Thank you for your thoughtful letter dated September 7th. I wanted to respond with some additional information and thoughts about our proposed levy and budget for 2011.

Let me start with your comment that “the city budget should need to be adjusted only for inflation plus population growth.” As a rule of thumb, I agree with this. Circumstances may require a larger increase one year and allow a lower increase or even a decrease in another, but in the long run a city that consistently grows its budget more than inflation and population growth combined is heading for a financial disaster.

If we use your method to guide us, we would need to look back to 2009 in setting the 2011 budget, just to account for how long it takes to get statistics (2009 population estimates were released in mid-July 2010, for example), and the fact that we have to work out the 2011 levy and budget starting in early to middle 2010.

The Met Council's 2008 population estimate for Maplewood was 36,717†; for 2009 (the most recent estimate, released in July), it rose to 37,755††, an increase of 2.83%. According to the Bureau of Labor Statistics†††, the CPI for all of 2009 was 2.7%. Combine those numbers, whether you use simple addition (2.83% + 2.7% = 5.53% increase) or multiplication (1.0283 x 1.027 = 1.0560641, or a 5.61% increase), and you get a number greater than 5%. It would appear that we propose a levy increase about 10% less than the “population growth and inflation” method says we should.

Even with the proposed 5% levy increase, we are making cuts to most city departments. The total money from the General Fund to all city departments combined will be slightly lower in 2011 than 2010. There are two big factors at play:

• The loss of money from the state (Market Value Homestead Credit).
• The need to levy more for the Debt Service Fund, to make payments on the city's bonds.

You've probably heard about “unallotment.” Maplewood didn't have any Local Government Aid left to take away, so instead Governor Pawlenty's unallotments have taken away all of our Market Value Homestead Credit. This is a property tax relief program. In theory, a homeowner gets a lower tax bill than our levy would indicate, and the state promises to pay the difference. What has happened in practice is that homeowners get the credit, but then the state doesn't ever actually pay us, due to their own financial problems. In 2011, this lost MVHC is expected to be about $575,000. Our levy for city operations is planned to increase $550,101 – not actually enough to cover the shortfall.

Since joining the city council in 2008, I have argued for leveling off and then reducing our city's debt, which is mostly related to road construction projects. I believe we should try to have more of a “pay as we go” approach, partly so that we have more budget flexibility in tough economic times like this. We did in fact reduce the city's debt by 3.7% in 2009. However, this shift in long-term planning (as reflected in the latest 5-year Capital Improvement Plan) takes time to have an effect. In the short term, in order to budget for future payments on existing bonds, the debt portion of the city levy is proposed to increase by $333,401, or 9.2%.

You write that we need to “hold the line on increases” in bargaining with city employee unions. We — the City Council and City Manager — agree. The draft budget and proposed levy already assume 0% cost of living increases for all city employees. The city council led the way late last year by canceling the biennial city council salary increase set by ordinance, and also by declining to give City Manager Antonen a salary increase or cost of living adjustment at his annual review earlier this year despite his good evaluation.

The final levy, which can be lower but not higher than the maximum number set in September, will be set in December. We'll continue to look for places to cut and save in the meantime. I encourage you to download the various budget documents and presentations from the city website, watch the budget workshops in the coming months (as well as the archived video recordings of the ones earlier this year, which you can find on the city website), and let the council know your thoughts and ideas as we move forward.

In the meantime, I hope I have at least given you an idea of how we got where we are, and why I think that 5% is not so bad a starting point in the circumstances.

Sincerely,
John Nephew, Councilmember

†Source: www.metrocouncil.org/metroarea/2008PopulationEstimates.xls
††Source: www.metrocouncil.org/metroarea/2009PopulationEstimates.xls
†††Source: www.bls.gov/news.release/archives/cpi_01152010.htm

Labels: finance

Posted by John Nephew on 9/20/2010 07:42:00 PM Email to a Friend | Permalink
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