The recent workshops on the City’s budget have revealed that one of the major dynamics driving the $5 million general deficit this year and the projected shortfalls over the next few years revolves around Star Metro. The discussion by City Commissioners indicate that changes have to be made to Star Metro so that the general fund subsidy does not continue to increase.

However, one area that received no discussion during this budget cycle – despite a major increase over the previous year spending – is employee pensions. Budget documents show that the City contributions to employee pension funds in 2014 increased a whopping 28%, or $2.2 million, over the 2013 budget.

Tallahassee Reports contacted City budget staff about the increase and was told that a new state law required that the City increase the funding for their pension plans. This requirement resulted in an increase in the employer contribution from 10.0% to 13.4%. The employee contribution remained at 3.75%. This makes the City’s contribution over 3.5 times greater than the employee’s contribution. How does this compare to the private sector and to other local governments?

In the private sector, for most businesses, the employee’s pension program is Social Security. In that program, the employer and employee contribution is split 50%/50%. Tallahassee Reports was able to verify that the City of Jacksonville requires their employees to contribute 7% and the City of Gainesville requires their employees to contribute 5%.

More than one City source has indicated that the City has punted on the employee pension issue, but that it will have to be addressed soon to break the projected cycle of general fund budget deficits. “Just keep an eye on the current negotiations with police union, this could be an indicator of how the general employee pension fund will be addressed next year” said the source.

Mr. Lavin told the Commissioners that as of now, the general fund budget for 2014 will result in a $5 million deficit. The is based on the projections of $136 million in revenues and $141 million in expenditures. The $141 million in expenditures is approximately $8.3 million above the general fund actual expenditures in 2011.

Tallahassee Reports put together the table below that compares the level of spending of the City’s general fund from 2008 to 2014 to consumer spending in Leon county during the same period. Consumer spending was calculated using Florida Department of Revenue sales tax reports for Leon County.

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The table shows that from 2008 to 2014 the City’s general fund expenditures increased from $132 million to $141, which is a 6.8% increase. During the that same period, consumer spending increased from $6.85 billion to $6.96 billion(projected) which is a 1.6% increase.

If consumer spending had increased at the same rate as the City’s general fund spending, consumer spending would have reached $7.3 billion. This level of spending is above pre-recession levels.

A comparison of Leon County spending will be completed when Tallahassee Reports receives the County’s proposed spending level for 2014.

In terms of 2013, the update is highlighted by the fact that Star Metro will require an additional transfer of $1.2 million from the General Fund to cover an operating shortfall. The 2013 budget called for an $8.6 million transfer from the General Fund to Star Metro. This means the total transfer to operate Star Metro for 2013 will be approximately $9.8 million.

For 2014, the city staff projects General Fund revenues of $136 million and expenses of a $141 million. This adds up to a $5 million deficit. Expenses for 2013 are estimated to come in at $136 million.This means the City is expecting an additional $5 Million in spending for 2014.

Staff notes that the 2014 budget must account for pension rates that have increased by 3.3%, health insurance costs that have increased by 5%, ad valorem taxes that are flat, and the increasing costs to operate Star Metro. Also, the budget update states that the preliminary look at 2014 will ultimately be affected by such dynamic issues as union negotiations and national health care policy.

Staff is providing the update to the City Commission so that the elected officials can provide “additional input on budget priorities so these can be incorporated in the budget process.”

The City budget calendar for 2014 calls for the release of the proposed budget on June 7, 2013.

The first task was to look back at the budgets over the previous years to try and determine if there was an explanation, hidden somewhere in all those numbers, for the tax increase that was required in 2010 to provide the citizens of Tallahassee with the most basic governmental services.

After digging through budgets and actual expenditures for each year since 2006 and talking to city officials, Tallahassee Reports discovered that for 2006, 2007,  and 2008, the COT approved a budget that did not rely on revenues saved in the city deficiencies fund.

However, looking at the actual data for each of those years reveals that sometime during each year, the COT transferred approximately $3,000,000 from the City Deficiencies Fund to pay for core services.

