State of the City #2 – Do We Have Money or Not?
There’s a lot of talk about the budget of the City, how bad it is, how broke we are. Parts of that are correct, but only parts. To understand this you need to understand how municipal budgets work.
First, REVENUE– the money the City takes in. We have four kinds: taxes, fees, appropriations, and grants. Taxes on real property (houses and buildings), and personal property (cars, trucks, boats, etc) and sales tax are the majority of our income. Fees such as water, sewer, trash bills and others, also make up a large part of our income. Appropriations are funds that (State and Federal) government send to us. A very small amount is annual revenue, the majority of appropriations money is for specific projects. (The Downtown Revitalization work was paid by a Federal appropriation along with a percentage match from the City of Richmond.)
Appropriations are all required to be used for specific things. For example, we receive a small annual amount of Federal highway tax money which can only be used for street work. Even through it “belongs” to the City; we have to apply to MoDOT for each item we want to pay for with those funds. Grants are nearly always earmarked for a special item, and have to be applied for to receive. They are also restricted, and have to be used for exactly what we requested the funds to complete. If there are extra funds because we completed the project with less money, we have to ask permission (apply) to use those funds for other items. Sometimes those requests are approved and sometimes we have to send the extra money back to the State or Federal government.
REVENUE goes into specific areas depending on what types of restrictions are placed on the revenue. The restrictions are State or Federal law. Taxes go into the General Fund and can be allocated by the City only for specific expenses. Fees go into the budget category which they fall under – water bill payments – go into the water fund; the sewer portion of your water bill goes into the sewer fund. The trash fee you pay with your water bill is used to pay for trash collection expenses.
EXPENSES – Just as we have a whole lot of internal accounts for revenue, we have many more internal accounts for expenses. In the street budget for example, we keep track of money for asphalt to make repairs, concrete to make repairs, salt for the winter, sand for the winter, equipment costs such as the blades for the snowplows – a long list. That level of breakdown holds true for every other category of expense.
Each year we are required by State law to put together a budget for a twelve-month period – our Fiscal Year. The City Fiscal Year is October 1 through September 30 (the same as the Federal government). Each government sets their own fiscal year at whatever twelve-month period they choose.
Also by State law, that budget is required to be positive – it cannot intend to spend more money than we expect to bring in as revenue. The budget can, and should, plan to generate a small surplus every year. The budget should not plan to generate a large surplus.
As we put together our annual budget each year, we are required to project, or anticipate, what money will come in, and in what categories. We are required to also project what money will be spent and in what categories.
By State law, we must adopt a budget before September 30th each year when our Fiscal Year begins. We start putting the budget together in late May or June each year. Estimating things like how much snow there will be the next winter, and how much money we’ll actually spend for road salt, based on the amounts used the past several years. For the most part the estimates are fairly accurate.
But no matter how careful the projections are that go into the budget, things always happen differently than expected. Revenue might be higher than expected, expenses might be lower. Usually it’s the other way around. The City can’t spend more than was budgeted without the Council specifically approving the added expense. Once or twice a year, usually in May and September, we amend the budget so it’s more accurate.
Now with a basic understanding of the budget, do we have money or not? All of the numbers from the last Fiscal Year and this year to date point toward a City budget that will have overcome a deficit of over $400,000. We don’t have a surplus in every category, but at least we aren’t going to be in the hole anymore. Overall, in these very rough economic times, that means we are in pretty good shape. We can’t spend money on anything extra, but little by little we can rebuild infrastructure, expand services, and eventually level out these outrageous fees for services like water and sewer.
We looked at how the City budget is structured, and noted some rules that govern how your money is spent. There are laws that require that money for one category is not to be spent for other categories. But if that’s true, how did the City end up with more than a $400,000 deficit in the first place? Remember that although the budget adopted can not project a deficit, the Council in place at the time can approve expenses greater than the budget showed. Also, remember that it’s only an estimate. It’s not at all unusual to be off on the budget projections. When expenses are a lot higher than expected, or when revenue is a lot lower than expected, the result is a budget deficit. Another reason municipal budget projections are not correct result from extra expenses that aren’t budgeted, but have to be paid. For example, the City will be audited by the State Auditor’s Office. State audits are actually a really beneficial service, but the cost will be $15,000 – $20,000 which is not budgeted.
The cost of the State Audit will have to be paid, and has to be paid by the City. If the payment has to be made during the current Fiscal Year, where it’s not budgeted, funds from other categories will have to be used. That will reduce the funds in those categories, and will reduce the amount that can be spent in those categories. For example, a portion of the cost will come from the water fund. If that amount is $5,000 it will reduce the amount of water repairs we can make by $5,000. Replacing 100 feet of old water line which has been patched too many times already can cost as much as $8,000 even if it’s not under a street. The same will be true of every other budget category except mandatory payments such as bond debts.
By the start of 2007, Richmond had budget deficits in the General Fund totaling $401,324. At the end of Fiscal Year 2008, the General Fund deficit has been cut to $212,417 and we are trying to reduce that to zero by the end of the current Fiscal Year.
Once that’s done the City will be free of deficit spending. City staff and the Council have worked very hard to overcome this deficit; even in light of expenses that were unforeseen. They are to be congratulated. We are ready to move forward to make Richmond the kind of place that’s been promised. In the articles to come, we will discuss the new and positive steps we have taken in each and every department within the city government.
Lance Green
Mayor