Jefferson City is facing another dismal fiscal year, and City Administrator Nathan Nickolaus said people likely will feel the effects in the more basic city services.
Last week, Nickolaus revealed his draft of the 2014 budget, which is the first step in a months-long process to get to an approved budget. Nickolaus' draft shows an expected 12 percent drop in general revenue, predicting flat sales taxes and declining property and utility taxes.
Nickolaus said the declining property taxes are due to a decrease in collections more than any declining values.
"People not paying their property tax, that seems to be higher this year," Nickolaus said. "It's hard to know how accurate that factor is."
According to the draft budget itself, the property tax decline is not large; it is predicted to fall from $5.221 million to $5.209 million.
But the drastic drop in general revenue, going from roughly $33 million this fiscal year to an estimated $28 million for next fiscal year, is not entirely unexpected.
"The situation we're in has been a long time in the making," Nickolaus said. "We've been falling behind for a long time, but we've had some extraordinary revenue that came in that helped us put off the day that we're now at."
That extraordinary revenue largely was cellphone audit payments and other funds that helped cover any gaps in budgeting. The fact that those funds are drying up is what helped lead to the $1.68 million shortfall the city faced earlier this fiscal year.
Nickolaus' draft budget also seeks to correct some issues the city has had with procedures, such as how grants are handled in the accounting process. During the budget discussions in March when the city was trying to find ways to make up the shortfall and explain how it happened, staff repeatedly mentioned an issue with budgeting grant funds.
Nickolaus said his proposed budget eliminates most of the city's grant revenue, resulting in a revenue drop of about $1.4 million alone. He said the reduction is part of a new way to track the funds: if the city receives grant money, at that point the funds will be added to revenue and the accompanying expenditures then will be added to the budget.
"What we're trying to do is not count the money until it comes in," Nickolaus said. "Most of the grants you don't really know what you're going to get in exactly."
Part of the change also is attributed to a reduction in overall grant funds, he said, as the federal government is not awarding grants in the same amounts and fashions as previous years.
Shawn Schulte, 2nd Ward councilman and finance committee chairman, said he had not had a chance to go through Nickolaus' draft budget as of Thursday morning, but that the drop in revenue was not unexpected.
The overall drop in general revenue has affected each city department, Nickolaus said, and residents likely will feel it in the most basic city services. One department that took a large hit from budget cuts was the police department, he said.
Nickolaus' draft budget shows a reduction in police overtime from $239,228 this fiscal year to $170,402 next fiscal year, which Nickolaus said that is consistent with council-approved cuts from the earlier this year.
"They took some big hits over the last couple of years," Nickolaus said of police department funding. "I have confidence that they can manage that in a way that will work out fine."
But it's an example of how the city must handle the declining revenues. Personnel costs account for 77 percent of the city's overall budget. When cuts have to be made, it's hard to do that without affecting personnel, and Nickolaus said that's the biggest change in his draft from the current year's budget.
"We're a service business so people are what our product is," Nickolaus said. "We have fewer people trying to provide the same services ... that is not sustainable in the long run."
"That's, I think, the biggest issue facing the city."
Schulte said he plans on looking at how each department is staffed in the proposed budget and comparing it to what each director believes is necessary to run a department. He said he plans on looking at each full-time and part-time position and what positions are being filled in each department.
"That's one thing I am looking forward to diving into," Schulte said.
What has helped the city is roughly $1.5 million in vacancy and early retirement savings. As part of the budget cuts earlier this year, the city instituted the Separation Incentive Program to encourage early retirement. More employees took part in the program than anticipated and Nickolaus' budget projected $835,000 in savings from the program alone. Vacancy savings are estimated to save $730,000.
Nickolaus said even though the council expressed concerns about vacancy savings projections being inflated, it turns out the staff had drastically underestimated the amount saved through that line item.
"The accounting people were able to calculate that a little more accurately," he said. "We had taken a much too conservative approach to it."
