Ann Arbor officials unveil budget forecast showing $1.3M surplus projected next year
City Administrator Steve Powers listens during Monday night's Ann Arbor City Council budget planning session in the jury assembly room on the fourth floor of the city's Justice Center building. Powers will present his budget recommendations for next year to council in April and early indications suggest it could include a sizable surplus.
Ryan J. Stanton | AnnArbor.com
Tom Crawford, the city's chief financial officer, delivered the good news to council members during a special planning session Monday that marked the start of a new budget process.
Crawford said the overall picture is looking brighter than it has in recent years. He reported general fund revenues came in $1.6 million higher than expenses last year at $80.4 million, which led him to conclude the city has seen the bottom of the recession and is rebounding.
Mayor John Hieftje, seated, chats with Tom Crawford, the city's chief financial officer, just before Crawford delivered a report showing the city projects a $1.3 million surplus for next fiscal year, which starts July 1. The city has a $122,270 surplus planned in the current fiscal year, which ends June 30.
Ryan J. Stanton | AnnArbor.com
After years of cutbacks, including controversial staffing reductions in police and fire, the city actually started adding back some positions in public safety this year. If the city's latest projections are correct, the city's budget will be in even better shape when the next fiscal year starts July 1.
But it wasn't all good news Monday night.
"We are projecting a surplus, but the surplus disappears very quickly," Crawford cautioned. "We're in good shape — better shape than we've been — but it's not great shape because we continue to see revenues are growing at about a 1.5 percent rate and costs are growing at a 2.5 percent rate."
The forecast for fiscal year 2013-14 shows general fund revenues ticking up to $82.1 million and expenses coming in at $80.8 million — $1.3 million in the black.
But projections for the following three years show that one-time surplus going away and turning into a deficit as the city's costs continue to grow faster than revenues.
Losing the personal property tax
Crawford said his revenue projections account for a phased-in elimination of the state's personal property tax, which Gov. Rick Snyder's administration is pushing.
While that will save Michigan businesses some money on the taxes they pay on equipment, it will hurt local governments throughout the state. For the city of Ann Arbor, it will equal an estimated $257,573 in lost general fund revenue next year, ramping up to $417,409 by fiscal year 2016-17 — a total loss of more than $1.4 million over the next four fiscal years.
Another major item impacting the budget in the coming years is found in the fire department. The city is using a federal SAFER grant to fund positions in the fire department, and those positions will cost the city more than $250,000 a year to sustain starting in 2014-15.
Fiscal discipline, public safety staffing, infrastructure needs, economic development and regional transportation were some of the issues on the minds of council members Monday night as they talked about city issues to be addressed. In smaller print on the blue sticky notes, individual council members stated priorities ranging from restructuring the pension plan to a defined contribution plan to finding a more regional approach to fire services and addressing ever-growing traffic congestion. On a separate board, council members stated a need for better collaboration with the University of Michigan, improvements to public process when making decisions and more affordable housing.
Ryan J. Stanton | AnnArbor.com
Crawford told council the funding structure for local government is not sustainable. He doesn't expect general fund revenues to return to 2007-08 levels until 2014-15.
"When I see revenues going up at 1.5 percent, one of the conclusions I draw is there has still not been a fix to the funding for local governments," he said. "Taxes and state shared revenues make up 75 percent of our funding, and when state shared revenues are limited like they have been, then you're asking for a lot of the growth to come from taxes."
Council Member Christopher Taylor, D-3rd Ward, said state government seems to continue to be an "adverse party" when it comes to funding local government.
"Yeah, it seems like they should be a partner," Mayor John Hieftje agreed.
"You would think so," Taylor responded.
The City Council will work in the coming months to provide budget directives to City Administrator Steve Powers, who will present his recommendations to council in April. After that, the council will consider the administrator's budget and adopt a final plan in May.
Crawford said the city's general fund cash reserves grew from $13.6 million to $15.4 million over the last fiscal year, which ended June 30. About $14.2 million of that is unassigned.
That leaves the city with a fund balance equal to about 18 percent of expenditures, which Crawford said is a good place to be. He recommends 15-20 percent.
"That's where we are," he said. "Good year, good balance."
Crawford said state shared revenue and state fire protection grant money actually came in higher than the city planned and downtown parking revenues were up, too.
Following Crawford's presentation, council members had a wide-ranging discussion about city issues and budget priorities.
Council Member Sabra Briere, D-1st Ward, said the city needs to be extraordinarily cautious about how the $1.3 million surplus gets allocated in the coming budget year, as it appears it's going to be a one-time bonus and not a recurring source of revenue for the city.
