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City Finances Seminar, continued

"Paying for It" -- Possible Solutions

City leaders have several options available to them to fund this year’s budget. The solutions below presuppose accurate budget figures, a mathematically-correct millage rate and no heretofore unidentified revenue.

Solution #1: Fully fund budget with tax increase
Millage required = 10.08 to 10.55. Current reserve is maintained. The owner of a $150,000 home will pay between $604.80 and $633.00 in city taxes.

Solution #2: Fund with combination of reserves (max. possible) and tax increase
Using $500,000 from the reserve account, a millage rate of between 4.50 and 4.71 would be required to fully fund the budget. The cash reserve account would essentially be depleted. Under the “Taxpayer’s Bill of Rights” law, a millage rate above 4.521 would require public meetings and the advertising of “Intent to Increase Taxes.” The owner of a $150,000 home will pay between $270.00 and $282.60 in city taxes.

Solution #3: Fund with “50/50” combination of reserves and tax increase
Using $451,782 from the reserve account, a millage rate of between 5.04 and 5.27 would be required to fully fund the budget. Under the “Taxpayer’s Bill of Rights” law, a millage rate above 4.521 would require public meetings and the advertising of “Intent to Increase Taxes.” The owner of a $150,000 home will pay between $302.40 and $316.20 in city taxes.

Solution #4: Budget cuts / non-tax revenue increases
The 2005 budget is only 1.5% higher than the 2004 budgeted expenditures, but 7.6% lower than 2004 actual expenses. If the 2005 budget was properly developed, then it is likely that all possible cuts have been implemented. The increase in this year’s budget is reportedly caused by increases in salaries, insurance and liability costs.

The Council could immediately implement increases in certain fees and fines, and other non-tax revenue categories. With a third of the fiscal year gone, however, the additional revenue realized would be negligible.

Solution #5: Maintain “status quo”
Should the city adopt the “rollback” millage rate of 4.521 and hit its projected expenditure and non-tax revenue figures on the nose, the city would experience a deficit of between $498,415 and $516,648—enough to wipe out the city’s cash reserves this year.

Solution #6: Borrowing
The City could borrow funds to balance the budget and forego a tax increase or tapping into the cash reserve. With the amount of money that the City has in reserve, however, borrowing (with the additional interest cost) is not necessary.

Next: Year-to-Year Budget Observations