But he hopes to begin reducing and eventually eliminating the vacancy savings line item from the city's budget.
"It's kind of a rotating hiring freeze," Nickolaus said. "It's a bad thing to get into, we shouldn't have got into it years ago ... my hope is, if this budget situation improves, that we can start reducing that."
The departments with the largest number of personnel are fire, police and public works, he said. Those departments also are often thought of as the most important, meaning there's less willingness to see cuts to those departments.
"Let's not take any of the money from police, the fire and the streets ... well there's just not enough left," Nickolaus said. "You could cut the entire budget from my office, the mayor and council's offices, the (human resources), law and the city clerk ... and it's less than 5 percent you've saved out of the total budget."
As a result, Nickolaus said the city will struggle to maintain streets at the same level they have in the past. Seasonal employees for summer that assist the Public Works Department have had to be cut, he said, and people will start to see curbs not being painted and potholes not being filled as quickly.
"We will be struggling," he said.
Pink sheets return
One change Nickolaus is including in the budget process this year is the return of what was known as pink sheets. Those sheets allow department directors to list the items or projects they wanted funding for but did not receive in the city administrator's draft budget. Nickolaus said he is pleased to return to that practice, which will be able to show what needs are going unfunded in the long term. He said he also likes that department directors get a direct line to the council to show what they believe is important in their department.
"My budget is not perfect," Nickolaus said. "They (department directors) have the right to make that appeal right to the council, it does not bother me one bit."
Schulte said it's a great return because the council needs to be able to hear directly from department directors and what they believe priorities are for each department.
No capital projects will be funded from general revenue under Nickolaus' proposed budget, with all funds for capital projects having to come from the half-cent capital improvements sales tax.
"There's no money in the general revenue for any of that," Nickolaus said.
One new line item in the budget is the budget reserve, which Nickolaus has proposed with $50,000. He said the idea would be to have the reserve to allow for smaller, unexpected expenses, while larger appropriations would continue to come from the fund balance.
"A budget is just a plan. We know things will not come in exactly as we expect them to," Nickolaus said. "You've got to have a little wiggle room."
Safe from cuts?
Nickolaus' budget also maintains $10,000 for the Salute to America event, $110,000 for JCTV and full funding for the city's transit system, all of which faced cuts or elimination at some point in the past year.
"I think that that seems to be, in my estimation, the direction the council is heading," Nickolaus said. "The council can always change those things, and that's all I'm going to say about it."
His budget also includes $185,000 for economic development services provided by the Jefferson City Area Chamber of Commerce. That figure reflects a reduced amount approved by the City Council in March from the original $200,000 contract.
Nickolaus emphasized his budget is far from the final say on how funds will be spent in the next fiscal year.
"My budget is not the budget, it's just a budget," he said. "It's a starting point."
Nickolaus said he hopes it's also the starting point for increased public input. One reason he opted to post his draft budget this year was to allow the public a clear view of the budget process and to give people time to have their voices heard.
If people see things not being funded that are important to them, he hopes they will contact City Hall and let staff know.
Schulte said the increased transparency is good for the budget process overall, and he is pleased with the format and detail of Nickolaus' draft.
"I think it's going to be very helpful during the budget process," Schulte said. "It's all laid out on the table, everybody can see it."
The council will be the final authority on how Jefferson City will manage reduced revenues in the next fiscal year, a process that won't start until mid-summer. But for now, the priorities of the city administrator are clear in his draft budget.
"This is ... my best shot at how we can fund the biggest priorities," Nickolaus said. "What do I consider to be the most important things? Well, that's funded in my budget."
• City Administrator Nathan Nickolaus presents his proposed 2014 budget to Mayor Eric Struemph and the public May 15.
• Struemph is expected to have his draft budget ready by July 18.
• The City Council will begin weekly budget sessions likely lasting through August and September before approving a final draft of the budget.
• The 2014 fiscal year begins Nov. 1.
Nickolaus' full draft budget is available at www.jeffcitymo.org/budget