The city now has a financial plan on how to stop the bleeding.
The elements are multiple, but the bottom line is the creation of ample reserves that will allow the city to function in a way that gives it some financial breathing room and still provide the level of service required to fulfill the community’s needs.
“We are one unexpected expenditure away from bankruptcy,” Mayor Bob Scales said during a two-hour pre-budget workshop Tuesday.
Former Finance Director Elray Konkel abruptly left the city last month after saying during a mid-year report that only about $78,000 would be in reserve at year’s end instead of the $1 million the council had anticipated in fund balance reserves when it cut $1.4 million last March from the 2010 budget.
“We are not unique among cities in needing to make cuts,” Scales said, “but what is unique is that we have ignored our budget policy on reserves. Most cities have not spent down their reserves like we have. That’s where we need to start.”
The session was used to re-establish a financial policy so interim City Manager Brenda Bauer could begin the budget process with realistic goals considering the city’s financial dilemma. There will be more discussions between her and the council before she presents a preliminary financial plan on Sept. 30.
The council unanimously passed a resolution (6-0 with Barry Peters absent) that would place $2.4 million in reserves in 2011 and $4.8 million in 2012. The 2011 reserve accounts will be for contingencies ($400,000), rainy-day emergencies ($500,000) and fund balance reserves ($1.5 million). Each reserve will double in 2012.
Scales defined the fund balance reserve (previously identified as working capital) as a hybrid savings/checking account that will ensure the city won’t have to borrow from one source or another to keep the general fund from slipping into a negative balance. The city still owes $3 million to its water utility fund.
The council also approved a policy that will make the Roads Capital Preservation Program a funding priority over discretionary programs and services by stipulating that $400,000 will be used for road preservation during each of the next two years.
To fund the reserves and road program, the city will need to find new or increased revenue; cut staff and discretionary services provided to the community; limit the use of any new sources of revenue (e.g., councilmanic debt, voter approved bonds, levy lid lift, taxes or rate increases) prior to evaluating mandatory and discretionary funding needs; and rollover from 2011 to 2012 any capital projects that aren’t already fully funded, including staff resources needed to complete them.
Regarding the latter, projects such as North Madison (non-motorized), Rockaway Beach and the Bainbridge Island Senior and Community Center building, for example, likely would qualify. However, the $5.6 million Winslow Way project still hasn’t received NEPA (National Environmental Policy Act) approval, which is required to receive a $1.67 million grant from the federal government. Without the federal monies, it appears the city won’t have enough to start and finish the project next year as is planned.
Obviously, staff cuts will go deep, especially after Bauer reported that at least an estimated $841,000 in additional cost increases (including medical/dental, retirement and step increases) will occur in 2011 over 2010 – if the city’s operations stay static.
The council directed Bauer to come back with a budget that doesn’t cut core services, including a report that details the city’s mandatory requirements and the discretionary services now provided.
Scales acknowledged that the council will know more about how it will be able to balance its needs for a reserve cushion and its ability to keep the city functioning properly when Bauer returns with her breakdown on the city’s mandatory and discretionary requirements.
“Having two months of revenue in reserve to operate the city (about $1.5 million) should be enough,” Scales said. “But how much do we have to cut where we can still function? The numbers have to balance out.”
Bauer said that if there are substantial staff cuts then some of the city’s planned projects and programs may not be able to continue.
“With staff reductions, and funding the reserves and roads program, that will affect the completion of a lot of projects in 2010, and will also affect some in 2011. But the reserves are important because they’re designed for things not on the radar screen now.”
Bauer said additional staff cuts required to meet the council’s goals will be difficult, and she asked council for feedback on the need to reorganize the staff by “adding some new positions and getting rid of others.”
“You design the best way to structure the organization,” Scales said. “We’re just worried about the level of service the city can provide.”
The city has reduced its FTE numbers from 152 to about 116 during the last two years, and Bauer has offered employees incentives buyouts if they leave the city before the end of the year. But she said it’s a one-time offer and future reductions will involve layoffs.
