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August 27, 2003
Honorable Mayor and City Commissioners:
With this letter I am transmitting to you the proposed 2004 Budget for the City of Muskegon.
The current economic situation, rising personnel and operational costs and reductions in state
shared revenue have required many changes in the city's General Fund Budget. Fortunately,
the city has prepared by establishing and funding a Budget Stabilization Fund in years when
revenues exceeded our requirements. To the extent possible, the 2004 spending plan was
prepared considering the type and scope of programs the City Commission identified as
priorities during the February strategic planning process and subsequent budget meetings
throughout 2003.
The city's total proposed 2004 spending plan (including all budgeted funds) is $70,213,116
as compared to $75,425,840 for 2003. In addition to scaled back operating budgets, the
decrease is attributable to the fact that several budgeted capital projects including Smartzone,
Laketon Avenue Trail, Seaway Industrial Park and Hartshorn Marina improvements will be
substantially completed in 2003. Capital outlays for routine water, sewer and street
improvements will continue in 2004.
It is important to note that the proposed spending plan does not include a property tax
increase. In fact, the city's total property tax rate remains virtually unchanged at just over 10
mills for the twelfth consecutive year.
The city's budget is made up of several individual funds that are reviewed below.
General Fund
Proposed general fund expenditures are $23,631,714, down 0.58% from a 2003-revised
estimate of $23,769,211. Revenues for 2004 are estimated at $23,244,860. Revenues are not
growing at a pace to keep up with rising costs largely due to the economy and skyrocketing
personnel-related costs. Income tax and interest revenues are down considerably in 2003 and
2004 and property tax revenue is increasing only slightly. Moreover, state shared revenues
have fallen dramatically and remain at risk for further cuts.
The proposed general fund budget is based upon conservative estimates of revenue and
realistic projections of expenses and is structured so as to allow the city to maintain a fund
balance equal to 10% of prior year expenditures, in accordance with City Commission
policy. However, it has become necessary to use money from the budget stabilization fund
to maintain city services and the 10% target level. The budget stabilization fund will
contribute $1 million dollars in 2003 and $500,000 in 2004 to the city's general fund. These
transfers will reduce the available budget stabilization fund balance to $500,000 at the end of
2004.
Several significant changes to the general fund budget are proposed for 2004 and are worthy
of note. These include the following:
Because personnel costs represent such a large portion of the city's General Fund, it
is necessary to make reductions to the personnel complement in order to achieve any
significant cost savings. Even with these cutbacks, total General Fund salaries and
benefits will increase 4.46% in 2004, highlighting the dramatic rise in pension and
healthcare costs the city faces. The following adjustments to the full-time personnel
complement are included in the proposed budget:
Two vacant police positions have been eliminated from the Police Department.
Two Leisure Services Maintenance III positions will be eliminated. One is in
forestry and the other is in parks.
Two vacant firefighter positions are being eliminated. I am also proposing to
convert the three existing Assistant Mechanic positions to Firefighter positions.
Eliminate one Housing Inspector position. This will leave two inspectors for
rental inspections.
One Customer Service Representative II position will be eliminated in the
Treasurer's Office.
The Business Development Specialist in the Planning and Economic
Development Department is eliminated.
The Youth Recreation Coordinator position in Leisure Services is eliminated.
The Personnel Analyst position in Civil Service is eliminated.
The vacant Workers Compensation and Safety Manager position is eliminated.
The duties are spread to other departments, primarily Affirmative Action.
A vacant Civil Engineer position in the Engineering Department is eliminated.
The vacant Account Clerk position shared by Engineering and Environmental
Services is eliminated. This position was reduced during the year to a part-time
position for Environmental Services, and this part-time slot is also being
eliminated.
Employee wage freezes have not been included in the budget, except for department
heads who have volunteered the wage freeze. I did not think it was equitable to ask
the remaining non-represented employees to take a wage freeze when the unions were
not agreeable to the same.
In accordance with Commission goals, a priority for 2004 is continuation of the fight
against neighborhood blight. Several departments will continue to work collectively
to eliminate blighting influences. There will be a minor decrease in Inspection
Services funding for demolitions, but this is not expected to affect the City's ability to
address blighting influences in a major way.
The police department will eliminate two vacant positions (one police officer and one
Lieutenant), one in the detective bureau and one in the community services division.
The Glenside/Campbell Field community officer position will be eliminated.
Campbell Field will be combined with Nims and Glenside will be combined with
Bluffton/Beachwood/Lakeside. In addition to the reduction in police officer
positions, the Police budget also reflects cost savings that were designed to have the
least negative impact as possible on services. The department plans to eliminate the
DARE program in favor of a program that is less costly and less demanding of
officers time for training and instruction. The department also intends to discontinue
the CALEA accreditation program to save cost and staff time. Those resources can
be better utilized for crime analysis and crime mapping. Finally, the department
budget also does not include funding for police academy sponsorships ($15,000
each).
