City staff asked for direction from the City Council regarding how the city should fix its budget shortfalls during a work session on March 20.
After providing an overview of the city’s projected general fund for the next five years, Finance Director Brandon Neish said the budget is expected to be about $2 million short each year.
“As a body, we really need to establish what our priorities look like moving forward,” Neish said. “What is it that is essential in the minds of the council and the community? What is it that is important as far as funding is concerned?”
Interim City Manager Ron Whitlatch outlined some options, which included “substantial” reduction in services (police, library, senior center, etc.), a local option levy and utility bill fees. Other options that he believes are less likely include local payroll, sales and restaurant taxes.
The obvious reason for the deficit, Whitlatch said, is that expenditures are outpacing revenue. Inflation is another big factor. Main revenue streams for the city include franchise fees and property taxes, which are limited to a three percent year over year growth.
In his five-year forecast, Neish showed that the fiscal year 2025 (beginning this July) general fund’s beginning balance is $4,618,286. For fiscal year 2029, at this point in time the beginning balance would be expected to be in a $4,748,132 deficit.
Projected property tax revenue is expected to be $6,747,743, which are affected by Urban Renewal District debts, and franchise fees $3,034,948. In FY 2029, projected property tax revenue is $8,535,120. With the addition of all other revenue streams, the city expects $12,337,614 in total revenue for FY 2025, and $14,225,450 in FY 2029.
For expenditures, assuming all existing city positions are filled for the entire fiscal year, total payroll expenses (which include taxes, PERS, insurance, etc.) total $8,175,454 for FY 2025. Assuming an average 4.6% growth in salary and associated payroll expenses over the next five years, the total for FY 2029 would be $10,882,491.
Neish noted the city is trying to pay off debt services faster in order to free up cash in the coming years. Yet, in addition to materials, services, capital projects, transfers and contingencies, the city is looking at an 8% increase in expenditures over the next five years. Total projected expenditures for FY 2025 are $14,214,358, and for FY 2029 $16,499,463. According to Neish, the city is looking at approximately an average of $2 million spent beyond the city’s revenue each year for the next five years.
Adding to the problem is a city policy that requires the city hold a 17% reserve in the fund balance, meaning the ending fund balance that can be used is actually must lower, or the deficits are much bigger.
“Additional expenditure reductions or alternative sources of funding are on the table at this point,” Neish said. “Whichever way you slice it, one of those things, or a mix of both, has to occur in order for us to change the fact that we are dragging on that fund balance about $2 million a year. We just don’t have it. Something structurally has to change for us in order to make that bottom line meet and to comply with state law.”
During council discussion on the matter, councilors Wayne Dykstra and David Workman, and Mayor Ken Jackola agreed they would not want to reduce city services. Councilor KJ Ullfers said he’d like to look into the possibility of another debt obligation bond on PERS.
“The way I see it, we can’t cut our way out of $2 million,” Councilor Michelle Steinhebel said. “It’s impossible. I don’t want to know what that looks like because it would be wholesale slashing of very important and critical departments for our city.”
Though she recognizes revenue generation through utility fees and taxes is an unpopular move, it’s a move other nearby cities have established to stay afloat. Steinhebel wanted to establish what the most critical services are to, essentially, protect them from facing financial cuts.
Some discussion revolved around a local option levy, what service(s) it would fund, and when funding for that (if approved by voters) would come in. Neish said a rough estimate of income from a levy would be about $200 per year per property owner. Whitlatch said a utility fee might be a doable option as well, but he believes trying to do both a fee and a levy would be a difficult ask.
The council directed staff to bring to a future meeting what some levy options might look like. Councilor Steinhebel also asked to see how similar-size cities are using levies and fees to supplement a budget.
The next work session to discuss the matter is expected to be at 12 p.m. on Wednesday, April 24.