Fort Smith Board push city staff to possible budget process change

The Fort Smith Board of Directors and city staffers engaged Thursday (March 19) in what at times was spirited discussion related to the city’s budgeting process used to manage and monitor expenses and revenue.

The special study session was held to continue a discussion began at a March 10 study session. At least four Board members – Directors Keith Lau, Mike Lorenz, Tracy Pennartz and Kevin Settle – prefer a new “structural” method for how the city handles a prior-year general fund balance with respect to future budgeting decisions.

Lau said using a fund balance from previous years doesn’t accurately provide a real world financial picture. He said with future costs related to fire and police pensions and other possible issues, the Board needs to have a budget process that allows them to plan for not only the next year, but future years. Not having access to quality data “sets a tone of we don’t know what we’re doing because we don’t have a long-term plan,” Lau said.

For example, the city budgeted in 2014 to end the year with a $3.425 million fund balance. The actual year-end balance was $6.745 million, more than $3.32 million above the budget. Lau said during the March 10 Board study session that some of this money could have been used to pay down fire and police pension (LOPFI) obligations, and would have resulted in a smoother budgeting process going into 2014.

But Mayor Sandy Sanders, Director Don Hutchings, City Administrator Ray Gosack and city Finance Director Kara Bushkuhl defended the “cyclical” accounting method now used by the city. (Director André Good, who is battling an illness, was not at Thursday’s meeting.) Sanders said year-end fund balance data back to 1994 provided by Bushkuhl show a “favorable” trend that indicates the system is working. Indeed, the period between 1994 and 2014 shows an overall net gain of $2.015 million. However, the recent trend is not as favorable. Between 2004 and 2014 the trend is a $1.879 million loss.

Bushkuhl noted in a memo to the Board that advantages of a cyclical budget include familiarity, conservative revenue estimates, multi-year perspective provides better future financial planning, spending for actual needs, and avoids negative changes in service levels because of changes in available funding. Her note did say a disadvantage of this budgeting is the possibility of “spending above current year revenues.”

Director Pennartz argued that the Board needed a better examination of “revenue streams” before making future rate changes or other policy decisions. She also disagreed with Mayor Sanders who said now is not the time to change budgeting systems with the city about to enter a “massive” 12-year effort that could cost an estimated $480 million to comply with a federal order to fix and adequately maintain the city’s sewer system.

“I think it (new budgeting system) can be done, and it needs a staff that is flexible enough to adhere to the Board’s policy,” Pennartz said.

Director Lorenz argued that the financial trend line of the past several years can’t continue. He said the fund balance, which he likened to a “savings account,” will run dry if negative balances continue.

“At that point, how do you balance the budget? … If you continue to take out of the savings account, you eventually run out,” Lorenz said.

But Gosack said that won’t happen because the city staff would not budget the city into a position that would drain the fund balance.

After several minutes of a tense back and forth between several Directors and Bushkuhl, Lau said he is “not pointing fingers,” but is focused on finding “a better system” to monitor expenses and revenue.

Gosack said for the 2016 budget the city staff will work on being more precise on revenue and cost estimates. Pennartz suggested Gosack return soon to the Board with new language providing new guidelines for “fiscal performance.” The new language will require Board approval.