Council Member Sabra Briere, D-1st Ward, said the city needs to be extraordinarily cautious about how the $1.3 million surplus gets allocated in the coming budget year, as it appears it's going to be a one-time bonus and not a recurring source of revenue for the city.
Ryan J. Stanton | AnnArbor.com
Council Member Jane Lumm, an Independent who represents the 2nd Ward, agreed the city's spending levels aren't sustainable. She still voiced support for increasing police and fire staffing levels, which presumably would involve making cuts in other areas of the general fund.
Council Member Sumi Kailasapathy, D-1st Ward, said she wants council to take a hard look at prioritizing core services. She's in favor of increasing police and fire staffing levels, too.
"Do we have to do everything we're doing now?" she asked. "I'd rather see going back to the drawing board every two years to see 'is this a core service — should we be doing this?' Instead of doing A and B and C, maybe we should be just doing A and B."
Economic outlook
Crawford's presentation also included an overview of the economy in Ann Arbor and the surrounding area. He noted employment levels for the Ann Arbor metropolitan statistical area, which includes all of Washtenaw County, dropped from 208,000 to 199,000 from 2002 to 2011.
Private sector employment levels declined more rapidly from 143,000 to 126,000. Crawford said the good news is Ann Arbor's unemployment rate is only 5 percent versus 9.1 for the rest of the state, and the GDP for Ann Arbor has rebounded and exceeds 2007 levels now.
From left to right, City Attorney Stephen Postema, Police Chief John Seto, Public Services Administrator Craig Hupy and Community Services Administrator Sumedh Bahl watch from the sidelines during Monday's planning session.
Ryan J. Stanton | AnnArbor.com
He said the city tracks building permits by the value of the construction projects, and records show the city issued $198 million worth of permits in 2008. After the economic downturn, that dropped to around $80 million, Crawford said, but it's back up to $122 million.
"We're not where we were, but there is a lot of good activity going on," Crawford said, noting taxable values are still below 2008 levels but increasing modestly.
Crawford said the local economy remains concentrated in education and health care, therefore susceptible to downturns in those areas. He said efforts to increase and diversify private sector employment will contribute to a more stable local economic outlook.
Other challenges
Outside of the city's general fund, other city funds face challenges going forward. Crawford said the water and solid waste funds need additional study.
The water fund has a 3-4 percent annual increase in revenue programmed, but that doesn't include funding to address an aging water plant off Sunset Road that dates to the 1930s. Crawford said that's something on the horizon that council needs to start thinking about.
In the area of solid waste, the city's drop-off station needs to be replaced. And within the stormwater fund, Crawford said, there's a large unfunded liability for pruning trees in the right-of-way, and there are millions of dollars worth of projects not being funded in the capital budget.
"If you look at these funds, the stormwater fund is the one that had the biggest gap of desired capital projects versus ones that got funded," Crawford said.
Craig Hupy, the city's public services administrator, suggested the growing problem of decaying trees will be a discussion item in a new urban forestry master plan coming to council.
Looking at the city's street fund, Crawford acknowledged the city also has been struggling to keep up with the objective of having its streets rated at the upper end of the "fair" condition scale.
Crawford said that's just one of a number of areas where the city has some deferred maintenance needs, including asbestos mitigation in city hall.
"You may recall, the asbestos was removed on a couple of floors," he told council members. "There are four floors that still need work."
Over the next two years, most of the city's labor contracts are coming up for negotiation. Crawford said that's one of the city's financial uncertainties going forward.
Hieftje and other city officials also lamented the fact that the University of Michigan continues to acquire property in the city, taking more and more land off the tax rolls.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's email newsletters.
Comments
eyesofjustice
Wed, Dec 12, 2012 : 7:42 a.m.
I wonder if City Officials counted this meeting as overtime pay?
Frustrated in A2
Wed, Dec 12, 2012 : 5:54 a.m.
"While that will save Michigan businesses some money on the taxes they pay on equipment, it will hurt local governments throughout the state." The nerd, a business man looking out for big business. Shocking...
JBK
Wed, Dec 12, 2012 : 3:11 a.m.
Roads, roads, roads.......... and sidewalks........ As a newbie to Ann Arbor, your roads are brutal. Eisenhower to Packard is a joke. I need a Hummer just to get through the potholes. The sidewalks are a joke too.. As an avid cyclist in the Spring/Summer, the sidewalks are dangrous!
Macabre Sunset
Tue, Dec 11, 2012 : 9:45 p.m.
