The city of Columbus operated at a nearly $881,000 deficit in Fiscal Year 2018 — a fact that apparently caught city councilmen completely by surprise.
City Chief Financial Officer Milton Rawle presented the grim news to councilmen Tuesday evening, asking them to amend the previously balanced 2018 budget to reflect the deficit. Though the fiscal year ended Sept. 30, Rawle told The Dispatch certain revenues (such as October property tax receipts) and expenditures into November are applied back to the previous fiscal year, and amending the budget was necessary to prepare the city’s books for their annual audit in December.
According to the revised budget totals, the city brought in $467,525 less revenue than expected in FY 2018, due primarily to down sales and property tax collections. Spending exceeded projections by another $413,184.
Now, the council is grappling with budget-cutting options for this fiscal year, including hiring and travel freezes. And even some of the most conservative members of the council are resigned to raising taxes on city residents next fall.
“When you look at our numbers, it’s like a perfect storm. You see we have two big problems: a revenue problem and a spending problem,” said Ward 3 Councilman Charlie Box, a Republican. “I’ve known we had a spending problem for a while. I didn’t know we had a revenue problem.”
The deficit plunged the city’s general fund cash balance — which comes from accrued surpluses from previous years — to about $1.4 million, Rawle said. Combined with a dedicated cash reserve of roughly $900,000, that leaves the city with about $2.3 million cash on-hand. If the council takes no action and the balance keeps declining at the same rate, it would take less than three years to wipe out that entire amount.
“Right now, we’ve got to look at what we can do to immediately stop the bleeding,” Rawle said. “We can’t have another year like 2018. I’m looking for expenses to go down. … Next year, we may need a tax increase. I just don’t know by how much.”
A ‘bogus budget’
The council can do little to raise revenue in FY 2019, which began Oct. 1. It did not increase the millage rate for ad valorem taxes — which city residents and businesses pay based on the value of their real and personal property — in this year’s budget. Instead, the city budgeted revenue and expenses for this year based on what councilmen thought in September were sound 2018 numbers.
“We just went through the budget process for 2019, and this (the 2018 deficit) didn’t come up. Maybe it should have,” Box said. “We based this budget on 2018, and that ended up being a bogus budget. … This could turn into a real emergency if we’re not careful.”
Ward 2 Councilman Joseph Mickens, a Democrat, said he is upset and disappointed in Rawle not ringing alarm bells sooner, saying the CFO’s presentation Tuesday “was news to me.”
Still, he said the primary responsibility lies with the council.
“This is a council problem. We dropped the ball,” Mickens said. “This is not a good situation, and we should have caught it before now.”
Rawle said he wasn’t sure what the final revenue picture would look like until the final ad valorem receipts for 2018 arrived in October, a month after the council approved the 2019 budget.
He did see some of the expense overages coming. But while the city can legally spend its cash balance and reserves to cover a deficit, he said the initial budget each year only projects spending revenue the city expects to receive that fiscal year.
“We know we’re going to have to use our cash balance to offset some things,” he said.
Rawle noted the council receives a financial report and approves a claims docket — an itemized list of city expenditures — each month.
Breaking down the numbers
On the revenue side, the city brought in $375,505 less than projected in ad valorem taxes, and sales tax receipts were off by $104,472.
Rawle said recent losses in the retail sector, headlined by JCPenney closing at Leigh Mall, hit city tax collections hard. And more bad news is on the horizon, as Kmart also is slated to close soon.
Beyond that, Rawle said, people are leaving the city, which is indicated most by the $44,000 drop in vehicle tag fees (part of the ad valorem revenue) collected last fiscal year.
Most of the expense discrepancies, Rawle reported, were chalked up to excess overtime in the police, fire and public works departments, as well as $200,000 the city expected to receive from Lowndes County for the parks department that never came.
The police department exceeded its personnel expense budget by about $279,000. Of that, Rawle said, $218,000 was excess overtime. As one example of what caused that overtime, he pointed to the increased police presence needed downtown after the Thanksgiving 2017 shooting outside Trotter Convention Center.
“You can’t prepare for some things,” Rawle said. “You just have to react. … A lot of (crime) events last year called for an increased police presence. You can’t predict that.”
However, CPD is budgeted for 70 officers, and in 2018 was short of that number — by anywhere from three to 10 officers — most of the year.
Fire was over budget by just less than $100,000. The street department (part of public works) overspent by $96,000 — half of which was overtime and half of which was concrete work and street repair costs that exceeded budget.
Much of the fire department’s overage stemmed from overtime, Rawle said, especially firefighters covering shifts while others were on official travel or were rendering aid in areas ravaged by natural disasters. In the case of the latter, The Federal Emergency Management Administration reimburses cities for firefighters who worked in disaster areas, but Rawle said that money could take up to a year to arrive.
The city also paid Columbus Light and Water $242,295 more than it budgeted for building and street light repairs. CLW determines what projects to pursue and bills the city for those services, Rawle said. The city council, in turn, appoints the CLW board.
Other areas in the general budget, such as solid waste, the crime lab and code enforcement, spent significantly less than what was budgeted. In fact, contractual services for solid waste cost the city almost $104,000 less than expected.
Both Box and Mickens are proposing immediate spending freezes.
For Box, he believes implementing freezes on hiring and travel for three to six months could help significantly.
“We do so damn much traveling, I think we definitely need a freeze on that,” Box said.
Quashing overtime, though, is a trickier proposition.
“We’ve been struggling with that for a long time, but we have to do better,” he said. “Police and fire are more understandable, but I don’t understand why we’re paying so much overtime in public works.”
Once this year’s spending is stabilized, both Mickens and Box agreed raising millage next year is key to strengthening the budget long-term.
Mickens called it a “no-brainer.”
“If we had known this was going to happen, we might have raised it this year,” Mickens said.
Box, and the majority of the council, has up until now resisted the idea of raising taxes from the rate of 46 mills. Part of that has been because city property owners pay three millages — city, county and school district taxes — and rural Lowndes County residents pay only two. Raising the millage, therefore, could push more residents out into the county.
But now even Box admits the city has to do something, and he might support an increase of as much as 4 mills (which would raise about $768,000) next year.
“We’ve had people telling us for years we needed to be raising taxes incrementally, and that if we didn’t we’d get into this kind of situation one day,” Box said. “We’d bow our necks and refuse every time, and now look what’s happened.
“We want all this stuff, but people still want their taxes low,” he added. “On the other hand, we’ve spent too much, we’ve done too many things and we need to slow down. … This will force us to be better managers of city finances.”
Zack Plair is the managing editor for The Dispatch.