If the use of deficiency funds was a one time policy due to an unanticipated event, this action would not be so noteworthy. However, to continue to rely on a “savings account” to fund day-to-day operations for core services year-after-year is noteworthy because it explains why the COT found itself in a budget showdown this year. The bill the City Commission had refused to address over the last four years had finally come due in 2009. 

The bill came due because the City’s Deficiency Fund, that was being used to fuel the spending the City could not afford, became tapped out. In June 2006, the City’s Deficiency Fund had a balance of $24 million. In June 2009 the balance was $9.5 million.

The research indicates that decisions made, or not made, in 2006, 2007 and 2008, laid the foundation for the tax increase passed in 2009.

It is interesting to note that not one city commissioner, during the most recent budget process, mentioned the fact that over the last three years the budget was not balanced and the City had to spend years of savings.

Using Bureau of Economic Analysis (BEA) data on Gross Domestic Product and City of Tallahassee expenditure data, the analysis indicates the COT GDP grew 11.6%, while COT government expenditures increased 33% from 2005 to 2008. (Government Expenditures includes all government funds.)

When isolating the General Fund expenditures, the analysis indicates a growth rate of 12.5 % over the period of 2005-2008, compared to the GDP growth rate of 11.6%.

The table below shows yearly government expenditures as a percentage of the GDP.

The calculation for 2009 is an estimate taking into account the current recession and COT expenditure estimates for 2009.

The above table indicates an increasing percentage of resources being removed from the Tallahassee economy to address the needs of government.

Deferred Compensation

On the deferred compensation, Mr. Lavin said:

“It is my understanding that this came up as part of a charter review commission discussion about commissioner salaries and benefits and after that it was brought forward to the commission in a publicly noticed meeting[…]”

Tallahassee Reports has obtained a copy of the Charter Review Committee Final Report (click here to view – see pages 5-15). A review of the document indicates a discussion on salaries, but does not show any discussion on deferred compensation or benefits.

Furthermore, the agenda item addressing deferred compensation and the minutes of the meeting never cites a recommendation from the Charter Review Committee (click here to view – see pages 1-4) as support for any recommendation in the agenda item.

Reserve Funds

Mr. Lavin, when asked about the electric reserve funds, indicated that the fund had approximately $60 million and the uses of this money is specifically tied to the electric utility.

Tallahassee Reports has reviewed proposed budget items for 2010 and found that the Schedule of Reserve Funds, on page B-12 of the 2010 budget, indicates an Electric Fund Reserve of $108,836,700. This is made up of a Long Term Rate Stabilization Fund of $94 million and a Bond Reserve of $14 million.

With regards to the uses of these funds, on page B-9 of the budget, it states that uses of the Long Term Rate Stabilization are to be determined by the City Commission.

In addition, it should be noted that there is an Electric RR&I (Renewal, Replacement, & Improvement) Fund that currently has a balance of $66 million.

Tallahassee Reports has focused its analysis on the City’s “Reserve Accounts.”  The City has reserve accounts for the General Fund, Electric Fund, Gas Fund, Water Fund, Sewer Fund, Airport Fund, and Solid Waste Fund.

Per City Commission policies, these funds are surplus revenues that are collected and saved “as protection against unforeseen financial risk or as a means of reducing the future cost of services or projects (COT Policy 224.04(8)).”

The total amount of surplus revenues in all reserve accounts is $172,240,900 as of March 31, 2009. The major component of this total is surplus revenues in the electric fund, which totals  $108,836,700.

Included in the Electric Fund is a “Long-Term Rate Stabilization” category which contains approximately $95,000,000. This category has increased from $79,000,000 in June 2005. This fund is designed to “provide stable rates in recognition of swings in revenue requirements.”

Tallahassee Reports researched the level of the Rate Stabilization Fund for the Gainesville Regional Utility (GRU), a utility that has about 10% less revenues than the COT utility. The findings indicate that GRU has a $50 million reserve while COT has a $95 million reserve.

