AboutClarkston.com

City Finances Seminar, continued

Year-to-Year Budget Observations

Non-Tax Revenue, Actual
2002 = 1,615,588
2003 = 1,522,257
2004 = 1,437,012
2005 = 1,398,210 (budgeted)

Clarkston’s non-tax revenues have decreased drastically over the past three years. When the millage rate is set mathematically, a reduction in non-tax revenue would require (all other factors being the same) an increase in the millage rate. City leaders would be encouraged by the process, therefore, to identify opportunities to increase non-tax revenue.

A significant reduction in interest income has occurred year-to-year because cash reserves are being tapped to fund deficits. More on that below.

Percentage of Expenditures Funded by Your Tax Dollars (Current & Reserves)
2002 = 20.3%
2003 = 35%
2004 = 42.3%
2005 = 39.2% (budgeted)

Ideally, a larger portion of the budget should be funded by non-tax revenues—permits, franchise fees, fines, interest on investments, etc. As non-tax revenues have decreased over the past several years, the taxpayer’s burden has increased.

Conclusion: The budgeting errors of 2002-2004 put a larger percentage of the budget on the backs of the taxpayer, in spite of the yearly rollback in the tax rate. The 2005 proposed budget reverses that trend; however, the burden on the taxpayer is still too high and should be reduced, if possible.

[Lesson learned: A decreasing millage rate does not necessarily mean lower taxes.]

Cash Reserves (year end)
2002 = 1,409,081.20
2003 = 955,089.67 (32% loss = $453,991.53)
2004 = 521,026.98 (45% loss = $434,062.69)

When you overestimate non-tax revenues and arbitrarily set the millage rate too low, the money has to come from somewhere. In the past couple of years, the city has pulled significant sums from reserve to fund deficits. Public finance professionals generally recommend that an amount equal to three to four months’ operating costs be kept in cash reserve. With the 2004 deficit, Clarkston's short-term cash reserves dropped dangerously below the recommended level.

Certificates of Deposit (Long term reserves) (year end)
2002 = 1,709,989.93
2003 = 1,747,613.22 (+2.2%)
2004 = 1,531,342.73 (-12%)

The City of Clarkston is not teetering on bankruptcy, however. The City has another seven months’ operating expenses in Certificates of Deposit. The CDs provide an adequate safety net over which the City will be able to solve its budgeting problems. Should the City continue on its current course, however, this reserve could be depleted in three years or less.

Next: "Padding the Budget"