My Comments on the Mayor's Budgets
As I've written about many times before, the City's budget is not sustainable, yet there is no strategic plan from the mayor to address certain critical facts including:
1. The City's expenses are growing substantially each year, primarily driven by increased costs for personnel. The City has over 600 employees to serve its 39,000 residents and businesses. Employees - most of whom are hard-working and strive to improve the City - are well paid, and arguably higher paid than counterparts in larger and more complex jurisdictions. Many City employees have contractual rights to 5% annual increases in pay and generous benefits including health insurance and pensions, to which they also contribute. Again, most employee are hard working individuals who strive to make the City better every day. My issue is with the City's ability to manage its expenses.
2. The City's revenues are growing slower than expenses. Taxes receipts are forecast to grow at 2.5%, while salaries grow at 3.5% and benefits grow at 5%. As this is happening, the City's savings go down and the City will run out of money, unless it changes course or takes on more debt.
3. The mayor's budget eliminates a budget for vehicle replacement, typically an annual expense of $500,000. The average vehicle in the City's fleet is 9 years old. Eliminating the replacement budget won't stop vehicles from continued wear - it means maintenance costs will increase instead. The city will be putting money into vehicles that aren't worth repairing just to keep them running. By the way, there isn't money in the budget for an increase in maintenance. The Administration intends to explore saving money by replacing some of the worn-out vehicles with Zip Cars. This is an interesting idea, but, once again, there isn't money in the budget to allow for that. One cannot eliminate vehicle replacement and expect to realize savings over the long term.
4. Sidewalk Repair: This year the Mayor's budget proposes to deplete Reserves (or "Fund Balance") by $671,900 to pay for sidewalk repairs. Reserves are the City's savings. The City cannot pay for annual expenses out of savings indefinitely and shouldn't ever pay for annual expenses out of savings. If we have surplus savings, they should be applied to one-time expenses or one-time capital projects. Sidewalk repair occurs annually - it should not be funded out of savings.
5. Savings Depleted by $25 million. The City's surplus savings are spiraling downward. Currently, the General Fund has a large positive Fund Balance, which is offset by monies owed to it by the Enterprise Funds. At the end of FY15 the General Fund Balance was $32.9 million. In FY16 the Dock and Market Funds were merged into the General Fund. Because they owed the General Fund, that reduces the General Fund Balance to $17.3 million. Further, the Transportation Fund owes the General Fund an additional $10.1 million. There is no plan to repay any of this obligation, so in the FY17 proposed budget, the available General Fund Balance is reduced to $7.2 million. This is less than the 15% target for Fund Balance which the City Council adopted because this same trend lead to a financial crisis and increased borrowing for operating cash flow less than 10 years ago. For the first time since then, the proposed budget does not include a substantial surplus to increase those savings.
Proposed Solutions
Below I outline both long-term (after this budget) and short-term (for this budget) solutions.
The following are my long-term suggestions for these and other issues:
a. Investigate the revenue generation from operating the Eisenhower Golf Course through a third party without the County and with bonds to pay for necessary capital improvements paid for by the revenue generated from course operation. The Council needs an analysis of the best path forward. If the course can be operated by the City through a third party in such a manner so that the third party and the City can make a profit, then that will be appealing. If that cannot be done, then other options should be pursued before the lease expires next June.
b. Create a Betterment District for Sea Level Rise and Flood Mitigation Response comprising of those homes and businesses most likely to benefit from investments to prevent damage. The homes and business that would be most impacted by sea level rise or nuisance flooding also stand to benefit the most from protections from those events, so an increased share (not total share, perhaps 50-50%) is responsible. In addition, this district would benefit in an outsized amount from the collective investment. For instance, submitting the proper documentation of existing work to date on the issue would reduce flood insurance to those homes by up to 15% per year. Lastly, having a protected source of funds for these activities would increase the likelihood that the necessary work will get done.
c. Create a Betterment District for Main Street properties to install sprinkler lines to properties. The City would install sprinkler lines to the buildings on Main Street, paid for by the property owners over a 15-20 year period with interest, while the City partners with a bank to front the money for investment. Property owners would then add sprinklers in the buildings and have use their second floors again to generate rents which can partially be used to pay back the loans for the sprinkler lines.
d. Conduct a Forest Drive Sector Study to identify underutilized properties and redevelopment opportunities in that corridor. Improved properties would be valued higher, and contribute to higher real property taxes.
e. For employee pension plans, switch to defined contribution pension plans, rather than defined benefit plans, which are more expensive and unpredictable to manage.
For the short-term, I have a number of suggestions (amendments) for the proposed budgets.
The City's largest revenue piece is real property taxes. At $44 million, it's 43% of total revenues and 62% of the funding for the General Fund. This year, according to the State, assessed values of real property in Annapolis grew. As your home goes up in value, with the same tax rate, your tax contribution goes up. City-wide, this results in an increase in real property taxes by approximately 2.7%, or $1,200,000. The mayor's budget adds this entire increase. In other words, the mayor's budget has the impact of a 2.7% tax increase, though it is called an increase to the tax yield and the rate is constant. I had proposed budget cuts of close to $900K, which would have funded my proposed $400K tax rate cut. Most of those cuts do not have majority support on the Council, so I have narrowed my suggestions to the following cuts, which would still allow for a $240K tax cut:
1. Elimination of the Deputy Harbormaster. Currently, both the Harbormaster and Deputy Harbormaster positions are vacant . With oversight from the Parks and Recreation Director, this office continues to perform with Watch Commanders performing their usual duties. My suggestion is to allow the Harbormaster position to be filled again, but to not replace the Deputy position. This cut would save $75,000.
2. Eliminate funding for the Ombudsman. By definition, an ombudsman a government official who hears and investigates complaints by private citizens against other officials or government agencies. That is a responsibility deemed so important, that it is required by City Charter. In practice, the City has this position filled by a contractual employee, at a cost of $81,700, who works on a host of important issues, but none resembling that of an ombudsman. My amendment is to eliminate this contract position and re-label one of the existing community specialists as ombudsman to better align the title and work getting done.
3. Reduce funding for take-home vehicles. Currently, the City has over $700K in take-home vehicles. Every department director or chief suggests that these vehicles are necessary for emergencies, but some are used less then 5 times per year for that purpose. In the vast majority of these instances, the employees can use a personal vehicle to go from home to report to their work location. In an interest to reach compromise yet make some headway, I'm asking the Council to support a reduction of $100,000 in take-home vehicle expenses. This may be achieved by selling some vehicles and requiring more employees to share a vehicle, but can also be achieved by reduced fuel and maintenance expenses.
4. Lastly, I suggest that one administrative support person in the mayor's office be eliminated. The mayor's office currently has 6 administrative positions, which is a much higher admin-to-executive ratio than in any other City department. Plus, one of these positions is vacant, so this reduction would not require the termination of any employee. This cut would save $67,000.
In total, these cuts would save $323,700. From those cuts, I propose $240,000 in tax relief.
I also propose one enhancement (addition) for $20,000, namely a new position called Spanish Services Coordinator. This person would work under a contract for 20 hours per week the first year to ensure that it is an efficient use of services before making it a permanent position. This person would reduce language barriers to ensure that City services are available to Spanish-only speaking residents, to help Spanish speakers apply for permits to start new businesses, for example, and to generally help integrate this community into the larger Annapolis community.
From the proposed savings of $323,700, after the tax relief of $240,000 and new position for $20,000, this would add $63,000 to net savings.