The Fiscal Year 2010 Proposed Budget indicates that the use of accumulations in the Long Term Rate Stabilization Reserve is to be determined by the City Commission.

The obvious question becomes can the City of Tallahassee avoid tax increases and maintain appropriate service levels by using revenues already collected from taxpayers?

The analysis indicated that expenditures over that period exceeded population growth to the tune of approximately $23 million. When adjusted for a inflation over that period, expenditures added approximately $12 million.

This report investigated what categories received the expenditures above and beyond population and inflation growth. The analysis indicated that three areas account for this increase in expenditures.

Personnel Services

Personnel services make up just less than 70% of the 2009 general fund budget. So it is not surprising to find that this category is the leader in explaining the increased expenditures over the 2005-2008 period.

Expenditures for 2008 for this category increased to $93.6 million from $88 million in 2005. However, the surprising fact is that over this period the number of full time employees decreased in 2008 to 1,154 from 1,200 in 2005.

These numbers reveal that in 2005, the city spent $73,962 per employee and in 2008 this expenditure was $81,183 per employee.  These expenditures include salaries, benefits, merit raises, human resources, personnel training and overtime. 

While the number of employees decreased over this three year period period, the expenditure per employee increased by about 10%.

Of the personnel service categories, salaries and health benefits were responsible for most of the increase in expenditures. For example, salaries increased from $49 million in 2005 to $52 million in 2008 and health benefits increased from $4.9 million to $5.9 million during the same time period.  

Star Metro

Monies from the general fund are contributed to the operations of several city functions that do not generate the revenue required to stand alone. In 2005, the general fund contributed approximately $5.5 million to Star Metro.  In 2008, these contributions increased to $7.6 million. This is a 38% increase over the the three year period and contributed significantly to the overall increase in general fund expenditures over this period.

Community Redevelopment Agencies

In 2005, the general fund contributed a total of $304,000 to community redevelopment projections. In 2008, this amount had increased to approximately $1.3 million. This 300% increase added $1 million to the general fund expenditures in 2006, 2007 and 2008.

In summary, the general fund spending beyond population and inflation growth from 2005 to 2008 in Tallahassee was directed towards salaries and health benefits for city personnel, the support of Star Metro, and community redevelopment projects.

In this article, Tallahassee Reports looks into one side of this debate by providing information about the various sources of general fund revenues. If the city decides to raise revenue to cover the short fall, the revenue will come from one of these areas.

The Categories

The general fund budget for 2009 was approximately $132 million. The three largest source of revenues were generated from taxes and franchise fees ($57 million), followed by the utility transfer ($36 million), and finally, inter governmental revenue, which includes the 1/2 cent sales tax and revenue sharing with the state of Florida ($16 million).

Listed below are the top sources of revenue (in millions):

The Taxes and Franchise Fees category includes $35.5 million from the property tax, $9 million from the communication tax, and $12.5 million from the electric, water, and gas tax.

The electric, water, and gas tax raises an interesting question: Is this in addition to the utility transfer of $33 million? A review of a residential electric bill provides no clue due to the lack of line item detail.

If this is indeed the case, then the utility transfer and the utility tax contributes approximately $45 million of the $132 million general fund.

Implications

Understanding how much the various sources of revenues contributes to the general fund gives an indication of the $7.5 million problem facing the city commission.

If raising revenues to cover the shortfall is the path followed by the commission, listed below are the implications of some possible solutions.

Property Taxes
If the commission decided to cover the shortfall with an increase in property taxes, it would take a 20% increase in the current property tax revenue.

Utility Transfer
Increasing the utility transfer would require a 22% increase in the 2009 $33 million transfer.

Across the Board Increase
If this was feasible, it would take a 5% increase across all sources of revenue to cover the shortfall.

Use of Conservation Money
Of the $17 million in the conservation fund, a one time transfer of $7.5 million would cover the short fall without increasing taxes or cutting services.

Next week we will look at the other side of the debate – budget cuts.