"Business As Usual" Will Put the City Out of Business:Thoughts on the Multi-Year Financial Plan

The New York State Comptroller requires municipalities to file multi-year financial plans that look at 3-to-5 year projections for revenue and expenditures, and the likely corresponding impact on property taxes.

In 2007, the City Council held an in-depth work session on the City’s first such planning document. In it, were projected huge deficits, an annual property tax increase of 3%, and a virtual depletion of the City’s fund balance (think of the fund balance as the City’s savings account).

At that time, NoStringsGeneva declared , “City Manager’s MultiYear Plan is a MultiYear Disaster” and urged Council to assert itself as the governing body. The business model leading us towards a financial abyss had to be corrected. But 2007 was an election year, and budget discussions took place in the midst of the primary battle between then-Mayor Don Cass and his challenger now-current Mayor Stu Einstein. Rather than confronting the reality building on their watch, the former Council (or at least the majority of the former Council) decided to leave the fiscal mess for the new Council to sort out.

The City’s budget woes became a true political football, with the former Mayor and his Council running-mates vowing to “protect jobs” and “increase services” rather than promising innovation and financial responsibility. The needs of the taxpayer were sacrificed to the perceived desires of the voter, and the debates, particularly the Mayoral debate amongst the three candidates, became an exercising in defending—rather than challenging—the failing status quo.

Fast forward to the present day. It is 2009 and the City’s latest multi-year financial plan looks nearly identical to the previous one.

On the revenue side, City staff project a slight increase, about 1%, in overall revenue. Property tax revenue, attributable to a slight increase in property values, will increase. Sales tax will decrease for two years and then trend upward. State aid will likely plummet from just over $2,000,000 to just under $1,800,000.

On the expenditure side, surges in personnel costs—contract salaries, health insurance premiums, and mandatory state retirement contributions to cover the cost of defined benefits for retired City workers—will be responsible for a nearly 10% increase in expenses over the next five years.

The City manager was careful not to aggregate his data, but we can do the math. Over the next five years, he projects revenue to increase by 1% and expenditures to increase by 10%. Assuming a currently balanced budget, with money incoming and outgoing the same, in five years there will be a deficit of 9%. With a current General Fund of $16,600,000, that amounts to hundreds of thousands of dollars in deficits! Somewhere around $1,500,000.

With some slight changes in employee health insurance plans, a significant scaling back of capital improvement projects, and a freeze on the equipment amortization fund, the current administration was able to forestall financial woes, but not to avert the financial disaster on the rapidly approaching horizon.

This time, though, we are cautiously optimistic that the new City Manager and the Council have come to embrace a point of view that we urged a long time ago, namely that ‘business as usual’ will put the City out of business! Things must change!

There are still a handful of Councilors who disagreed with a “zero percent” property tax increase for 2010. In their words “everything goes up, our expenses go up, so property taxes should go up, too.” But that is no longer the majority view. We are starting to hear City Councilors talk about innovative ways of delivering services, about creative cost-sharing arrangements. In short, we see some movement towards a new view on City government.

As City Manager Horn stated (in three separate instances) in the MultiYear document, a failure to significantly change business practices will result in revenue decreases, increased expenses, and “significant deficits, not supportable by tax increases alone.”

To be clear, he specifically stated that tax increases were not an acceptable solution, even if they were capable of solving the problem, which they are not. He emphasized the fact that tax increases would be unable to meet the City’s challenges in the coming years. That’s because the problem lies primarily in what and how we are spending.

The City Manager’s conclusion, which we believe City Council must adopt wholeheartedly and with a more united focus than any other task they face, is to approach city operations from a “solutions-driven” standpoint. What does Geneva need and how can we best meet those needs? One thing the city needs is a lower tax rate, to help motivate investment.

We can no longer accept the status quo. We can no longer hold ‘sacred cows’ that keep us from evolving our business model and doing things better and more responsibly. We can’t do what was done before, as we discussed in our previous post, and throw up roadblocks to the conversation, to stall and create diversions. This is the most critical issue facing City government today, and it’s a game changer.