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CHIEF ASSISTANT CITY ATTORNEY FLORENCE A. KESSLER ASSISTANT CITY ATTORNEYS E. ASHTON HILL III DAVID J. WIBLE T. EDWARD SMELSER, SR. MELISSA MUTERT THOMAS DERRICK V.WILLIAMS LEE F. HOLLAND OF COUNSEL JOHN L. LAWLER
LAWRENCE M. WETTERMARK
Council member Reggie Copeland, Sr., President, District 5 (firstname.lastname@example.org) Council member Fredrick D. Richardson, Jr., Vice-President, District 1 (email@example.com) Council member William C. Carroll, Jr., District 2 (firstname.lastname@example.org) Council member Jermaine A. Burrell, District 3 (email@example.com) Councilmember John C. Williams, District 4 (firstname.lastname@example.org) Council member Bess Rich, District 6 (email@example.com) Councilmember Gina Gregory, District 7 (firstname.lastname@example.org) RE: Budget Issues
DearCoun~IMembeffi: Mayor Jones asked that I give you my analysis of the budget shortfall facing the City next year. He also asked me to address some of the questions you have raised. As you know, Mobile, like cities throughout the state and nation, is experiencing a serious revenue shortfall due to the economy. Austerity measures have been in place for several years now. City employees have borne the brunt of the austerity measures. Raises have not been given for four years and there have been no cost of living adjustments. The current hiring freeze has resulted in fewer employees performing a greater level of service. The demand for services by our citizens continues to increase. City departments have been asked over the past two years to make significant budget cuts. Overtime has been slashed to a point where it becomes difficult to deliver basic services, particularly in the public safety area.
P. O. BOX 1827· MOBILE, ALABAMA 36633·1827 TELEPHONE: (251) 208·7416· FAX: (251) 208·7322
As you will recall, a temporary sales tax was enacted to bridge the City through the economic crisis. Unfortunately, the Council chose to shorten the bridge by one year from the time recommended by the Mayor. The temporary sales tax went away as of the beginning of this fiscal year, October 1,2011. For greater clarity, I have attached a financial summary depicting what has happened over the past two years and what will happen for the City's budget year beginning October 1, 2012. If you will refer to the attachment, you will see that last year's budget, 2010-2011, was the last year during which the temporary one cent sales tax was collected. As you can see, we ended last year with a net balance of over $27,000,000. The reason this occurred was that the Mayor chose to bank all that he could of the temporary one cent sales tax in order to bridge through the current fiscal year. Had the. Mayor not done this, the budget crisis that will happen this coming October 1 would have presented itself as of October 1 of last year. If you will look at the middle column, you will see summary data from the current fiscal year ending September 30, 2012. As you can see, total revenue is just under $190,000,000. With the $27,000.000 carryover, our total resources for this year amount to approximately $217,000,000. After deducting for current year expenses 'and reserve, you will see that the amount of carryover that we have for next year is a little under $7,000,000. The third column depicts what will happen to next year's budget if an additional source of revenue is not found. As you can see, without the $27,000,000 carryover from the banked sales tax, we will end up with total resources of just over $194,000,000. Unfortunately, this will be totally insufficient to meet the anticipated expenses and reserve projected for next year. The following are some of the questions that you have raised. HOW DID YOU PROJECT A $27,000,000 DEFICIT FOR NEXT YEAR? Column three of the attachment shows how this was computed. IF THE TEMPORARY SALES TAX WENT AWAY AS OF OCTOBER 1, 2011, HOW . DID WE GET A BALANCED BUDGET THIS YEAR? If you will refer to the attachment, you will see that the only way we were able to balance the budget this year. was by banking the amount of temporary sales tax collected during the prior fiscal year. WHY DID PROJECTED EXPENSES INCREASE FOR NEXT YEAR? The answer to this lies,in expenses that are beyond the' 'control of the City. lnIarqe measure, the increase can be explained by three categories: health benefits, pension
fund contributions and fuel costs. I will be happy to answer any questions you might have on my projections for these three categories of budget expense. CAN'T YOU REDUCE THE AMOUNT OF NEXT YEAR'S DEFICIT BY CREDITING THE 2012·2013 RESERVE? Next year we are required by law to maintain a reserve which we have projected to be approximately $3.8 million dollars. We cannot help balance next year's budget by ignoring state law. CAN'T YOU HELP REDUCE THE AMOUNT OF NEXT YEAR'S DEFICIT BY CREDITING THE RESERVE OF APPROXIMATELY $4.3 MILLION DOLLARS FROM LAST YEAR? The answer is that you can do this but it would be fiscally irresponsible for several reasons. First, last summer, the City of Mobile actually had its bond rating increased to the highest level that it has been in decades. This was the result of good fiscal management and of maintaining an adequate reserve. If we wipe out this reserve from day one of the budget year, we can expect that this would have a disastrous effect on our bond rating. The significance of this is that it would cost the City hundreds of thousands if not millions of dollars over the long term in borrowing costs. It is also a terrible signal to send to the business community at large. Another reason this would not be wise is that it would significantly impair the City's ability to respond to emergency needs and public health and safety needs during the course of the fiscal year. It is poor fiscal practice to spend down available reserves as part of the budgeting process even before the year begins because this leaves the City completely vulnerable to unexpected events. One example would be a hurricane or other natural disaster which necessarily requires significant expenditures by the City. Other examples would be unanticipated emergencies in public safety and public works. To reduce the City's ability to respond to these needs would have serious implications. To put this question in further perspective, even if this were done, the amount of the deficit would still be well over $20,000,000. It would not alleviate the need to make the type of drastic cuts in personnel and services that we anticipate for next year. Because of the financial situation facing the City as of October 1 of this year, I have advised the Mayor that it would be prudent and necessary to begin making some of the cuts in personnel and services during the current fiscal year. I There are no easy. answers. Absent a new or renewed revenue source, there must be significant reductions in personnel and basic services. Because so much of our budget is allocated to public safety and public works, it will not be possible to close the gap without significantly affecting personnel and ser,_vicesin those critical areas. .' .' . .
I trust this answers the questions I have heard raised thus far. I will be happy to discuss these matters with you or answer any other questions you may have.
Very truly yo~
. Barbara Malkove
Mayor Samuel L. Jones
Revenue Carryover Total Resource Expenses Reserve Net Balance
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