Mayor Jones' Recent Letter on Budget Deficit and Proposed One Cent Tax Increase Solution
Mar 13th, 2012
Below is a letter from Mayor Sam Jones to the Mobile City Council. In it, he lays out the projected budget shortfall that the city faces in FY2013 and a proposal to eliminate that deficit.Dear Council Members:
On August 20th, I am required by law to present to you a balanced budget for the fiscal year beginning October 1, 2012. As we have been discussing for many months now, we cannot afford to wait until then to address the very real needs of the City in terms of maintaining critical services.
When the Council first instituted the temporary sales tax, I warned that this tax needed to stay in place until we bridged over the current economic crisis. Unfortunately this was not done and the sudden loss of this revenue, compounded by the mandated costs over which we have no control, leaves the City in a very vulnerable position.
As you know, we have adequate resources to make it through the current fiscal year. This is because we have essentially "banked" the temporary sales tax which allowed us to carry forward into this year over $27,000,000. We do not have that luxury for the upcoming fiscal year.
What I would like to do in this letter is to present to you the same data we are required by law to present as part of the budget process in August. The following are three financial snapshots which represent the reality we all must face now if we are to be responsible stewards of the public dollars and fulfill our responsibility to maintain basic services for our citizens.
Snapshot #1 - THE REALITY
Attached as Item A is our best projection of anticipated revenue for the next fiscal year and projected expenditure. Also included are figures from the current year's budget. As you can see, the current 2012 Budget is able to operate in the black only because of the $27,000,000 carryover, which is the result of banking the temporary sales tax. We do not have that luxury for next year. As you can see, the carryover that we anticipate for next year's budget is only $6.9 million dollars, giving us total resources of a little over $194,000,000.
This needs to be balanced against expenses and a required statutory reserve which total over $223,000,000. If there is no additional source of revenue, our statutory mandate in August will be to cut over $29,000,000 from expenses. For simplicity, we will refer to this as the "hole" that needs filling.
Please keep in mind that on the expenditure side we have already made significant cuts in departmental budgets across the board. In many cases, these cuts are not sustainable because if they continue from year to year they affect critical needs and infrastructure. Also, keep in mind that on the expenditure side we have faced a "perfect storm" in terms of rising fuel costs, mandated contributions to the Police and Fireman's Pension Fund as well as actuarial requirements to adequately fund other pension benefits and health plan contributions. Together, these mandated expenditures have increased expenses for the anticipated budget next year by over $13,000,000. This reality combined with our revenue base which has yet to recover from the economic downturn is the basis of the economic crisis that we now face.
CLICK HERE FOR A BREAKDOWN OF SNAPSHOT #1
Snapshot #2 - NEXT YEAR'S BUDGET WITH NO NEW REVENUE AND DRASTIC CUTS IN EXPENDITURE
In trying to fill the $29,000,000 hole, we can only look to cutting expenditures unless an additional revenue source is implemented. Attached as Item B is a budget estimate for next year. In attempting to fill the hole, I can only use the tools available to me. The figures reflected in Item B include a 10% furlough which is the maximum amount allowed by law. By law, a furlough must be imposed system-wide. No department can be excluded. As you can see, this furlough which would have to be in place for the entire fiscal year would produce approximately $10,000,000 in savings.
The figures in Item B also reflect a further 10% reduction in all operating expenditures. This is on top of multiple reductions that all departments have faced over the past several years.
This projection also shows a complete elimination of all non-department expenditures except those that are mandated by law or existing contract. As you can see from Schedule 2, there would be no funding whatsoever for America's Junior Miss, the Azalea Trail Run, the Exploreum Museum, Ladd Stadium, Penelope House, Mobile Arts Council, Mobile Chamber of Commerce, Boys and Girls Clubs, and a number of other service providers who are an important part of the fabric of our community.
Even with the furlough, the 10% operational reductions, and the elimination of performance contracts, we are still looking at filling a hole that amounts to $11.6 million dollars next year.
I need to make one thing clear. This is not my budget proposal as I believe it is harmful to the community. However, if revenue is not restored, these measures and more will be forced on us if we are to follow the law and deliver a balanced budget. Here is the question we need to ask ourselves: Is this the type of Mobile that we want to deliver to our citizens and to present to the world? We are a community on the brink of transforming ourselves as a progressive player in the global market. Our actions on the budget could make or break us as a player in this market.
Some have suggested layoffs as a way to fill this hole. Here is the problem with the layoffs under our current system. We cannot determine who within a department will be laid off. This is done by the Personnel Board and is done strictly by seniority. In many instances, particularly in Public Works, this will mean that the younger workers who perform most of the physical work would be the first to go. This would have a devastating impact on our ability to deliver basic services in Public Works.
Additionally, when you layoff an employee, that employee is immediately entitled to accumulated benefits such as accrued vacation time and accrued comp time. Instead of saving money initially, the City would end up writing checks to any laid off employees for these accrued benefits.
I have heard some say that we should layoff all City employees except for Police and Fire. These same persons have stated that we should do nothing that in any way affects public safety.
