Bozeman’s Letter To City Workers In Light Of Budget Woes

Here is Mayor Cary Bozeman’s letter to city employees. I received it Thursday.

Message to Employees Regarding 2009 Budget Challenges

Bremerton is facing a series of financial challenges in 2008 and these challenges are projected to continue and worsen in 2009 – and likely some period thereafter.

The City is not alone in this situation. The National League of Cities recently released its annual report on city fiscal conditions and found that this most recent economic downturn is having a much greater negative impact on local governments than the last significant economic downturn in 2001.   The primary difference is that in 2001 property tax revenue and real estate related revenues were able to help buffer the effects of declining sales tax receipts.   Obviously revenue downturns poses a budgetary problem –  but worsening the situation is the substantial inflationary pressure on key expenses  – energy and fuel, paving and building materials, public safety/justice requirements, and employee-related costs for wages, healthcare, and pensions.   It was noted in the National League of Cities report that “Even if economic conditions improved immediately, the nation’s cities are likely to be realizing the effects of this current downturn through 2010”.

Bremerton has worked hard to live within our financial “means” as provided by commerce related taxes, property tax revenues (subject to 1% increase limit) and various permits, service fees and charges.   Our track record of seeking and obtaining grant funding to pay for redevelopment efforts, parks renovation, and needed equipment for law enforcement and fire fighting/EMS has been exceptional.   Our efforts to grow our economy through our revitalization program has been combined with several years of  limiting supplies and services expense in the General Fund budget – holding to the prior year amounts as far as possible unless new revenues were specifically provided to cover the new cost.   The cumulative impact of going many years in this manner – means that the inflationary impacts have been building and our budget dollars are already stretched extremely thin.  There are always efficiencies to be gained and we should challenge ourselves to keep seeking them – but it is unlikely that reductions in supplies and services expenditures will yield “the answer” to our current budgetary challenges.

Our City has been enjoying good economic growth over the last several years due in part to our revitalization efforts and due in part to the economy (up until recently) growing at a steady pace.  Care has been taken to keep ongoing expenditures matched to anticipated ongoing revenues.  However, the recently adopted mid-year budget adjustment reflected changing conditions in both revenues and expenditures resulting in a net reduction now expected in the General Funds operating cash reserves – down below our target level by approximately $400,000.   And… unfortunately, the picture shaping up for 2009 continues to reflect this divergence and in fact shows it worsening.  Anticipated revenue growth is considerably less than anticipated expenditure growth due mostly to a serious downtown in the national and regional economy and an almost complete shutdown of the real estate market.  Almost half of our budget comes from sales tax and we don’t believe in this financial market people will be spending as much as they have in the past. We anticipate commerce and retail sales will drop off in the next 24 months.  Without preemptive corrective action – the trend would be for the City to rapidly exhaust its General Fund operating reserves in 2009.   In addition, the Street Fund is also on a track to be in a deficit cash position in 2009 – absent corrective actions being taken.

In order to balance the 2009 budget so that the operating capital is not further deteriorated – either revenues must be increased, expenditures decreased, or a combination thereof – to produce a positive impact of $4.443 million over the preliminary 2009 budget as submitted by staff.   This is the adjustment required in order to keep the cash reserves from further deteriorating and realign ongoing expenditures with ongoing revenues.

I am working with my Department Heads to review all aspects of the budget. Together we will be making recommended changes on both revenues and expenditures in order to adjust course as required by these changing conditions.    Given the significance of the amount of adjustment needed – and the expectation that this downturn will be with us for a while – it will not be possible to achieve that result without impacts on staffing and service levels provided.   There are tough choices to be made and I know this impacts all of us and is cause for concern.   I will keep you updated as the budget process continues and in the meantime, I encourage you to discuss questions and concerns you may have with your Department Head directly.

Mayor Cary Bozeman