Tomorrow, they will release the following statement: "Oops. When we reported that we will have a $1.3 million surplus, we were only counting the departments we feel are important - crosswalks, public art, new city offices. We realized we forgot to add in the roads budget and maybe the police department. We don't know. The 40 people we hired to do accounting are all union and off in Lansing protesting something. We'll get this straightened out as soon as possible, and we plan to ask for a new millage next month to make up the shortfall."
Tesla
Tue, Dec 11, 2012 : 4:56 p.m.
Let me ask an honest question. Are city governments allowed to run a surplus and keep the money? Or are the obligated by some rules to allocate the money? I know they aren't shy or unwilling to run deficits unfortunately but are they bound by law to do something with a fore casted surplus?
Tesla
Tue, Dec 11, 2012 : 5:59 p.m.
Thanks for the explanation Ryan. I'm glad they are running cash reserves.
Ryan J. Stanton
Tue, Dec 11, 2012 : 5:13 p.m.
They can either spend it or put it into fund balance (cash reserves). As the story notes, the city's general fund cash reserves grew from $13.6 million to $15.4 million over the last fiscal year, which ended June 30, so that's what happened last year and is projected to happen again this year, and could happen again next year.
Tesla
Tue, Dec 11, 2012 : 4:50 p.m.
Thoughts by Tesla: A) This is "projected" so don't get all excited, and B) 1.3 million is chump change in the scheme of things and won't go far regsrdless of where it's allocated if it even exists in the first place. I run a business and I sure wouldn't go looking for ways to spend a projected gain a year in advance. I'd be looking at rainy day emergency funds and so should Ann Arbors money managers.
Vivienne Armentrout
Tue, Dec 11, 2012 : 3:49 p.m.
It would help if critical programs didn't keep having to pay 1% to the Public Art fund every time they make a capital expenditure. It would also help if the Council wouldn't spend nearly a million dollars in General Fund money on the Fuller Road Station, as they did this year. Maybe that's what CM Briere meant in her comment about recurring expenses. Better to just make "one-time investments".
Nicholas Urfe
Tue, Dec 11, 2012 : 3:46 p.m.
"City government exists for one reason only: to provide basic infrastructure and public safety services to a relatively dense population geography." Its function is whatever the people want, and what their elected representatives do on their behalf. Ann Arbor has never been about merely providing basic infrastructure. It is a liberal university town with 157 parks. One Hundred and Fifty Seven. That didn't happen in a day, a year, or even a decade. If you want a minimalist charter, you'll need to look elsewhere. Ann Arbor seems to be the exact opposite of what you seek. Is there a city you can cite that matches the utopia you strive for?
brimble
Tue, Dec 11, 2012 : 9:22 p.m.
@Nicholas - Actually, I agree with you. The function of government is whatever the people want, so long as they understand the implications of wants. I live in Ann Arbor, and I like it (though I don't quite think it is utopia). I find it troubling that Council fails to manage the basics as it assesses priorities. Would you say that the average Ann Arbor resident is aware of the state of the infrastructure in Ann Arbor, or the implications of failing to plan for major capital projects, such as a water treatment plant? I am happy to pay a little more for parks, and other quality of life amenities. My concern is that we are collectively ignoring the proverbial crack in the foundation while we install granite countertops in the kitchen. The problem is that doing the basics isn't very exciting, and it is tough for elected officials to tout a reduction in potholes as a signature achievement come election time, so we celebrate another park while the roads crumble.
golfer
Tue, Dec 11, 2012 : 3:45 p.m.
i know away of adding one more mil. eliminate the art commission savings. might as well eliminate the art commission.
Arboriginal
Tue, Dec 11, 2012 : 11:40 p.m.
And don't forget those money drains - municipal golf courses!
brimble
Tue, Dec 11, 2012 : 3:10 p.m.
City government exists for one reason only: to provide basic infrastructure and public safety services to a relatively dense population geography. If it can, with community consensus, dedicate resources to improving the quality of life with parks and the like, great. But job #1 is police, fire, and emergency services, roads, water and sewer services, and trash, snow removal, and other support services. But in Ann Arbor: "...an aging water plant off Sunset Road that dates to the 1930s" "...the city's [solid waste] drop-off station needs to be replaced." "...struggling to keep up with the objective of having its streets rated at the upper end of the "fair" condition scale" "...years of cutbacks, including controversial staffing reductions in police and fire" "...the city has some deferred maintenance needs" "... ever-growing traffic congestion" "... the stormwater fund is the one that had the biggest gap of desired capital projects" And despite those, um, challenges: "city's spending levels aren't sustainable" Perhaps Council has some work to do, and perhaps citizens need to wake up to the realities of what needs to be done and what it will cost!
Stephen Lange Ranzini
Wed, Dec 12, 2012 : 11:57 a.m.
