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Clarksville City Council Budget Recap for June 22nd, 2012 – Part 2 – Final

 

Clarksville City Council - Ward 10Clarksville, TN – As I start this second report on the final Clarksville City Council meeting/result of the FY 2013 budget, you need to know that I sponsored an amendment to reduce it.  At first, I recommended a $2 million cut of the total spending request.  This would have lowered proposed expenditures to $79 million for FY 2013.

This would still represent a spending increase of $1.5 million over the initial projected budget of $77.5 million for FY 2012. Due to the $2.3 million that was eventually cut from the FY 2012 budget, actual spending was $75.2 million. Thus, true spending growth from FY 2012 to FY 2013 could have been $3.8 million ($79 mil-$75.2 mil) or 5%.

There seemed to be some legal or accounting issue about using a dollar amount reduction, since I was not reducing or eliminating particular funded items. So I changed my motion to a 2.5% across the board budget reduction, which still equated to a $2 million cut. With my motion, a whirlwind of why that couldn’t work and other assorted reasons of how Clarksville and I would go to hell, if we did this, ensued.

In the following paragraphs I will lay out my rationale for the spending cut. I see potential problems ahead in FY 2014 caused by the spending in FY 2013. So hang in there with me as I explain.

A couple of council members basically expressed how could I look into the future and know what was going to happen.  Do I have a crystal ball that sees what will happen? No. Can I pick Lotto numbers and win every time?  No.  Can I contact my future self and find out about the future? No. However, I can look at trends over time, look at costs that will be carried forward through time, decisions made (or lack of them) and analyze their effect.

Anyone on the council could do this and draw their own conclusions, but I will show you my work and analysis. Some of this may be a repetition of information I sent you in earlier reports, but restating here should smooth the flow of analysis.

City Spending / Expenditures

FY 2012 budget (initial projection)  –  $77.5 million

FY 2012 amend  (what we actually spent)  –  $75.2million (reflects $2.3 mil budget cut in April 2012)

FY 2013 budget (initial projection) — $81 million

City Funding / Revenues

FY 2012 budget (initial projection) – $77.6 million (included borrowing $2.5 million to balance the budget and taking $1.5 million set aside for Capital Projects)

FY 2012 amend (what we actually gained) – $82.5 million (included borrowing $3 million (up from $2.5m), $1.5 from Cap. Proj. account and an unexpected increase in sales tax collections of $3.7 million; while some other revenue collections decreased)

FY 2013 budget (initial projection) – $75.1 million (reflects no borrowing and no continued bump-up of tax collections)

Surplus / Deficit Of Collections & Spending

Surplus for FY 2012 budget –   +$7.3 million (reflects about $2 million not spent of borrowed $3 million, $2.3 million cut and saved from budget, and unexpected sales tax gain of $3.7 million)

Deficit for FY 2013 budget –   -$5.9 million ($81 mil spent – $75.1 mil revenue)

Fund Balance

(Reflect 20% Emergency Funds and Unobligated Funds)

FY 2012 Fund Balance (End Total) –  $24.8 million (reflects $7.3 mil from 2012 surplus, and $17.5 million carried forward from past years balance)

FY 2013 Projected Balance (balance –deficit) –  $18.9 million ($24.8mil – $5.9mil)

FY 2013 20% required fund balance –  $16.2 million ($81 mil spending x 20%)

FY 2013 Unobligated Funds –  $2.7 million ($18.9 – $16 .2)

These numbers set the stage for looking at FY 2014. You may track/cross reference these numbers from the Mayor’s budget recap sheet I attached to this email.

Building A Case For Potential Budget Problems In FY 2014

Expenditures

In building a case for the FY 2014 budget expenditure projection I will use the FY 2012 budget (projected) of $77.6 million as the floor from which to start. Here is the rationale for that. When the mayor asked for departments to cut their FY 2012 budget, most did not, stating that they were lean and being very efficient with their money. Any voluntary reductions on their part would/could result in reduced or eliminated services.

The police stepped up and offered about $1.6 million and other small savings from some departments added about $.7 million due to lower costing equipment or saving money by spreading the time between when an old employee left the city and a new employee replaced them. The police said they had done their part for FY 2012 but had to have that money back in FY 2013 & FY 2014 or else they too would suffer reduced service capability. The mayor gave the police money back in 2013 and accepted that no further cuts were possible in 2012.

