Full Text
We’re feeling the recession in the City of Missoula. Despite our best efforts, the City of Missoula’s General Fund is in tough shape for Fiscal Year 2010. Our expenditures, trimmed by nearly 4 percent from Fiscal Year 2009 levels during our budget process, still outpace revenue projections, which were also conservative. For FY10, we see fee- based revenues, fines, transfers and interest earnings continuing to decline. They total about $600,000, which swallows up most of the planned, typical savings in the budget. (Most years, the General Fund ends up with unexpended money that we generally apply to fund balance.) Because of the lackluster revenues, we need an additional $650,000 in budget savings to make FY10 work. In all, we’ll have saved about $1,250,000 by the end of the fiscal year. In big, round numbers, here’s how that works: Recap for FY 10 Projected Revenue Increase (Decrease) Taxes, including motor vehicle taxes, which increase this year 50,375 Licenses & permits 16,978 Intergovernmental - due to reduction in school resource officer funds (89,373) Fees (-$140K in OPG) + (-$37K court and police) + others (221,210) Fines (mainly police) (144,151) Miscellaneous (2,900) Interest Earnings (95,000) Transfers, including reduction in sewer R & D transfer (-$190K) (211,088) Projected Revenue (Shortfall) (596,369) Additional savings per budget (650,000) Total Expenditure cuts/holdbacks needed (1,246,369) In December, I asked my leadership team to find an additional 2.8 percent savings in their operating budgets beyond the savings we’d already asked for in the fall of 2009. Those additional savings are identified in the table that follows. The detail of all of these proposed holdbacks in spending are also included in a separate spreadsheet. You can see that more than half of the savings will come from personnel budgets because of vacancies and positions we’ve elected not to rehire at this time. The rest of the savings come from various parts of the operating budgets. Please note that the $225,961 debt service payment budgeted for CIP equipment does not need to be made until October of 2010 (which is in FY11). This occurred because the lease agreement was not executed until September 2009. ---PAGE BREAK--- Salary Savings (658,826) Supply Line Savings (61,420) Contracted Services/Utilities/Other Purchased Services Savings (106,291) Travel/Training Savings (92,114) Debt Service Savings (225,961) Contingency/equipment purchase savings (65,000) Revenue Increases (43,604) Total Expenditure Holdbacks/Additional Revenue (1,253,216) The following graphs illustrate the issue that the City faces with many of our revenue streams. For taxes and intergovernmental revenues, you can see that they have continued to increase, but at a very modest rate. However, most of the other revenue categories are now experiencing declining revenues. ---PAGE BREAK--- Fee and fine revenue have declined for the last two years. ---PAGE BREAK--- Licenses and permit revenues have been flat for the last two years, but they are less than they were three years ago. Investment earnings fell significantly last year as interest rates declined to record low levels. ---PAGE BREAK--- Economic Factors This past spring, University of Montana economist Patrick Barkey, had forecast that Missoula’s economic growth for 2009 should be in the 1-2 percent range, well below the 2-3 percent per year from 2003-2005. Much of the reduction in economic growth was attributed to the shutdown of a major wood products plant, Stimson plywood and sawmill, (and now Smurfit) along with increased competition from surrounding communities for retail stores (new chain stores), health care and professional services. Even the opening of Direct TV’s call center in Missoula was unable to offset the other factors noted above. A more-severe-than-expected U.S. recession is always a risk to BBER’s forecast for the Montana economy, Barkey said. The impacts of the last two recessions (in 2001-02 and 1990-91) have been milder in Montana than the national average. We considered all of these factors in preparing the City of Missoula’s budget for the 2010 fiscal year. The decline in expected revenues in FY09, especially in the fee-based services related to the decline in economic expansion (planning and engineering fees, business licenses), investment earnings and in police fines, combined with a choice to hold the line on tax increases for FY10, necessitated a 3.7 percent reduction in baseline expenditures for the FY10 budget. Sewer utility rates were not increased for the 2009 budget year. They will be increased by 5% for the FY10 budget year to accommodate an upgrade of the wastewater plant head-works and the fact that sewer utility charges declined 2 percent for the first time in over a decade in FY09 due to reduced industrial and commercial billing, reflecting the effect of the current national economic recession. The city continues to grow in population and in new sewer connections at a rate of approximately 1.5 percent