@brimble: thanks for an excellent post. I would add to your list that snow removal and winter road maintenance is funded at sub-standard levels both in the city and the county.
johnnya2
Tue, Dec 11, 2012 : 5:47 p.m.
"City government exists for one reason only: to provide basic infrastructure and public safety services : Who told you this? All government exists to improve ALL areas of life for the citizens. This is why we do not have a DIRECT democracy. The ELECTED leaders make the decisions on what should and should not be funded. The voters OVERWHELMINGLY have spoken on this matter. Despite the Patricia Lesko and other types who want to think everything is wrong, the fact is the elections happened. The population has spoken. GET OVER IT.
Nicholas Urfe
Tue, Dec 11, 2012 : 2:59 p.m.
Blimpy Quints for everyone!
Dog Guy
Tue, Dec 11, 2012 : 2:28 p.m.
I have seen the shell game (thimblerigg) played with walnut shells and 12 ounce plastic cups, but the Ann Arbor city hall gang beats all other con-artists by playing with buckets. They focus your attention on "a $1.3 million general fund surplus in the next fiscal year" while the big money is out of sight and likely pocketed. Karen, motorcycleminer, and javajolt1 will have to be content with only $13,000 in "percent for art" to decorate the general fund.
outdoor6709
Tue, Dec 11, 2012 : 2:27 p.m.
This should be fun. The Mayor and each council member will want their pet $400,000 project funded. Then in order to get any of them passed they will comprimise. Next thing you know there will be a $1.4 million deficit.
lynel
Tue, Dec 11, 2012 : 1:49 p.m.
Meanwhile, there were at least 6 B&E's in my neighborhood last week. Perhaps AA could use a few more officers out on patrol.
johnnya2
Tue, Dec 11, 2012 : 5:44 p.m.
More police do not equal fewer B&E's. This is a false notion not supported by facts. It is supported by police (more hiring) and by politicians because it makes people "feel" safer *"in 1990, despite the fact that Los Angeles had 33% more police officers per capita than Houston and Seattle, violent crime in Los Angeles was double that of Houston and two thirds higher than Seattle" *"despite a 16% drop in the number of officers in the past decade, crime has not risen, but dropped significantl" But don't let facts ruin the argument in favor of a police state.
Nicholas Urfe
Tue, Dec 11, 2012 : 2:58 p.m.
A couple more cops won't make a difference. Have you joined or organized a Neighborhood Watch?
javajolt1
Tue, Dec 11, 2012 : 1:44 p.m.
Let's see. A surplus - if it actually materializes - should be spent on: A. Road improvement B. Art Hopefully these people will do what elected officials should do and fix our horrific roads.
Indymama
Tue, Dec 11, 2012 : 9:46 p.m.
No,First should be support for Our police and Firefighters, then Roads!! ...And let the art be funded by private citizens who want to leave a legacy in the City!
Karen
Tue, Dec 11, 2012 : 12:59 p.m.
Well my winter taxes went up by another 4%, as did my summer taxes. And in 2010 they increased my summer tax by 16%. They should have a surplus by now...unless they've been spending it all on art.
arborani
Tue, Dec 11, 2012 : 3:48 p.m.
Mike, can you clarify or cite reference to that "set % per year"? I, too, had more than a 4% prop. tax increase this winter. Thanks
dancinginmysoul
Tue, Dec 11, 2012 : 1:45 p.m.
Mike- people in this city do not believe in paying higher taxes because U of M keeps buying up property which in turn means taxes aren't paid to the city. The more property U of M buys, the higher taxes go for the rest of us. This has nothing to with Obamacare. Or Walmart.
Bcar
Tue, Dec 11, 2012 : 1:36 p.m.
did you fight them? I did and won, after two tries and an apeal to the state. p.s. they're only allowed to raise your taxes by a set % each year.
Mike
Tue, Dec 11, 2012 : 1:26 p.m.
Many in this city believe higher taxes are a good thing since they pay for all of the stuff that people want. So I wouldn't expect tax relief anytime soon. Walmart is creating a lot of part time jobs due to Obamacare, maybe you should get one before they're all gone................
dancinginmysoul
Tue, Dec 11, 2012 : 12:49 p.m.
The City should buy the Blimpy Burger building then register it as an historical landmark.
Nicholas Urfe
Tue, Dec 11, 2012 : 2:57 p.m.
Beat me to it.
LXIX
Tue, Dec 11, 2012 : 12:48 p.m.
"Hieftje and other city officials also lamented the fact that the University of Michigan continues to acquire property in the city, taking more and more land off the tax rolls." You go Mr. Mayor! Tell those gownies that if they don't start forking over some more "insurance money" soon, then the city will find a way to not maintain the University's infrastructure. Umm, either.