As you can see for FY 2013 spending grows at a fast rate. Much of this is due to brand new spending and some from debt service (principle & interest payments) that will hit the books in 2013 due to borrowing actions in past budget years. Some of the spending in 2013 will be a mandatory carry-over into FY 2014 budget year. The Capital Projects borrowing of over $12 million in FY 2013 will increase debt service (interest & principle payments) in FY 2014.

Here are the cost items that will occur in the FY 2013 budget and have a residual affect into FY 2014:

  1. Increased debt service payments of almost $1.5 million are reflected in the FY 2013 budget and that cost increase will continue into FY 2014 (ref Section 3 – Other Financing Uses; Transfer to Debt Service Fund.  Compare FY 2012 amended to FY 2013 proposed as my source)
  2. Debt service payments are scheduled to increase another $865,000 in FY 2014 due to borrowing $12 million for capital projects in FY 2013 (new debt gained and debt service increases from FY 2013 add $2.4 million in 2014 budget when compared to FY 2012).  The city finance department provided the FY 2014 projected budget/debt service cost increase to me.
  3. The FY 2013 city pay raise of 1.6% (provided by the city Human Resources Dept.) equated to over $666,000 in additional costs; a similar conservative pay increase amount in 2014 would be reasonable to assume.  Thus, pay increases for 2013 and 2014 could add approximately $1.3 million to the FY 2014 budget when compared to the FY 2012 budget.  The council vowed when accepting the last pay study it would maintain employee pay at levels equal to their peers in other similar government agencies. The city finance department provided the employee pay increase amount to me.
  4. According to mayor’s budget and her budget letter to citizens, she added 22 new city employees at an additional cost of $715,358 for FY 2013.  I will assume no new employees (although that is unlikely) and straight line that cost into FY 2014. (Mayor’s budget letter of June 7th, 2012 to the citizens of Clarksville confirms employee number and costs)
  5. What the mayor did not tell you in her letter was I found that enough part-time workers were added to roughly equal 11 Full Time Equivalent (FTE) positions in the FY 2013 budget.  Looking at where they were added (9- Parks & Rec, 1- Fire Dept., 1-Golf Course (rounded to a whole FTE in fire and golf), it is unlikely based on past history they would be cut in 2014.  Trying to calculate the exact cost of the positions was difficult based on how they were recorded in the budget.  However it appears most (maybe all) are paid above minimum wage.  I believe $200,000 is a good estimate.  Even at minimum wage for all positions the amount would be over $165,000. (Source is mayor’s 2013 budget)
  6. Police Dispatcher costs will increase around $170,000 to reflect a full year’s pay and benefits in 2014.  The rationale for full costs not reflected in 2013 was due to a several fiscal quarter delay in authorizing/funding them in FY 2013 budget.  These same positions were used by the police as part of their FY 2012 reduction, which the mayor accepted.  Four of these positions were available/offered in the 2011 budget and not filled then either.  So this is the third year these positions have been installed in a city budget. (Source is mayor’s 2013 budget)
  7. Firefighter costs will increase by around $40,000 for a full year’s pay and benefits in FY 2014 after a delay in authorizing/funding them in FY 2013. (Source is mayor’s 2013 budget)
  8. Although the mayor would not commit to funding a new fire/police station in FY 2014, after spending/borrowing $350,000 in FY 2013 to design and buy land for a new fire/police facility at Exit 1, it would be extremely illogical not to.  The fire chief has told the council in as firm and diplomatic terms as possible this is needed and needed now.  It is likely 15 new firefighters for the station would come on board for one budget quarter in FY 2014 at a cost of at least $164,000.  (Source of number for firefighters to man a fire station – City Fire Chief, cost of firefighter pay and benefits based on FY 2013 budget costs for new firefighters under the Fire Department budget codes)
  9. In Sept 2010 (FY 2011), Clarksville was awarded enough money to pay for 12 new police officers.  According to information I received from city finance, the grant is paying the full salary of the positions.  The grant is supposed to end Aug 31 2013.  The city had to ramp up hiring and training slowly so only $132,440 was spent of the almost $1.9 million grant in FY 2011.  $482,029 was spent in FY 2012.

Based on budget numbers, 12 positions cost about $587,000 (pay and benefits) per year.  That  appears to be the amount budgeted in FY 2013.   If the grant runs out two months into FY 2014, the city would pick up a cost of $489,000 in FY 2014.  However, it seems we may be able to extend usage of that money if the city requests it since it takes time to build up the manpower and train.  If we do/can we’ll get through FY 2014 on the grant money.

