Board begins 2011 budget cycle; outside agency funds on the block

Fresh from agreeing to up to $1.53 million in cuts to better balance the 2010 budget, Fort Smith city directors met Tuesday (July 27) to begin the 2011 budgeting process — a process that could include relatively small but controversial cuts to the city’s outside agency budget.

During the board’s study session, Deputy City Administrator Ray Gosack said 2011 revenue is likely to be flat compared to the low revenue of 2010 thanks to a “slow economic recovery.”

Gosack noted in the memo that the board may seek to pursue the 2010 budget goals (see list at end of story), including finding ways to fund a new fire station, boosting the budget reserve balance “in accordance with the city’s financial policies,” and review ways to produce more revenue for the city’s water and sewer fund. Goals for 2011 suggested by Gosack were:
• Present voters with a solution for ongoing convention center funding;
• Select preferred approach for funding wet weather sanitary sewer work after 2011;
• Improve the provision of services to the homeless by providing a full-time staff position for the Old Fort Homeless Coalition; and,
• Enhance recreational opportunities by partnering with Sebastian County to develop a water park and additional softball fields.

City Finance Director Kara Bushkuhl urged directors to provide city staff direction because the department heads are working on budget goals. She said the goals would be presented to the board Aug. 24. The 2011 proposed budget will be presented to the board Nov. 2, with budget hearings scheduled for Nov. 8, 9 and 10, Bushkuhl said.

In a memo to the board, Gosack outlined several financial issues the board will face in 2011. The largest issue is the expected continued decline in sales taxes and franchise fees collected from utilities and telecoms. Also, the city will have to address a growing shortfall in the water and sewer fund that recently saw the fund reserve drop below a required bond covenant minimum. The city has to address the revenue issue — possibly through water and sewer rate increases — or the bond rating could be lowered.

“If the board does not take some type of action, we could see the rating decline and that would be a problem,” Bushkuhl said during a July 6 interview. “And I think that (downward rating adjustment) is likely to happen before the end of this year if the revenue model is not changed.”

Resolving the water and sewer funding issue was a 2010 budget goal set by the board. During the first half of 2010, the board took no action on the matter.

Bushkuhl said Tuesday a utility rate structure assessment should be complete by September. The assessment will include a list of options on how to address the the water and sewer fund shortfall. City Director Kevin Settle asked for options that do not include raising usage rates.

Another growing problem is a liability in the police and fire pension program that grew by more than $1.15 million in 2010.

“That is something that we are going to have to look at for funding in the future,” Bushkuhl warned the board.

Something at least one board members wants to consider now is the $227,000 the city provides to social service and art and entertainment groups in the city. The outside agency funding has been a source of contention in previous budget cycles, with a citizen task force recently creating what many consider a more fair and reasoned approach to disbursing the funds.

Tracy Winchell, with the city’s office of economic development, said an Aug. 12 mandatory meeting is scheduled for groups who apply for city funds. Winchell said the meeting will help set clear expectations between the city and applicants.

City directors briefly considered cutting portions or all of the $227,000 outside agency budget before taking another route. However, City Director Bill Maddox has suggested the outside agency be on the block for 2011. Mayor Ray Baker disagrees.

“I am opposed to any cuts in the nonprofits,” Baker said Tuesday. “They are vital. They help draw business and other people to our city. … It’s important that a way be found to keep this stable.”

Maddox responded by saying it was unfair to review all parts of the city budget for cuts except the outside agency funds.

“If we don’t put that same burden on outside agencies, it will make this city look like Washington, D.C.,” Maddox said.

City Director Don Hutchings suggested the board consider a “one-time cut” to the outside agency budget in 2011 and consider restoring the funding in 2012.

2010 BUDGET GOALS
1. Adopt a financing option for the Convention Center expenditure gap due to the loss of the state tourism turnback funds and adopt a new business model for operating the Convention Center.

2. Initiate and develop economic growth strategies to increase the job market with higher paying jobs as well as support the construction of the regional intermodal freight facilities and Interstate 49.

3. Continue the "green initiative" by developing strategies to reduce energy consumption and other costs in city facilities.

4. Identify a new revenue source and/or identifying savings in the General Fund to provide funds for construction, staffing, and equipping Fire Station 11 in Chaffee Crossing; future downtown development; and parks projects.

5. Review an alternative method for water service rates to provide a more stable revenue base for the Water and Sewer Fund.

6. Approve a balanced budget that provides for reserve balances in accordance with the city’s financial policies.

7. Adopt user fees that recover the full cost of service, where appropriate.

8. Review employee benefit levels for comparability with the private sector and freeze employee insurance contributions at the 2009 level.

9. Examine service levels so that resources and service priorities are strategically aligned.