City of Decatur FY 2010 Budget Address
Crafting a governmental budget is never an easy process, and these uncertain economic times make it even more difficult as we must find a way to fund critical city services upon which this community has come to rely while lessening the taxpayer burden of paying for those services as much as possible. Simply put, people are struggling and we here at city hall and other organizations throughout the community have to find a way to do more with less, just like everyone else.
As you know, our early projections for the coming year’s budget predicted a General Fund deficit of approximately $2 million. We now expect that the deficit will be even higher as compounding the situation is the abnormality that we will have 27 payrolls in FY 2010 compared to the usual 26 payroll periods. This happens approximately once every 10 years and we expect that it will cost the City budget about $1 million, meaning that the actual projected General Fund deficit for the coming year (FY 2010) is expected to be $2,989,200 which is 989,300 more than we originally anticipated.
In response, this budget calls for cuts and revenue enhancements totaling a minimum of $3.1 million. It is balanced and will allow us to be able to close the budget gap without any sort of tax increase. Hopefully the public will see that we are doing our part here in city government to cut spending as best we can and it is our hope that other groups that we currently fund will understand the need to tighten their belts as well as we don’t think that we can fund them at the same levels as we have in the past.
Again, in this economy, we all have to find a way to do more with less. With this budget we have cut $1.2 million from city operations alone to help fill the budget gap, items which include cutting travel and conference expenses by 35% and eliminating a number of positions which now stand vacant. We will also reassess the criticality and necessity of the services we now provide and explore opportunities to use current technology to improve efficiency. There are a number of capital projects that we propose delaying and, perhaps most importantly, some longer term solutions that will help us to cut our expenditures in the years to come.
In fact, the best way to look at this budget might be to divide it into two sections;
- Short term fixes: One time cash infusions and transfers from other city funds which provide a temporary “patch” to get us through. These actions will help us to get through our immediate crises but cannot continue on an annual basis. Furthermore, these types of actions do not cure the systemic deficit issues in the General Fund.
- Long term solutions: Ongoing policy changes to the way we do business that result in continued cost reductions and, hopefully, improved efficiency.
An examination of the General Revenue Fund Balance Report shows that the fund has run in a deficit in 3 of the last 4 fiscal years and there are a number of reasons why. For example, this year brought about substantial one-time expenditures including the settlement of the AFSCME 268 and IAFF 505 collective bargaining agreements, both of which included retroactive pay increases that cause a one-time blip on the financial statements. In the coming year we will see an increase in IMRF contributions ($250,000) and in street light utility rates ($200,000) from Ameren among other things.
It does not take a financial expert to see that absent any fiscal measures as have been proposed to reduce the projected 2010 general fund we will deplete the expected $2.8 million fund balance by the end of next fiscal year, a situation that I don’t think any of us want to have to experience.
Short Term Fixes:
I am proposing 4 one-time fund transfers for the FY 2010 Budget which would come from the following funds: Capital Fund ($660,000), Planning Fund ($125,000), MIS Capital Fund ($400,000), and DCDF Inc. fund ($500,000).
Money allocated to the GRF from the Capital Fund will be done either by foregoing projects or reducing the scope of work we will perform on several activities, with proposed project cuts listed on the attached spreadsheet. The DCDF transfer will require DCDF board approval and I will address the board if the City Council concurs with this recommendation.
Long Term Solutions:
Simply put, personnel costs make up the bulk of all city costs with approximately 80% of all of our costs being personnel related which means that small percentage changes in personnel expenses can generate large savings on a dollar-for-dollar basis.
I am proposing that we offer as part of this budget a Voluntary Severance Plan (VSP) for all City employees. I am confident that this will offer our employees a fair incentive to separate from employment with the City of Decatur. This incentive will be a fair recognition of their hard work and many years of dedication to the City. I implemented this plan twice in Sangamon County and it produced significant savings.
The VSP would be offered to all City employees no matter of their age or years of service. The VSP functions by developing a cash payment incentive to employees who agree to sever their employment (either through resignation or retirement) with the City. The position is then left vacant for 6 months (exceptions are made for public safety positions) to cover the cost of the incentive payment. The goal is to save 40% of the salary and benefit expense on each person who takes the VSP. The department is allowed to utilize the remaining 60% to reorganize their departments and its operations within the guidelines of the plan.
In order to recognize the greatest amount of operational savings in the GRF, we need to reduce personnel expenses and the VSP is the first step in making these cost reductions. It will give us the opportunity to reorganize some City departments and make them more efficient. It is impossible at this time to estimate the expected savings from the VSP as the total dollars saved will depend on the number of employees who take the plan. We do know that we will save 40% of the salary and benefit expense for all the employees who take the VSP incentive. One very attractive feature is that the cost of offering the VSP is recovered in the same fiscal year it is offered. From the employer’s perspective, it makes the VSP superior to the Early Retirement Incentive (ERI) program available through IMRF. I estimate that if the city offered an ERI to its employees there would be an additional $1 million in annual pension contributions required to fund the plan. Therefore, the VSP is superior in the arena of recovering the cost of the plan.
Summary
In economic terms, the last quarter of 2008 and first quarter of 2009 have brought events that our country and city have not seen for many decades. The collapse of the housing market, the decline in investment values and interest rates, and the restructuring of banking and credit industry will undoubtedly affect the City of Decatur and its residents. There have been announcements of lay-offs and furloughs as some of our major employers with no sense of whether this is the beginning or the end of the effects of the economic downturn. The only consensus is that nobody really knows for certain what we can expect the economy to produce in the next 12 months.
This budget address has focused completely on the General Revenue Fund and the overall budget contains many other funds that you should take the time to review. I have focused this effort on the GRF because it has the most immediate term financial issues. Although my recommendations solve the problem this fiscal year, continued solvency of the GRF will require ongoing efforts to control operational expenses. Controlling those expenses in an uncertain economic climate will be difficult, but the effort is entirely necessary. This could require mid-term budget adjustments if the impacts of the economic downturn are more severe than we expected.
Ryan P. McCrady
City Manager