The fire department proposes elimination of two vacant Firefighter positions. Three
Assistant Mechanic positions (one vacant) will be converted to Firefighter positions.
It is not anticipated that these changes will adversely impact service delivery.
In addition to the elimination of the Leisure Services Maintenance III position, the
parks department will eliminate the parks intern position used annually during the
summer months. The department will also reduce seasonal staff and eliminate
fertilization of the parks system (except for sports fields) and cemeteries. The flowers
on Muskegon Avenue have also been eliminated at cost savings of approximately
$20,000 per year. We anticipate that these cuts will have minimal impact on the
service to our citizens.
The overall amount for the recreation budget is significantly reduced, but maintains
the income tax commitment to inner city recreation programs. Most recreation
programs are retained, with some being modified. The summer tennis program will
be eliminated (limited participation) and the grade school basketball program will be
modified (eliminate 3rd grade and discontinue paying for uniforms). With the
elimination of the Youth Recreation Coordinator position, programming
responsibilities will be accomplished by the Recreation/Marina Supervisor. Also
proposed is the elimination of small grants to various organizations. The McGraft
Park budget includes the elimination of the concerts at McGraft Park ($6,000) and
cutting by one-half the contribution to Nutritional Services for meals at McGraft Park
($2,000). Staff was able to get sponsors for some concerts in 2003 and we hope to be
able to restore the concerts using similar sponsorships in 2004.
Economic development tasks will be spread among staff members, with the
elimination of the Business Development Specialist position. Now that the Deputy
Director for Community and Economic Development position is vacant, there is an
opportunity to review and realign duties if appropriate.
Elimination of a Customer Service Representative in the City Treasurers Office may
result in longer lines for service during peak times. However, we intend to enhance
and promote alternate payment plans (e.g., Internet, regular mail, auto-debit) to
reduce the need for citizens to make payments in person. Also, Muskegon Township
is scheduled to assume responsibility for billing its water customers in May 2004,
which will reduce workloads to some extent.
The recycling program has been cut by $100,000. I anticipate that the program will
change to a subscription program or collection schedules will be modified. The
specific nature of the changes will depend on the outcome of negotiations with Sunset
Waste Systems.
Funding for community event support has been eliminated except for a minor
amount. Organizations, such as Muskegon Summer Celebration, Irish Music Festival,
etc., will be expected to reimburse the City for the services rendered for their events.
I recommend that the City close the parking ramp as soon as practical and attempt to
sell the property. There is little use of the ramp and the continued maintenance is not
justified (e.g., recent vandalism resulted in several light fixtures being broken). Also
any long-term and intensive use of the ramp will require significant capital
investment to the structure.
Televising City Commission meetings has been eliminated. The annual cost savings
is $29,000. I recommend that the city discontinue this activity at the end of the
contract period (October, 2003), which will save approximately $4,000 for 2003.
Mailing of the City newsletter has been eliminated. We will use the Internet and
place printed copies in strategic locations to distribute the newsletter.
Some user fees will be increased and new fees will be recommended in December
when the city's master fee resolution is adopted. Fees currently being considered for
increases include cemeteries, false alarms and sanitation. The Inspections Department
will also consider increasing construction permit fees and housing inspection fees.
Parking fines are under review and will likely be recommended for increase.
Several reductions to the Contributions to Outside Agencies budget are proposed.
Almost all of the agencies that receive a contribution are affected. Contributions to
the neighborhood associations, to Muskegon Area First and to the Institute for
Healing Racism are slated for significant reductions.
No major general fund capital expenditures are budgeted for 2004. Several
worthwhile projects will be deferred to future years.
Conference, travel and training amounts have been reduced throughout the city for
2004. Only conferences and training required to maintain registrations and
certifications will be attended in 2004.
Transfers to Major and Local Street Funds remain at $620,000. This is the
commitment amount from the income tax.
There are some other items not currently included in the proposed 2004 budget that will be
studied over the next several months to determine whether they can help the budget situation.
These include:
Early Retirement Program This has been suggested by various employees, unions
and some City Commissioners as a way to achieve cost savings. That may be the
case, depending on many variables such as workforce demographics, plan design, and
strategies for realigning operations. It is also quite possible that such a program could
be very costly and result in the loss of valuable employees. Careful consideration
must be given before a decision is made to implement such a program, particularly
since rising retirement and retiree healthcare costs are central factors in the City's
current budget woes.
