hall to present and discuss with you the proposed fiscal 2019 Budget and CIP. The meeting will be on 30 May at 7 PM. We plan a formal, but short presentation and then take your questions and hear your opinions.