Bcar
Tue, Dec 11, 2012 : 1:35 p.m.
agree 100% there! the U needs to help pay for some of the services and infrastructure that our tax dollars support...
treetowncartel
Tue, Dec 11, 2012 : 12:45 p.m.
How about a dividend to the tax payers? Or, perhaps leaf pickup?
Mike K
Wed, Dec 12, 2012 : 6:41 p.m.
You know, I have maybe 15 big maples on my property and I have to say that I've adapted pretty well to no leaf pickup. I was "outraged" at first, but mowing them is pretty easy (albeit very very dusty).
Bcar
Tue, Dec 11, 2012 : 1:34 p.m.
that right there! I find it funny how they said they dont want to do the leaf pickup on curb side any longer, but yet they still DO pick em up, but weekly!
Steven Murphy
Tue, Dec 11, 2012 : 12:32 p.m.
I sincerely hope that they'll be smart and frugal with all of this dough, as it's too easy to get arrogant and cocky and assume that the good times will last forever.
rosewater
Tue, Dec 11, 2012 : 2:41 p.m.
I thought they were arrogant and cocky already.
Brad
Tue, Dec 11, 2012 : 12:39 p.m.
Smart and frugal? You must be new here.
LXIX
Tue, Dec 11, 2012 : 12:28 p.m.
No, no, no. Our Administrator mispoke. Those were just projections. There is no $1.3M surplus to pay for any cosswalk ordinance lawsuit.
Arboriginal
Tue, Dec 11, 2012 : 12:24 p.m.
How about a report on staffing at city hall? How many employees? I heard we pay a public art administrator. Is this true?
eyesofjustice
Wed, Dec 12, 2012 : 7:29 a.m.
I would like a update on overtime pay from city officials.
tdw
Tue, Dec 11, 2012 : 12:08 p.m.
Well,I don't live in Ann Arbor so it's none of my business as to what they do with their surplus.But I do predict that this will lead to some lively comments on this site for the next few weeks/months
sigdiamond
Tue, Dec 11, 2012 : 1:49 p.m.
Don't worry about it. Nobody else who comments on this web site lives in Ann Arbor either.
Craig Lounsbury
Tue, Dec 11, 2012 : 12:32 p.m.
now why would you think that? ;)
Stephen Lange Ranzini
Tue, Dec 11, 2012 : 11:58 a.m.
The city's priorities ought to be to fund basic services at levels that meet national standards. Fire, police and roads are not where they need to be. We need two more fire fighters to staff proper response times for fire and emergency responder safety, metrics are still not being shared with the public on police standards for response times and crime solving so it hard to determine the additional level of resources needed, and roads still need a lot of work to get to acceptable levels. The city overall has had an annual surplus of over $30 million a year now, and discussions like this restricted to just the general fund exclude a vast amount of activity of the city. By reducing the number of separate dedicated funds ("buckets"), more resources could be focused on our top priorities. Strategies need to be pursued by city council and city management to do this. Many restrictions are set by city council and not by law or by the source of the funds. Drain the buckets to free up more resources to address basic needs!
Mike
Tue, Dec 11, 2012 : 1:24 p.m.
If they want more fire fighters and police the contracts need to be reviewed carefully and legacy costs need to be addressed. Things are unsustainable as they are. I doubt that would happen because that would take courage and responsible behaviour and that is not a politician's strong suit.
Stephen Lange Ranzini
Tue, Dec 11, 2012 : 12:02 p.m.
Sorry, meant to write, "The city overall has had an annual surplus of over $30 million a year for many years now," The city also has $100 million in liquid funds trapped in its 59 separate funds ("buckets"), of which only $14.2 million is currently available to the general fund, so draining the buckets will substantially increase the resources available to the general fund.
motorcycleminer
Tue, Dec 11, 2012 : 11:33 a.m.
Oh boy ! art here we come...
andralisa
Tue, Dec 11, 2012 : 10:34 p.m.
NOoooooooooo!
say it plain
Tue, Dec 11, 2012 : 11:17 a.m.
"upper end of the 'fair' condition scale"?! Ann Arbor is "doing pretty well" lately BUT can't get its roads to the upper end of 'fair'?! That's euphemism for the roads are generally POOR. But we and they and the dotcom keep talking about how things are 'different' in Ann Arbor, better. Fix. the. roads.
Brad
Tue, Dec 11, 2012 : 12:17 p.m.
It says they are "struggling" to hit that admittedly low bar, which means that they aren't doing it. That comes as no surprise to anyone who drives on the roads here.