City resorts to living on credit
August 22, 2008 · Updated 4:37 PM
Faced with the most severe financial crisis in city history, city administration is recommending taking out the credit card instead of making permanent cuts in city operating costs. This creative amalgamation of head in the sand with your finger in the dike approach has nothing going for it except long-term negative consequences for the community. There is no plan, only pleading for cash to tide them over until they can make a plan.
On Aug. 27, the City Council will take public comment on upwards of $2 million of non-voted bonds that are categorized by administration and select council supporters as “general fund replacement for city prefunding of various capital projects.” Because of the crisis, this bond money will actually be used to fund operations and we will be living on credit. How did this happen?
During the past five years of higher tax revenues two things happened: First, all the money was spent. Over $25 million went to outside consultants and about $4 million for Winslow Tomorrow for planning – not construction, just planning. Second, the early signs of the economic downturn were missed or ignored by city administration. We don’t know which, but the crisis is incorrectly blamed totally on the downturn.
Missing those early signs, the city came up more than half a million dollars short last December, a fact it failed to mention until this June! We don’t know when the administration knew of it, but as late as December it was discouraging council efforts to make significant operating cuts in the 2008 budget. When added to the recently projected 2008 shortfall of about $4 million, this unrecognized shortfall has put the city in serious financial jeopardy. Reserve and interest-bearing accounts have been raided and the city is standing on the edge of the proverbial abyss.
Our city administration, without acknowledging any accountability, has chosen a different approach to the crisis than other cities. Expenses in the 2008 budget have not been cut, only set aside until the money comes in. When will there be more money? That’s where the new debt and wishful thinking come into play.
Citizen review of administration numbers reveal that on top of the $4 million shortfall in 2008, the projected revenues for 2009 will be less than those received in 2006! Couple the inflationary impact on salaries with the failure to make serious cuts in operations and the city could face an additional $4.25 million deficit in 2009. This should be the necessary and ideal time to reduce staffing to the levels recommended in the benchmarking study of several years ago, but those adjustments are in the same talking stage where they have been since the report was issued.
Apparently the cash crunch is so severe that administration can’t wait and is seeking what you might call a “payday loan”: Upwards of $2 million in councilmanic bonds, which do not require citizen approval, will drain nearly $200,000 a year out of the general fund budget for 20 years in principal and interest payments, further jeopardizing future capital spending. The Aug. 16 edition of the Review contained the list of proposed items the bond is to cover. Ask yourself if maintenance and repairs qualify? Where did the money go if those costs had been previously budgeted?
The riskiest aspect of this approach is that potential city liabilities are not included in the discussion as there is no plan. The city faces claims in the millions of dollars that can’t be settled, properly defended in the courts, or judgments paid without recourse to additional councilmanic debt. Apparently, these are not covered by insurance and there is no reserve from which to provide settlement costs. Councilmanic bonds may be the only recourse; however, given our precarious financial situation councilmanic bonds may not be an option. Would you vote for a new tax-supported bond under these circumstances? This potential outcome requires more than a finger in the dike. It requires rational financial leadership.
If you think this is as reckless as we do, come to the City Council next Wednesday and share your opinions. Since the struggle at City Hall seems to be over supremacy shrouded in secrecy, not fiscal accountability, it is imperative that the citizens step up to hold their elected officials accountable for making rational, legal, fiscal decisions. Without this input, elected officials will use long-term debt to fund operations and avoid the painful necessity of cutting expenses.
Tell your council representative that writing checks for city mismanagement is not acceptable. It is time to put a plug in the drain rather than a finger in the dike.
Bob Fortner is a member of the Bainbridge Resource Group. Several other members also contributed to this column.