Frankfort’s finance director says the city could face difficult decisions as this fiscal year closes and a new one begins July 1 unless there’s an unlikely uptick in its $30.65 million annual revenue.
Steve Dawson says the city may need to dip into the reserves to cover about $892,000 in expenses added to this year’s budget – including a 2 percent employee raise, roof repairs, equipment purchases and a new garbage collection program.
After those items, the city’s expenses grew from $31,162,000 to $32,054,000 for the 2011-2012 fiscal year.
“We would break even at the beginning point; it’s all got to come out of the savings account for a fund balance,” Dawson said. That could drop the reserve account balance to about $8.2 million.
And the $32 million will be difficult to cover, considering the city’s income has not exceeded $30.7 million in the past two years, Dawson said.
“And like I told them (Monday) night (at the City Commission work session) I hope our numbers do come out to be $32 million, but I don’t think we are going to see our income go from $30.6 million in 2010 to $30.7 million in 2011 to $32 million,” he said.
After this fiscal year, which ends June 30, the problem is compounded because of recurring costs – including 2 percent higher wages and increases in health care and pension costs, he said.
“When they do that initial budget we’re probably going to be laying at $32 million to $32.6 million (in expenses), and we’re going to have to figure out how to carve that back,” he said.
But many of the capital expenditures on equipment, that are easier to cut back, were eliminated in previous years.
“We were spending $2.1 million in capital expenditures, and we got it cut down to $600,000 – that’s a $1.5 million cut per year that’s already out,” he said of spending reductions made over the last five years.
The city has pulled about $1.4 million out of other city accounts over the last four years to pay for equipment and repairs to avoid using the general fund.
“Before (2007) the general fund has been able to handle all of that stuff, but now it can’t,” he said.
Commissioner Bill May noted in Monday’s work session the reserve account hit a low in 2008 at $7.1 million. To recover, the commission added the garbage fee and raised the sewer rate, cut longevity pay and closed the East Frankfort Park swimming pool, Dawson said.
The city placed a hiring freeze on many positions, leaving 28 more vacant positions today than in the 2006 fiscal year, and it owns 235 vehicles with an average age of six years, he said.
“It’s a problem, because our equipment is getting older, and we aren’t buying anything new to replace the things we have.”
If the reserve fund dips below $8 million – 25 percent of the budget – the Standard & Poor’s bond rating could suffer.
Because the city increased the reserve fund from 2008, it was given a better bond rate last year – reducing the city’s bond interest costs about 0.25 percent.
“So because we raised our fees to increase the reserve fund, and we had policy for the commission to set a balanced budget, they upgraded us,” he said.
“And I want to keep that rating, because we are going to issue a bond in 2014 and 2016 (for sewer system upgrades), and I don’t want to see our interest rate go up. We always have to be looking behind us and in front of us – both ways – when we’re doing this budget thing, and it’s a year-round deal.”
Mayor Gippy Graham brought up his budget concerns during the months of the garbage program discussions. On Monday he questioned where this fiscal year might end and suggested next year’s budget may be difficult to balance.
“General fund reserves took a dive, and now we are getting it back on track – I don’t want to go back,” Dawson said.
“I’m just trying to keep it in the middle of the road so we don’t have to make any really rash decisions.”
Beginning at the end of February, Dawson will be working on the next fiscal year budget, but the city is not all “doom and gloom,” he said.
“The city is moving on strong, and I want to continue that trend, and that’s why I’m trying to watch out in the front and watch out in the back so we don’t get run over by something worse,” he said.