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Originally published on Thursday, March 26, 2009 in the Local & State category of The Fayetteville Observer.
City
Spending Revenue forecast, debt leave big hole
By Andrew Barksdale
Staff writer
The city of Fayetteville could face ballooning deficits in the coming
years, according to a financial forecast that promises to make an already
difficult budget year harder.
Last week, city officials presented a five-year forecast of projected spending
based on the City Council’s priorities in public safety and transit,
among other initiatives.
Spending in the general fund would jump to $168.3 million in five years
— a 20 percent increase over this year. Projected revenues would climb
17 percent during that time, but that doesn’t tell the complete picture.
The city plans to spend nearly half of its reserves this year balancing
the budget and an additional $7 million in reserves next year.
In three years, according to the forecast, the city’s savings would
be wiped out unless the council cuts some of the projected spending or raises
taxes.
Some council members, including Keith Bates, say the council should begin
looking at cuts to head off the potential financial crisis. He is recommending
a wage freeze — an unpopular idea that might not win support with
the rest of the council.
“We need to be looking at reducing expenses now,” Bates said.
“With this recession, now is not the time to be raising taxes.”
Lisa Smith, the city’s chief financial officer, said the five-year
forecast makes several revenue assumptions, including no tax increases or
windfalls from this year’s property revaluation. The report assumes
property tax revenues will grow 3 percent annually.
City Manager Dale Iman said the five-year forecast is by no means a recommended
budget. By law, the city must adopt a balanced budget, and the council has
a policy of keeping at least 10 percent of its operating budget in reserves.
Councilwoman Val Applewhite said the forecast shows how the council’s
spending commitments will far outpace the predicted growth in revenue in
two or three years. She said talk of lowering the tax rate this year during
revaluation probably motivated Iman to have the five-year forecast prepared.
“It’s so we can see what we are up against,” Applewhite
said this week. “To be honest, I was surprised.”
Some council members are talking about adopting a so-called revenue-neutral
budget. The state-defined term, which is a bit of a misnomer, means decreasing
the tax rate to a level that would generate the same amount of revenue if
there were no revaluation while allowing for the natural growth in the tax
base. The city is predicting its tax base will grow by 3 percent a year,
thanks to new construction. The city reaps revenue from other taxes, fees
and interest earnings.
The council was not asked to take any action when it got the report last
week. Iman is scheduled to present his recommended budget, along with a
proposed tax rate, at the May 4 work session.
Iman already is preparing for a leaner budget. This month, Iman told department
heads to trim 5 percent of their operating budgets for next fiscal year
at savings of almost $1 million a year.
The current tax rate is 53 cents per $100 in assessed value. Because many
homeowners have seen their assessments rise between 20 percent and 40 percent,
most would see larger tax bills even if the tax rate remains unchanged.
Councilman Ted Mohn said he hopes to avoid higher tax bills. He has asked
the council to consider at its April 6 work session directing Iman to draft
a new budget that caps new spending at 4 percent. Doing that would essentially
mean a revenue-neutral tax rate, Mohn said, and force the council to make
budget priorities.
“We may have to eliminate or delay nice-to-have projects,” he
said.
What projects might be chopped are not known. One could be a proposed transportation
center, which has not been funded, but would require a local match in spending.
Some of the council’s initiatives, which have been included in new
spending in the five-year forecast, include hiring more police officers
and firefighters; boosting the level of transit spending to the statewide
average; paving more dirt streets; and sticking to a long-term capital-improvement
plan that was adopted last year. Federal grants that would pay for some
of those new positions would be phased out over five years and burden local
taxpayers with the cost.
Applewhite said the bleak financial forecast will make adopting a revenue-neutral
budget a hard sell, “but I’m open for discussion.” She
said crime and transportation are at the top of the city’s list for
new spending.
“We have committed to that, and there’s no turning back on that,”
she said.
Mayor Tony Chavonne said the council should focus on adopting the next year’s
budget, which starts July 1, and worry less about future years. The revenue
projections get murkier the further out in the five-year report, he said.
“That wasn’t a budget presentation,” he said.
Chavonne said he has not heard much interest on the council in keeping the
tax rate the same. He said the city might have to delay some new spending
and take a longer time to reach some of its goals for transit funding or
paving streets.
Councilman Bobby Hurst agreed, adding that the city could get additional
money from the federal stimulus package.
“We’ll definitely have to look at some cuts in new spending,”
he said. “One thing you don’t want to do is cut jobs.”
BUDGET DEFICITS
Fayetteville officials have projected spending over the next five years
based on the City Council’s priorities. Expenses will outpace revenues
every year.
The five-year forecast assumes natural growth in the property tax base —
3 percent a year — as well as normal growth in other tax revenues.
The five-year forecast is not a budget recommendation. Cities must balance
their budgets.
Here is a five-year look at projected spending and revenues. Also shown
is how the deficit would theocratically affect the city’s fund balance,
or reserves, annually if North Carolina allowed deficit spending.
Fiscal year 2010 starts July 1. Figures are rounded. Figures in parentheses
are negative.
FY 2010
Expenses: $141.5 million
Revenues: $134.6 million
Deficit: $6.9
Fund balance remaining: $9.4 million
FY 2011
Expenses: $144.1 million
Revenues: $138.2 million
Deficit: $5.9 million
Fund balance remaining: $3.4 million
FY 2012
Expenses: $152.5 million
Revenues: $141.9 million
Deficit: $10.6 million
Fund balance remaining: ($7 million)
FY 2013
Expenses: $159.8 million
Revenues: $143.8 million
Deficit: $16 million
Fund balance remaining: ($22.6 million)
FY 2014
Expenses: $168.3 million
Revenues: $147.4 million
Deficit: $20.9 million
Fund balance remaining: ($42.9 million)
WHERE THE MONEY GOES
The following shows the top five spending areas, by percentage, in the city’s
general-fund budget, which pays for most city services and loan obligations.
This year’s general-fund budget totals $134.4 million.
Police: 31 percent
Fire: 15 percent
Solid Waste: 6 percent
Parks & Recreation: 11.5 percent
Engineering & Infrastructure: 7.5 percent
Everything else: 29 percent
Source: City of Fayetteville
