Director of Finance and Information Systems Pam Ehler reported the news to the City Council last week during her presentation of the General Fund Fiscal Model forecast for the next 10 years. Instituted in 2008, the 10-year forecast is designed to give city officials a long-range look at where the city is headed financially, and give them a chance to adjust for challenges before they become crises.
The rainy-day funds include the $10.3 million Budget Stabilization Fund, which represents savings accumulated by operating below budget in recent years. A second savings account, called the Insurance Internal Service Fund, was established in 2005 to help counter rising benefits costs. It now holds $4.8 million in worker compensation and other insurance expense savings.
The funds are the outgrowth of city officials’ realization a decade ago that Brentwood would eventually need to shift from a budget funded mostly by development to one based on property and sales tax. Although the funds have figured in financial planning since they were established, this year will be the first in which some of the money will be used.
Ehler told the council that up to $2.8 million of the rainy-day supply might be tapped to keep operations fully funded and not touch the city’s budget reserves, which remain at 30 percent.
“We have not touched our reserves, nor have we ever touched the reserves,” Ehler said. “We don’t think we will actually use (all $2.8 million in stabilization fund money) but we will use some of it. But that’s exactly what it is there for and what we’ve been planning for.”
Growth in sales taxes and property tax revenue resulting from increased property values are expected to eventually supplant the development revenue. The special funds were established to prevent service reductions until tax revenues grow enough to meet the city’s needs.
Although sales tax revenues have continued to post gains, the 10-year forecast shows that the severity and duration of the real estate slide means overall revenues will grow at only a 2.9-percent annual rate over the next 10 years, while expenses are expected to grow 3.6 percent. Unless something is done to reduce the rate at which future expenses increase, the stabilization funds could run dry in about six years, Ehler told the council.
The increasing expenses are primarily employee-related, including medical and retirement costs for current and former employees. The 10-year forecast does not anticipate adding new employees positions before the 2020-21 fiscal year.
Since the savings accounts are expected to prevent the city from dipping into reserves for the next six years, Ehler believes there is time to make adjustments. Modest changes now can make a huge impact in coming years, she said, in order to avoid drastic actions down the road.
Strategies for dealing with the cash flow imbalance have been in the works since last November and will be brought to the council for review in June. A key part of those strategies are current and upcoming negotiations with the city’s labor bargaining groups.
“The results of these negotiations are likely to substantially alter the projections contained throughout this Fiscal Model and to significantly reduce the shortfalls currently projected,” the report states.
Ehler said this week that if labor negotiations fall short of bridging the gap, other options could be considered. For example, the city has always fully funded its equipment and vehicle replacement funds, and could take advantage of the healthy fund balances to make temporary reductions in future contributions to help prevent the need to dip into General Fund reserves.
Pressure on the stabilization funds will also be eased if development recovers faster than forecast. The 10-year model projects income from 100 housing units per year, growing annually to reach 330 units in 2020/21. The city has already processed 122 permits this year.
Although the revenue shortfalls have been anticipated and the stabilization funds put in place to help offset them, Councilman Erick Stonebarger doesn’t like the red ink in the budget forecast, and wants to make the needed adjustments as soon as possible. “The longer we wait, the tougher it’s going to be,” he said.
Vice Mayor Steve Barr agreed. “I think it’s going to be a tough 10 years,” he said. “We’re going to be paying acute attention to how we progress in the next two months” leading up to the annual June budget review.
Ehler praised city employees for remaining dedicated to serving the city despite the sacrifices they’ve already made and will be asked to make in the future.
“The employees here understand where we are; they are concerned and want the best for the city,” she said. “Our new reality is that we’re not going to have the revenue we had in the past for a long, long time. It’s a new day of fiscal reality.”