Fort Smith board to consider 2011 budget, rate increases

Big decisions are expected Tuesday night (Dec. 7) as the Fort Smith Board of Directors will vote on the 2011 budget and consider water and sewer rate increases.

Estimated revenue for 2011 is $269.5 million, with $72.2 million from tax collections, $60.1 million from water, sewer and other fees and charges and $99.3 million carried forward from capital projects not completed in 2010.

Expenditures proposed in 2011 total $224.55 million, about $16 million less than estimated expenses in 2010 and almost $50 million less than expenses in the 2010 budget approved in December 2009.

The board met in early November to consider the budget proposed by city staff. According to a Dec. 1 memo from Fort Smith Director of Finance Kara Bushkuhl to Acting City Administrator Ray Gosack, the budget to be considered Tuesday contains nine overall changes recommended by the board. The changes include:
• Adding revenue estimates to the water and sewer operating fund to adjust for the proposed 5% rate increase;
• A COPS grant award of $117,328 has been added to the general fund revenue to support two additional patrol officers for three years;
• A $70,000 reduction in general fund spending; and,
• A $30,420 reduction in the city administrator’s budget to account for a reduced printing schedule for the city’s FOCUS newsletter.

In a note to directors, Gosack said the department heads have been “extremely resourceful” in cutting costs, but warned that many of the cuts aren’t long-term.

“(W)e must recognize that many of our adjustments aren’t sustainable over a longer period. Nonetheless, the economic challenges have resulted in a close examination of the services we provide and how we provide them. These adjustments will make us stronger for the long run,” Gosack said.

KEY BUDGET POINTS
Following are other notes of interest in the 2010 and 2011 budget considerations.
• City Finance Director Kara Bushkuhl said the city anticipates a 1.5% increase in franchise fees, an 8% increase in property taxes and a 1.5% gain in sales tax collections.

• Revenues for the 2011 general fund are estimated at $41 million, down 3.6% from the 2010 budget.

• The city made more than $1.43 million in budget cuts in 2010 to respond to revenue shortfalls. The biggest cut was a $717,000 reduction in payments to the city’s health & wellness fund. The cuts in 2010 and pushed forward into 2011 also include a decrease of about 28 full-time positions, and a $790,000 proposed cut to payments into the health & wellness fund.

• Gosack suggested to the city board a list of more than 65 budget cutting ideas totaling more than $1.69 million. The cuts were an alternative to cuts proposed Nov. 2 by then-City Administrator Dennis Kelly. Kelly had proposed to cut at least 20 jobs to cover a looming convention center funding shortfall.

• Gosack’s list labeled each cost-cutting idea as “sustainable” or “temporary.” The ideas included: Not providing pay increases for employees below the pay scale midpoint: $364,571 (temporary); Not replacing a fire pumper truck in 2011: $250,000 (temporary); Eliminating outside agency funding in 2011: $202,700 (temporary); and, Not providing pay increases for employees paid from the water and sewer operating fund: $122,415 (temporary).

WATER AND SEWER RATES
Directors are expected to approve 5% rate increases for water and sewer usage to cover a110% debt covenant threshold on about $15 million in debt service requirements.

Not aggressively addressing the bond covenant issue could also result in the city losing its high credit ratings from Standard & Poor’s rating service. A reduced rating would lead to higher interest rates on the city’s debt service and other higher costs related to the issuance of bonds for water, sewer and other infrastructure work.

In early November, Utilities Director Steve Parke proposed a water and sewer system operating budget calling for personnel cuts — up to nine full-time jobs from an overall staff of about 190 — and operational cuts of $1.642 million from an overall budget of $32.682 million. But the board rejected the proposal, saying it would result in loss of water quality and service to residential and business customers.

When asked during the November budget hearings about raising rates, Parke explained that the city has three choices: to raise fees on connections, the flat monthly service fee and other fixed charges; to raise rates on the volume of water and sewer used per customer; a combination of both.

Parke said many of the fixed costs have not been raised for years. An industrial user permit has not changed since 1989. The charge to connect a typical residential user has not changed in many years, with the $300 fee not covering the average $700 expense to physically create the connection.

On Nov. 15, the board instructed city staff to move forward with a combined 5% water and sewer rate increase and about $1 million in personnel and operating cost reductions.

Estimates provided by Parke show the 5% increases would result in a monthly increase of $1.40 for water and sewer use of 5 ccf (each); a monthly increase of $3.02 for 10 ccf; and a $6.31 monthly increase for 20 ccf.

Other rate adjustments are expected to be considered in March or April when a comprehensive rate analysis study is completed.