per year, although that growth was offset by a slowdown in the commercial and industrial sewer accounts. Missoula is the second-largest trade and service center in the state and the dominant trade center in Western Montana. Like Billings, the Missoula retail industry is being challenged by the opening of “big box” and other specialized retailers in smaller communities. Missoula’s trade center-service industries (such as health care and business and professional services) continue to grow and expand, but they too are being challenged by growth in the outlying areas. Major Financial Projects Over Fiscal Year 2009, a number of major projects were either initiated or completed. These included: A total of $11,766,777 of new construction was completed on additional infrastructure, buildings and equipment that included the compete remodeling of two fire stations and construction of a new fire station (Station serving southwest Missoula. $6,566,915 of the $11,766,777 of new construction noted above was for street and bicycle/pedestrian improvements completed in FY09, mainly for streets in new subdivisions throughout the city. $5,234,097 of new sewer mains are in service because of the completion of the new West Reserve sewer line extension project. General Fund The General Fund year-end balance for FY09 decreased to $0.9 million from $1.2 million at the end of FY08. We planned the fund balance to remain the same for FY10, which would place the FY10 year-end fund balance at approximately $0.9 million. The decrease in fund balance in FY09 was again mostly about declining revenues, especially in the fee-based services related to the decline in economic expansion (planning and engineering fees, business licenses), investment earnings and in police fines. The FY09 expenditure savings increased to 6% due to mandatory holdbacks required of all General Fund offices but were insufficient to offset the revenue declines. The city addressed this issue by requiring a mandatory 3.7 percent reduction in baseline expenditures for the FY10 budget. The City has a goal of rebuilding its fund balance in the future to the level it had at the end of FY07 ($2.1 Million). ---PAGE BREAK--- Special Revenue Funds The Building Inspection Permits Fund did generate a positive year-end fund balance for FY09 because of a net reduction of four employees over the past two years, which substantially lowered expenses for the fund and brought staffing in line with the reduced workload experienced by the office due to the current economic recession Debt Service Funds The Debt Service year-end fund balance is budgeted to be spent for all general obligation debt but not for special improvement district (SID) debt service funds. The City is required to maintain a reserve equal to 5% of all outstanding SID bonds. In addition, the SID debt service funds are expected to build in size until bonds are called (redeemed) early due to prepayments of the underlying assessments supporting these debt issues. Capital Project Funds The Capital Projects year-end fund balance for FY09 was negative. This will be eliminated during the course of FY 2010 for the most part, as the projects are completed and the bonds are issued to reimburse the City for the infrastructure constructed. Enterprise/Internal Service Funds The Enterprise Fund balances are slated to decrease by nearly $1.2 million as certain large construction projects at the Wastewater Treatment plant are completed. The City's only Internal Service Fund, the City Health Insurance plan, is budgeted to maintain a three-month operating reserve. The plan has performed well financially the past four years with the result that its current fund balance is in well in excess of the targeted three-month reserve. Component Units The City of Missoula has three component units, the Missoula Parking Commission (MPC), the Missoula Redevelopment Agency (MRA) and the Business Improvement District (BID). The parking commission has an operating budget of $1.3 million, which it usually spends each year. It maintains a reserve of $3.9 million, part of which is required for coverage pertaining to an outstanding bond issue and the rest of which will be used sometime in the near future to construct additional parking in the downtown business district. The first phase of redevelopment of the downtown mill site along the Clark Fork River was initiated with the issuance of $3.6 million of tax increment bonds in Urban Renewal District II. This project moved into the second phase of development in FY08. Conclusion I talk about the City of Missoula’s budget every day with my team, my staff, with council members and with the many folks in this community I serve. There is no question that the last two years have been challenging and that the next two will present similar challenges. We’ll be talking about how we find new revenue and how we save more money, and we’ll be talking about how we bring more and better jobs to Missoula, a great place to live, work, play and raise a family.