However, we’ll pay that $587,000 in FY 2015 as new payroll cost.  For purposes of my cost model, I assumed that we will be allowed to carry the money over and use it.  If we don’t get to do this, almost another half million will be added to 2014 budget costs.

A couple of my fellow council members basically accused me of making up numbers and stated that the future is too unstable to make such budget projections. I have stated my sources and I believe I have used logical rationale to carry forward such costs. Wishful thinking will not make them any less realistic.

If you use FY 2012’s initial budget as a floor ($77.6 million) and add just the costs mentioned in items 1-8 alone ($5 million-rounded) you come up with a total spending budget of $82.6 million for FY 2014.

As an alternate approach to looking at FY 2014, I straight-lined the mayor’s FY 2013 budget into 2014. Then added only the costs that would be additional/effective in the FY 2014 budget. That budget total came to $82.9 million ($81 million (FY 2013 budget) + .9 million in new debt service + .67 million in new raises + .17 million in police dispatch + .04 million in firefighters + .16 million in new firefighters). I come very close in projected total spending using either method.

My expenditure model and factors do not add any inflation, fuel hikes, insurance hikes, additional personnel or additional capital projects. All of which would likely happen and drive costs up further. Thus, with this conservative spending approach based on what was approved in the 2013 budget and barring any major budget reductions between now and 2014, I have a budget expenditure prediction of $82.6 million for FY 2014.

Revenue

Past year-to-year revenue growth (adjusting for factors such as upswings in unexpected and increased tax collections, property tax increases, census allocation changes, or borrowing money to make the budget balance) often runs between $1 & $2 million. I looked at actual revenue funding closeouts from budgets I have from 2007 to 2012. So for an average I will use $1.5 million in revenue growth per year.

If I used the FY 2012 amended revenue and subtracted the unexpected tax collections (which are not being repeated in FY 2013 according to the city finance dept.) and the borrowed and transferred money, the normal revenue flow should have been around $74.3 million ($82 .5 – 3.7 mil (unexpected taxes)- $3 mil (borrowed) – $1.5 mil (transferred).  If I use the FY 2012 initial budget revenue prediction and subtract borrowed and transferred funds, I get around $73.6 million ($77.6 – $2.5 mil – $1.5 mil).

If I use $74.3 million as the FY 2012 adjusted revenue (minus the money amounts I listed above) and add the $1.5 million average revenue growth increase, my FY 2013 Budget revenue prediction should be $75.8 million.  If I use the $73.6 million for FY 2012 adjusted revenue and add $1.5 million I get a FY 2013 revenue prediction of $75.1 million.   In fact, the FY 2013 expected revenue projection is $75.1 million (according to the city finance dept.; see section 1 – operating Rev & Financing Source of the attachment).  So I am either right on target or at least in the ballpark with average revenue increase of $1.5 million/year, as I am usually that close in past budget year tests I performed.

So to predict the potential revenue in FY 2014, I will use the $75.1 projection of FY 2013 and add $1.5 million.  This results in a FY 2014 revenue prediction of $76.6 million.

If you remember from an earlier section of this report I showed $2.7 million in unobligated FY 2013 money.

So where do the numbers fall for FY 2014:

Predicted Revenues: $76.6 million

Predicted Expenditures: $82.6 million

Deficit: -$6.0 million

Utilize unobligated funds: $2.7 million

Deficit remaining: -$3.3 million

One other budget factor can come into play here.  If you recall from earlier in this package, the spending deficit for FY 2013 is $5.9 million.  A review of past budgets that had initial deficits showed the city was able to recoup at a rate of $1 million or more during the first year.  It is my understanding that a sizable amount of this recovery can be from personnel pay that wasn’t used – either by not filling authorized positions or from the gap when employees leave and are replaced.  It can also be affected by capital projects or expenses that were going to use general fund money as payment and were cancelled or funded through other means.

To be on the positive side, lets say $1 million is saved during the year and can offset part of the predicted deficit. That would still leave $2.3 million shortfall in 2014.

Warning: However, I am not as optimistic that the city may recover this initial $1 million for three reasons.

First, the council made an amendment to the FY 2013 budget that any personnel pay savings will not fall back into the general/reserve fund, but will go directly to pay debt.  The mayor did not say anything about this amendment, but voted against it. I would wager that she knows this will hinder the replenishment of the reserve fund and increase the budget shortfall pressures in FY 2014.

Second, except for one very small capital project, all other projects are using borrowed money. So any cancelled capital project will not add general revenue money back into the fund.  This potential action and directing leftover personnel pay to debt service would help to a small extent with debt service payments in 2014.