Prevailing Wage Rate - Further consideration should be given to the continued use of
Prevailing Wage Rates for construction projects. Previous studies have shown that
two to three percent could be saved on the average project by not using the Prevailing
Wage Rate. This could mean a cost savings of as much as $500,000 for the upcoming
water filtration plant project.
Vehicle Use - A thorough analysis of the use of City vehicles needs to be
accomplished, especially for employees who are on 24-hour call. We may want to
consider car allowances for some or all employees who require the use of a vehicle to
perform their duties.
Fire/EMS Study The fire department assessment currently underway is likely to
have recommendations that should be considered during 2004. Of particular interest,
is the possibility of providing Advanced Life Support/Transport service. This matter
will require careful investigation and consideration.
The good news for the general fund is that the proposed budget includes no overall property
tax increase from the current 10 mills. It is, however, recommended that the make-up of the
total millage be adjusted as follows:
Current Proposed
General Millage 7.0000 7.5000
Sanitation Millage 3.0000 2.5000
Promotion 0.0786 0.0774
Total 10.0786 10.0774
This change takes into account reduced sanitation costs resulting from the proposed cutback
in the recycling program and will also provide a measure of protection against possible future
Headlee millage rollbacks.
Other Budgeted Funds
In addition to the general fund, the city's budget is made up of several other funds, which, as
a group, account for nearly two-thirds of the city's total 2004 budget. A summary of the
budget highlights for these funds follows:
Major and Local Street Funds These budgets contemplate continuation of current
service levels. The 2004 budget provides for $7.56 million of major street capital
improvements. Most of this money ($6.0 million) is allocated for the Shoreline Drive
project, but several other projects totaling $1.56 million are also proposed. Local street
capital improvements are budgeted at $860,000. These amounts are significantly
reduced from 2003 because funds available for capital expenditures have been depleted
and traditional sources (grants, general fund transfers, etc.) are not available. As noted,
the General Fund transfer to the street funds remains at $620,000.
L.C. Walker Arena The general fund subsidy for arena operations is projected to be
$200,000. We anticipate utilizing uncommitted TIFA funds to reduce the general fund
subsidy in 2003 and for the foreseeable future. The City will also contract with Siemens
to design and implement energy efficiency capital improvements for the arena. It is
likely that these improvements will be funded by debt issuance. Additionally, the City
needs to take a hard look at the viability of the Annex and whether it is cost-effective to
continue its operation under the current circumstances.
Sidewalk Improvement Fund Continued funding for the sidewalk program is included
at an estimated cost of $350,000. Sidewalks in the Marquette neighborhood are targeted
for 2004.
Public Improvement Fund This fund will pay for the purchase of a new fire truck to
replace the 1985 Sutphen Quint (delayed from 2003). Also, funds are allocated for
repayment of the Urban Land Assembly (ULA) Loan.
State Grants Fund No significant new grants are anticipated for the City in 2004. We
expect several outstanding grants (Smartzone, Lakeshore Trail, etc.) will be
completed/closed-out during 2004.
Marina & Launch Ramp Fund No significant changes in funding or operations are
budgeted. A funding source needs to be found for necessary future capital
improvements. The City may want to consider contracting for management of the facility
to reduce its economic risk.
Municipal Golf Course Fund This fund holds proceeds from sale of the Chase
Hammond Golf Course. Currently there is no projected use of the remaining funds in
2004, but this could change if grant funding becomes available.
Equipment Fund No significant operational changes are planned. Scheduled vehicle
and equipment purchases totaling $793,480 are planned for 2004. Fewer vehicles may be
purchased depending on what decisions are made regarding vehicle usage (i.e. car
allowance versus use of City vehicle).
Public Service Building No significant operational changes are planned; however,
ongoing physical improvements at the facility are scheduled at $52,000.
Water Fund Major improvements (possibly as much as $20 million over two years) to
the filtration plant are necessary and will require another bond issue in 2004. Phased-in
water rate increases have previously been approved to pay for these improvements. Other
capital improvements, many of which are tied to street projects, are proposed and total
$2,045,000.
Sewer Fund - No significant changes are planned for sewer fund operations. Capital
improvements, many of which are tied to street projects, will total $945,000.
New Debt Issuance
The budget proposes issuance of significant amounts of new bonded indebtedness:
Water Revenue Bonds Certain state-mandated improvements will require the issuance
of significant new amounts of debt to be repaid by water rates. The current bond size is
estimated at $10.8 million however, the final amount has yet to be determined.
L.C. Walker Arena Energy Efficiency Bonds - It is likely that debt in some form will
be used to fund energy capital improvements for the arena. The anticipation is that the
program will be self-funded from savings and the budget will be adjusted accordingly
once details from the study currently underway are known.