While I agree totally that public safety is a core responsibility, this approach ignores reality and does not solve the problem. It is impossible given the numbers that we are facing to balance the City's Budget without significantly affecting public safety. Even if we could fashion a budget which did not affect salary and benefits for Public Safety employees, this important City function would still be significantly deteriorated because the required remaining cuts would still undermine the Public Safety function. Keep in mind that there would be no money for additional capital expenditures. Right now there is a critical need to replace an aging fleet of police vehicles and a need to provide equipment to maintain a first-class police force. The same is true for the Fire Department. We have a critical need to replace and update our fire trucks, including an urgent need for a new ladder truck. We have scheduled fire station upgrades which must be done. None of this would be possible.
Additionally, it makes no sense to devastate the remainder of the City Budget and render other departments ineffective in supporting public safety and public works. Public Safety requires a strong maintenance department to keep the fleet rolling and operating at an efficient level. A strong Finance Department must remain in place to produce the revenue necessary to fund Public Safety. Municipal Court, Legal, our contributions to the Metro Jail, the Strickland Youth Center, are all expenditures which are necessarily intertwined with law enforcement and are absolutely necessary to support basic public safety. Elimination of the service contract with AltaPointe for mental health will deprive the police of a place to take mentally ill detainees and will further boost the cost of jail operation.
Let's also look at a larger picture. If you do not put revenue in place adequate to fund essential City services, we project a terrible image for the City. Additionally, we compound our problems month-by-month and year-by-year by not addressing critical capital needs. Currently, we have no reserve stock of traffic signals. These need to be replaced. You all know of the critical drainage projects that have been put on hold. Public Works needs additional dump trucks, trash trucks, and garbage trucks in order to keep that basic City service on an operational level. We have scheduled Public Works projects which will bring in millions of dollars in grant money but for which we need to make a local match. Given current budgetary restraints, these projects will be put on hold or not done at all. We have public street and drainage needs that are critical, such as the collapse of a portion of Ann Street.
Much of our cost savings in past years has been by drastically cutting overtime. In most cases, this was done in areas of Public Safety because that is where most of the overtime occurs. This important expenditure supports services and events that Mobilians have come to expect and I doubt very seriously that they will want to give up. Among these are the various football bowl games, Mardi Gras, Bay Fest, various charitable runs, and the list goes on and on. These are quality of life issues that will be drastically impacted if we don't adequately fund our Public Safety departments in this regard.
To recap, even with a furlough implemented to the maximum extent allowed by law, and even with an additional 10% overall reduction in expenditures and the elimination of all performance contracts, we are still looking to fill a deficit of $11.6 million dollars for next year. How do we do this? We make tough decisions but ones that are in the overall best interest of our community.
CLICK HERE FOR A BREAKDOWN OF SNAPSHOT #2
Snapshot #3 – RESTORE ADEQUATE FUNDING
It is no secret that I feel that the responsible thing to do is to reinstate the temporary one cent sales tax until we can bridge through the current economic crisis. Attached as Item C is a projection of what this would look like.
I would propose immediately reinstating the temporary one cent sales tax effective May 1 of this year. As you can see from Item C, this will allow a $9,000,000 carry forward into next year and provide us with resources to maintain existing levels of service. It would allow us to end next year with a net balance and to also maintain our required statutory reserve.
Equally important, we could bank over $7,000,000 of the tax collected during the current fiscal year and immediately begin to address some of the critical capital needs including replacement of police cars, immediate purchase of a ladder truck for the Fire Department, and immediately purchase additional needed garbage trucks, loaders, and bucket trucks for public service.
CLICK HERE FOR A BREAKDOWN OF SNAPSHOT #3
The question arises as to how to "sunset" the temporary sales tax. Rather than arbitrarily picking a date as we did last time for the entire one cent to go away, I would propose retiring the tax in one-half cent increments as we reach lower levels of unemployment. More specifically, my proposal is to decrease the tax by one-half cent when the unemployment rate in Mobile is equal to or less than six percent during a calendar year. Thereafter, the remaining one-half cent would go away when the unemployment rate equals or is less than five percent.
CLICK HERE FOR A SALES TAX INCREASE DRAFT ORDINANCE
It is important that we use an objective indicator of economic recovery to sunset the tax. I feel that these unemployment rate target levels are not unrealistic. Keep in mind that the data prepared by the Alabama Department of Industrial Relations for the City reflect that between the year 2000 and 2010 the annual average unemployment rate varied in Mobile from a low of 3.7 percent to a high of 10.4 percent.
CLICK HERE FOR A HISTORY OF UNEMPLOYMENT NUMBERS IN MOBILE
CONCLUSION
In addressing a crisis like this, we need leadership all around. Rhetoric will not solve this problem. While it may be difficult politically, the solution here is obvious. We need to make informed and sustainable cuts where we can to the City Budget but we also have a duty as elected officials to provide revenue adequate to provide basic services to our citizens.
Very truly yours,
Samuel L. Jones