Revenue shortfall shakes up city finances
August 13, 2009
By Tim Pfarr
Cuts made, general reserve fund raided
Newcastle Director of Finance Christine Olson is predicting the city will collect $496,197 less in revenue than expected this year. She also predicted city officials will spend $78,000 on items they had not budgeted for this year.
To account for these changes in revenue and expenditures, the city has cut about $477,000 worth of items from its 2009 operating budget, and officials anticipate they will draw a total of about $229,000 from its general fund reserve by the end of the year.
Items the city has cut from the 2009 budget range from funds for office supplies and City Council retreats to funds for sales tax audits and some funds for landscape maintenance.
Olson predicted early in the year that the city would bring in less money than it would spend, and the city then began making cuts to expenses in the second quarter. There have been three rounds of cuts.
“A budget at this level means if something breaks we put ‘broken’ on it and wait until we can afford to repair it,” said John Starbard, city manager.
The city’s general fund reserve is made up of unused funds from previous years. Prior to 2009, its balance was slightly more than $2 million.
Initially, the city planned to take a $97,035 draw from the general reserve fund in 2009.
“We’re still making quite a draw for what we budgeted,” Councilwoman Jean Garber said about the predicted change in the general fund reserve draw.
However, Olson said the city’s history of being conservative with its budget has helped tremendously during this tough economic time.
“For a small city, we’ve got a great reserve,” she said.
In the first round of cuts, $5,000 for printing expenses was cut, as was $20,000 that had been allocated to updating the city’s development plan. Also, a vacant city engineer position was frozen. A total of $305,000 in expenses was removed from the budget during the first round of cuts.
In the second round of cuts, funds for sales tax audits, computer hardware, temporary staff, training and office supplies were cut, as were many other funds. A total of $79,000 in expenses was cut from the budget during the second round.
During the second round, Starbard commented on the current state of the city in the midst of the cuts.
“The city we’re becoming is impoverished,” Starbard said. “We’re getting less and less able to fund other services.”
In the third round of cuts, the city reduced its state and federal lobbyist contract and cut some of its landscape maintenance funds.
Council members voiced concerns about several of the proposed cuts in the third round, including cuts to emergency funding, which were ultimately not made, and cuts to landscape maintenance.
“It’s pretty basic that we provide safety to our residents,” Garber said about cutting the 2009 emergency funding.
Several council members voiced concerns about the cuts to landscape maintenance, so those funds will only be partially cut. City officials are still discussing the amount of landscape maintenance funds that will be cut from the budget. These cuts will involve reduction in mowing and watering lawns.
Olson said that if the city had not made any cuts, officials would need to draw more than $700,000 from its general fund reserve.
She also said that while the most recent cuts may help solve the problem for 2009, the 2010 budget is a completely different issue.
“Costs are going up, but it doesn’t look good for revenue at all,” she said.
Olson will begin work on the 2010 budget this month.
Newcastle’s revenue comes from three primary sources: sales tax, property tax and fees from development.
Property tax is in accordance with its projected amount, but sales tax is down 20 percent from what officials projected. The lack of sales tax revenue is due to a decline in individual spending and the lack of development in the city, as the city takes in tax revenue from construction projects.
In terms of development, the city has only received two building permit applications during the first seven months of this year. Development has been in decline during the past two years; in 2007, the city had received 67 building permit applications by the end of July. In 2008, the number of applications received through July dropped to 15.