Future Outlook
The proposed 2004 budget provides a sound-financing plan for the city. However, as
mentioned earlier, many cutbacks were necessitated by increased operational costs, the slow
economy and state budget problems, among other factors. It should also be noted that there
are several unknown factors that could adversely affect this spending plan.
Healthcare and Other Benefit Costs Increased healthcare costs continue to be a major
problem for the city. The 2004 budget incorporates an estimated 15% annualized
increase for healthcare costs for the coming year. The increase in healthcare costs for the
more than 300 retired city employees and their beneficiaries' compounds the problem.
Pension costs also have increased sharply and contribute to the City's adverse financial
condition.
State Shared Revenue The State's budget situation is very precarious and further cuts
in Revenue Sharing are a very real possibility.
Liability Insurance In 2003 the city incurred very significant insurance cost increases
largely due to the fact that we were coming off a three-year policy period during which
the September 11 disaster together with the stock market plunge caused insurance
premiums to skyrocket. We believe the worst is behind us, but insurance markets remain
unstable and it is likely that we will face another stiff premium increase in 2004.
Continued Operating Deficits The 2004 budget is balanced using a significant
infusion of funds from both the budget stabilization fund and from the available general
fund balance. This is an acceptable stop-gap financing mechanism to deal with short-
term fluctuations in revenues. It is extremely important to realize, however, that these
funds will not be available in future years and that more severe cutbacks will be needed
to bring the budget into balance if recurring revenues do not rebound soon.
Employee Contracts Contracts with uniformed police employees will expire at the end
of 2003 and the contract with firefighters expires at the end of 2004. The outcome of
these negotiations will have a major impact on the city's budgetary situation.
We will monitor these issues closely in the coming months and keep you informed. Also, we
will continue the quarterly reforecast of the budget in order to make adjustments as changing
conditions and/or Commission policies dictate. The 2003 third quarter reforecast and update
is incorporated into this budget document.
Budget Process and Detail
The proposed 2004 City Budget is again prepared and presented in a manner intended to
focus attention on overall resource allocation priorities and policies rather than line item
expenditure detail. Staff believes that the "top-down" resource allocation budget process that
has now been used for seven consecutive budget cycles is a more efficient and effective
method of making resource allocation decisions than building budgets "up" from detailed
line-item expenditure estimates. Also central to the City's budget process is the belief that
responsibility and accountability for budgeted funds should rest largely with department
heads and that these managers should be permitted considerable flexibility in managing their
operations within the overall limits of their budgets.
As presented herein, proposed departmental expenditures are shown at the expenditure
category level of detail (e.g. 5100 "Salaries and Benefits", 5200 "Contractual Services"). To
further explain by example, "Contractual Services" (5300 level accounts) are budgeted in
total rather than listing detail for each of the 50 individual line-item accounts that make up
this category. Following are descriptions intended to help the reader understand the makeup
of the expense categories as presented in the budget.
Salaries and Benefits (5100 level accounts) This category comprises 23 separate line-item
accounts for all wage and benefit costs paid to city employees. Examples include accounts
for regular full-time salaries, temporary salaries, FICA, retirement, health insurance, etc.
Operating Supplies (5200 level accounts) - This category comprises 34 separate line-item
accounts for supplies purchased by city departments. Examples include accounts for office
supplies, computer supplies, irrigation supplies, road maintenance supplies, etc.
Contractual Services (5300 level accounts) - This category comprises 50 separate line-item
accounts for various services purchased from outside service providers. Examples include
audit fees, electricity, gas, and other utilities, printing, vehicle rental, insurance, etc.
Other Expenses (5400 level accounts) - This category comprises 6 line-item accounts, the
primary one being expenditures for conferences, training and travel.
Capital Outlays (5700 level accounts) - This category comprises 17 separate accounts for
capital equipment purchased by city departments. Examples include land purchases,
vehicles, and office furniture and equipment.
Other Financing Uses (5900 level accounts) - This category comprises 19 separate line-item
accounts for uses not technically categorized as "expenditures". Examples include principal
and interest payments on debt, operating transfers between funds, and depreciation.
The above is intended to provide you with highlights of the proposed 2004 Budget and
prepare you for a detailed review of the same. This review is scheduled for Wednesday,
September 10, 2003. A public hearing on the budget is scheduled for the regular City
Commission meeting to be held on September 23, 2003. The budget should be ready for
adoption at that meeting. In any event, City Charter requires that the budget be adopted no
later than September 25, 2003.
Finally, I would like to thank Tim Paul, Finance Director, Beth Lewis, Assistant Finance
Director, and the Finance Department for their efforts in preparing the financial information
and the proposed document.
Sincerely,
Bryon L. Mazade
City Manager