Aldermen are facing tough decisions if they hope to approve a balanced budget for Fiscal Year 2024.

Even after freezing hiring in the police and fire departments – a measure that would reduce expenses by more than $700,000 – the city is poised to operate at a roughly $1 million deficit next fiscal year without more changes, according to documents presented at a July 14 budget work session.

That means the city either must increase the ad valorem tax rate, find even more places to cut or settle on some combination of the two, said Ward 2 Alderwoman Sandra Sistrunk, who serves as the board’s budget chair.

Sistrunk is prepared to propose a 2.5-mill tax increase, which would generate almost $800,000 in new revenue and minimize the need for additional cuts.

“The board has got to wrap their heads around it and decide what four of us, at least, are willing to do and what our priorities are,” Sistrunk said.

Other board members believe there is more work to do before making that decision.

Ward 1 Alderman Ben Carver said he is confident the city can find other ways to reduce the deficit through cuts without turning to a tax increase.

“I think there’s always somewhere you can find cuts to make up the deficit in the budget. I don’t think you always have to necessitate a tax increase to get by,” Carver said.

Without a tax increase, Sistrunk said, the low-hanging fruit to cut would be deferring both $850,000 in planned pay raises and $200,000 to complete a drainage improvement project in Colonial Hills.

Otherwise, Sistrunk said, it requires taking deeper swipes into the police and fire departments, for which expenses make up more than half of the general budget.

“People and people’s salaries. You’re not talking about gas and oil, or travel and training, or the university, or eliminating the parking kiosks. … It’s a people question at this point,” Sistrunk said of what that action would mean.

A mill is used to measure the taxes paid on real or personal property. A 2.5-mill increase would increase the tax bill for a homeowner by $25 per every $100,000 of value and a business owner’s tax bill by $37.50 per every $100,000 of value.

How we got here

Sistrunk proposed a 1-mill tax increase for Fiscal Year 2023, which ends Sept. 30, but aldermen shot it down on a 4-3 vote.

Instead, the board opted to use roughly $300,000 of its reserves to balance the budget, drawing those reserves down to about $2.4 million.

Beyond that, Sistrunk noted this year’s sales tax revenue, while still up slightly from the previous year, will likely fall about $500,000 short of what was budgeted.

There was also annexed territory to the east aldermen believed would boost both ad valorem and sales tax revenue. But then there was 6% inflation, Sistrunk said.

“We didn’t want to raise taxes last year, and we talked ourselves into believing that based on trends and annexation … there would be a couple hundred thousand more coming from the annexed territories,” Sistrunk said. “It either didn’t materialize or our other numbers went south.”

Sistrunk said food and beverage numbers have continuously increased over time, but the general sales tax, which includes retail and construction, has not been “keeping pace.”

“Our two big sources of revenue are property taxes and sales taxes,” Sistrunk said. “And we see what’s happening with sales taxes (it’s staying flat). The one we can control is property taxes. We’ve tried to live on organic growth … but you can’t do that forever and do new things. You can’t (for example) increase the size of your police force.”

When aldermen started working on next fiscal year’s budget, filling all department head requests would have created a $2.8 million deficit. They whittled almost $1 million from that with cuts to the police and fire departments, chief among them “un-budgeting” three vacant police positions and nine unfilled firefighter positions.

“It’s not comfortable,” Police Chief Mark Ballard said. “… The city is expanding, and not only is it expanding to the annexed area, we see a lot of growth everywhere. … I think that we can hold the line, but eventually this conversation is going to have to come back up.”

Fire Chief Charles Yarbrough said keeping nine positions empty could affect the department’s Class 3 rating, as Fire Station 5 – which closed last year – will remain closed without proper staffing.

“We can do what we always do, more with less,” Yarbrough said. “… We’re going to do what we need to do to make sure we get the city taken care of.

Debt

The FY 2024 general fund budget includes about $2.9 million of debt service payments, Sistrunk said. Those payments service bonds that include the City Hall construction, police department renovations, Golden Triangle Development LINK bonds, road paving bonds issued in 2019 or earlier, as tax-increment financing bonds issued for Academy Sports, the Cotton Mill and Middleton Marketplace.

The only new debt that would roll onto the general fund in FY 2024, Sistrunk said, would be the TIF for Triangle Crossing. Those debts are for certain improvements developers made to the area and are repaid through ad valorem and sales tax generated from the development for up to 15 years.

Road bonds issued since 2021 are repaid with internet use tax revenue, which can only be used for roads and bridges. Sistrunk said any work done on a planned $12 million Main Street redesign will come from the $7 million the city already has on hand for the project. The city is pursuing additional federal and state money to finish out the project, but any borrowing for that would not be in the coming fiscal year.

Too early to say

The board last increased its millage in 2021, raising it 2 mills to 30.13. It was the last of three consecutive years of increases from a rate of 25.58 in 2018.

Ward 3 Alderman Jeffery Rupp, who opposed last year’s proposed 1-mill increase, said he is more open-minded this year. He’s not sure he’s open to a 2.5-mill hike, though.

“We’re still early. We’ve had one budget session together … I’m not sure that’s where we’re going to land,” Rupp said. “… This year is different (than last year). We may have to end up doing a small tax increase. I want to get down lower than 2.5 mills.”

Ward 4 Alderman Mike Brooks and Ward 5 Alderman Hamp Beatty, who also opposed an increase last year, said they haven’t given up on finding ways to avoid a tax hike. But Brooks acknowledged “$1 million is a lot” to cut.

“To me a tax increase is the last resort, but there may be times we absolutely have to,” Brooks said. “… You have to drag me kicking and screaming to get me to that point.”

Both Rupp and Brooks mentioned the salary increases, which were recommended for certain positions by a Stennis Institute of Government salary study, could cost less than anticipated. Or they could be deferred.

While deferring employee raises looks like an easy fix, it has consequences, Sistrunk said.

For example, one of the city’s engineers left for double the salary in the private sector, she said. Another employee in information technology left for Paccar recently for a significant pay increase.

“That means work will either go undone or we’ll have to contract it out, which is more expensive,” she said.

Neither Vice Mayor Roy A. Perkins, who represents Ward 6, nor Ward 7 Alderman Henry Vaughn returned calls from The Dispatch by press time.

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