Wednesday Oct 13 2010
Manager explains city’s financial future
By: Jim Estep, Special to The News Messenger
Carol Feineman, editor of the Lincoln News Messenger, published an editorial on Sept. 30 (Page A4) titled, “City Manager: Lincoln’s financials one of worst in state.” I appreciated the opportunity to sit down with Ms. Feineman to discuss some of the issues that the city of Lincoln has been facing since I began my position here in May of 2008. She also graciously allowed me to write this follow-up column to further explain where the city of Lincoln is now and where the city may be headed in the future. This is also an opportunity to answer some of the questions that have been frequently asked and to clarify some of the actions taken in the past two years. Upon arriving in Lincoln, it quickly became apparent that the city’s finances were of major concern. With the downturn in the economy and development, including both residential and commercial, it was imperative to concentrate on the city’s financial condition. At this time, a review of the existing staff was conducted to ensure they were trained and experienced enough to handle the financial challenges ahead. At the recommendation of the city’s auditors and financial consultants, changes were made. The Administrative Services director position was eliminated and replaced with the Assistant City Manager/Chief Financial Officer position. This was not an additional position; rather it replaced the current director position to provide experienced leadership for the finance staff. As mentioned in the editorial, the city’s audits had not been completed in three years. The audits are now up to date and on schedule to be completed in a timely manner moving forward. With the prior years’ financial statements completed, the city’s financial position is clearer and staff can concentrate on planning for the future. The focus is now on planning for the upcoming fiscal year’s budget and beyond. City department directors and staff are making plans for next year’s budget assuming there will be no increased revenues and perhaps further decreases in revenue as well. The General Fund, which is the fund that can be used for any purpose, is the primary concern for the foreseeable future. The General Fund provides funding primarily for police, fire, library and recreation services. Restricted enterprise funds such as water, wastewater and solid waste are prohibited from being used for any purpose other than the services for which they are collected. With a reduction in property tax and sales tax revenues to the General Fund of nearly 25 percent, expenses have necessarily been reduced as well. Lincoln suffers from one of the lowest sales tax per capita revenue streams in the state. Currently, businesses in Lincoln do not generate the volume of sales tax revenue necessary to support service levels in public safety, library services and recreation. Sales tax dollars are so important to our city; spending your money in Lincoln helps our financial condition, no matter how small. Since fiscal year 2008-09, expenses to the General Fund have been cut from $18.1 million to this year’s budget of $12.6 million, representing a reduction of approximately 30 percent. This has been accomplished through staffing reductions, employee salary and benefit concessions and cuts to other operating expenses. Even with these cuts, the city still doesn’t have a truly balanced budget where revenues are equal to expenses. There is a shortfall of $2.4 million projected for fiscal year 2011-12, which may need to be backfilled with a use of city reserves. Some have suggested that cutting salaries and benefits to top management positions will solve the problem. While there is no doubt that all salaries and benefits should be reviewed to match the current economic climate and the city’s financial resources, this alone will not be sufficient to make up for the revenue shortfall. To put it into perspective, if the positions of city manager, assistant city manager/CFO, police chief, fire chief and library director were completely eliminated, it would result in a cost savings of approximately $700,000 to the General Fund, still leaving a shortfall of $1.7 million. Many in the community have asked that the city live within its means. This is a fair and logical request. To that end, staff will be presenting options to the City Council at the Oct. 26 City Council meeting to do just that. This means a truly balanced budget with no use of reserves. Since the city is a service organization, the majority of costs are associated with salaries and benefits. The two realistic options to reduce expenses to match revenues include further cuts to staff’s salaries and benefits and/or further reductions to the number of staff, which also reduces the associated services that can be provided by the remaining staff. Due to labor contracts with staff, any further cuts to salaries and benefits must be agreed to by the represented employees. There is currently one labor group whose contract will be ending June 30, 2011. Certainly, everything will be on the table for negotiation as a new labor contract is drafted. The City Council will be providing policy direction as to how the city balances its budget next year. Certainly, public safety and the provision of essential services are paramount. However, many citizens feel that library and recreation opportunities make for a well-rounded community and, therefore, contribute to public safety. Ultimately, city staff will take direction from the City Council, who must make the difficult choices as to how to prioritize the provision of services. Jim Estep is Lincoln’s city manager.