Third, the larger the revenue deficit, the slower it seems to recover. The FY 2013 has the largest predicted revenue deficit of any budget I have seen in the past six years.

Since my research showed a $2.3 million shortfall in money to operate the city in 2014, I made a motion to cut $2 million or 2.5% in the FY 2013 to provide a cushion for 2014.  It was at this point that I tried to explain what I had found, but it fell on some deaf ears.

I believe it was Councilwoman Johnson that started in on me that I was being fiscally irresponsible for wanting to cut the budget at this point in the process and trying to look at 2014 when the costs variables were always changing.  I countered that my budget book had a different definition of fiscal responsibility and it included looking at the future yearly costs, predicted budget factors and long term strategic plans (this last part is hard to do since Mayor McMillan has not provided any short or long term plans to the council).

My fiscal responsibility book had said to take a $2 million cut in the FY 2012 budget, while Councilwoman Johnson sat there pleased we had a “balanced budget “(using borrowed money for the day-to-day operations of the city) and no cuts were needed because people would lose jobs (she sits on the finance committee). In less than 90 days after Councilwoman Johnson voted for that initial FY 2012 (along with the mayor), the mayor had to announce a budget reduction was needed for FY 2012. Turned out my fiscal book was right in 2012, as we finally took a $2.3 million cut.  In the end, my motion to cut the FY 2013 budget failed in a 6-yes & 7-no vote.

If my FY 2014 budget projection of expenditures and revenues comes close to reality, Mayor Kim McMillan will have three major options.

  1. Borrow more money to balance the budget like she did in FY 2012. This would not look good having to borrow money on two out of three budget years just to operate the city.
  2. Be prepared to take a budget cut of around 2.5 %/$2 million (or more if the police grant is not allowed to roll over or if inflation and other operating costs rise) sometime later FY 2013.  She was urged by about half the council to take this action at the start of the FY 2012 budget, which she (and Councilwoman Johnson) refused to do. It would be bad form to have to repeat history again.
  3. Raise taxes.

Final Comments

You thought I would never finish. As you saw in my Part I report on Monday’s city council meeting, the mayor would not commit on spending to continue for any project she started funding in FY 2013. The new fire and police station could easily cost a couple of million. The new fire truck for that station will be near $450,000. Fire personnel, equipment and training could easily reach another million for the first full year of operation.  The fire department will need another fire truck replacement to the tune of about $250,000 in 2014.

We are short 30+ police officers according to national standards and the council had been adding a number of officers every two years and we should have added more than we did in this new budget. We need to add more officers in 2014.
New park land could run a couple of million dollars before preparation and equipment. We will likely need a few more million to finish the ADA sidewalks requirement.  We will need money to lengthen the airport runway. It has now come out that Mayor McMillan wants to build the city’s own version of the Roxy/performing arts building and that would run $15 to $20 million based on past estimates.  I could add more items but you get the point.

The other thing I find interesting is when I mentioned the concern over the impact to the FY 2014 budget, the mayor was rather emphatic that was not on the table to discuss in relation to 2013. Yet, in past committee and council meetings the mayor has talked about the need for a multi-year look at budgets so we can see the effects of financial decisions made today and their impact on operational costs in future years. Which is an outstanding idea.

I personally know the city finance department has talked about this. I did it on my own with the data I have shown you. I mentioned and pushed for the need to tie future year planning, budget and strategic development together into a planning package back in 2007 when the council went on the retreat to lay out planning projects for the next two years and again in 2009 at the G&W workshop. So this is not a new idea, but a needed action.

To have taken my suggested $2 million cut would not have been the end of life as we know it.  Some work positions, projects and equipment could have been deferred until two or three quarters into the FY 2013 budget to see how future revenues would look. If my predictions of future low revenues were wrong, then plug the money back into the budget and purchase the items we need. If my low revenue predictions are close to accurate, then the budget shock of taking fast acting cuts during FY 2013 is avoided and milder revenue/expenditure adjustments can take place in FY 2014.

That’s a wrap on the FY 2013 budget. I’ve laid out my thoughts so we will see if I got close when FY 2014 gets here in 12 months.  I would like to know yours.

I also want to say a BIG Thank You to all the folks that have contacted/emailed me with their support of my FY 2013 budget analysis.

For more on the story, see: Clarksville City Council Budget Recap for June 19th, 2012 – Part 1

Editor’s Note: This article contains the view points of Councilman Bill Summers and may not represent the views of the rest of the City Council, the City of Clarksville or ClarksvilleOnline.


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