Quincy’s Future
Difficult Decisions Today for a Better Tomorrow
As presented to the Quincy City Council,
June 2008
I received many e-mails and telephone calls
relative to the City Council’s proposal to cut the City budget. The passion
expressed by so many bodes well for the future of this City – I suggest that it is unique to our City and is a large
part of what distinguishes our City from so many others.
In reviewing the e-mails, there was much
written that the cuts were too severe, particularly relating to the School Department, and that the School Department budget
was bearing an unfair proportion of the cuts. Many also stated that the proposal
lacked any sort of reasoning in support of the cuts, and others urged people to contact the Councilors and ask them to stop
playing “games.” Some e-mails were very personal in nature, questioning
the motives of Councilors, suggesting the Councilors did not value public education.
First off, contrary to the rhetoric of
some relative to the proposal to cut City spending, including the School Department budget, I do value public education. I am a proud graduate of the Quincy Public Schools, having gone to Wollaston School,
Central Junior High School (now the middle school), and having graduated from North Quincy High School. I credit my great Quincy teachers and the education they provided
as the reason I was able to gain admission to Harvard University. I value education, and I have
without question been a strong supporter of funding for the Quincy
School system since I became a member of the City Council. I likewise have been a strong supporter of our police and fire departments, the need for public works, and
for our public libraries. This year, however, a critical financial situation
threatens the progress that has been made in these and many other departments.
In response to those who believe the proposal
presented and adopted by the Finance Committee was without rationale, I offer the following outline of my reasoning for cuts
that have been proposed, starting first with details of our present financial situation, the outlook for Fiscal Year 2009,
an explanation as to the need for difficult budget decisions, how the proposed cuts were formulated, my thoughts as to how
they can be achieved, and my recommendations as to how we can stabilize the City’s finances and plan for the future.
I recognize and apologize for the length
of this document, but urge you to give it due consideration, as the seriousness of the financial situation confronting the
City warrants such attention. It is too important an issue to be left to scare
tactics, innuendo, unsubstantiated facts, and political rhetoric.
The City’s Present Financial Crisis
The City of Quincy will have to deplete its free cash reserves and raid its Stabilization Fund to meet
the financial demands it faces as it closes out this Fiscal Year 2008. Its problems
are set forth below:
- Contract Settlements –
An approximately $1.4 million structural deficit.
Last year when Mayor Phelan submitted his budget, many contracts with the City’s employee unions had not been
settled. The City Council asked that the Mayor, once the contracts were settled,
submit the appropriate funding request. Under Quincy’s form of government, only the Mayor can initiate a funding request. Even though the contracts were settled, Mayor Phelan never submitted the request; consequently, while the
City had an obligation to pay its employees in accordance with the new contracts, the budget did not have the funds. An approximately $1.4 million structural deficit was created.
- The Honeywell Energy
Management Program – A $1.4 million structural deficit.
In addition to the above, the Mayor entered into, with the approval of the City Council, a $32 million Energy Management
Program with Honeywell. The plan provided for substantial improvements to City
buildings, mostly schools. New energy efficient boilers and thermostats were
installed, as well as centralized heating control systems. Steam traps were replaced,
energy efficient lighting was installed, roofs were replaced, new doors were installed, and a great many other energy efficiencies
were undertaken. Ultimately, the costs of the new equipment and installation
will be funded by the energy savings. Immediately, however, the City has an obligation
to make the lease payments. The Mayor did not submit a funding request to the
City Council for the approximately $1.4 million due Honeywell this fiscal year. A
$1.4 million structural deficit was created.
- Setting the Tax Rate –
A $2 million structural deficit.
In December the Mayor files a tax rate request to the City Council for approval.
It is at this time that obligations such as the contract settlements and Honeywell lease, those not funded in the budget,
must be provided for by way of an appropriation request from the Mayor. Again,
no such request was filed. Further, Mayor Phelan initially filed a request that
$4 million be taken from the City’s Stabilization Account, the account that is needed to help offset the costs of the
new Quincy High School, to reduce the tax rate. He reduced the appropriation
to $2 million. Despite my urgings to the contrary, the City Council agreed with
the Mayor and moved $2 million from the Stabilization Account to reduce the average single family tax bill this year by approximately
$50.00. I warned the Mayor and the Council that while such a financial maneuvering
may feel good at the moment, it would end up costing taxpayers even more the next year.
A $2 million structural deficit was created.
To address the above, the City Council just this week voted on Mayor Koch’s request to transfer approximately
$2.8 million from the City’s free cash account, i.e. an account certified yearly that reflects any surplus funds from
the previous year, to pay off the current contractual obligations and the Honeywell obligations. The $2 million structural
deficit, created when the tax rate was reduced by using funds from the Stabilization Fund, still remains.
Still remaining are at least
three other significant financial problems. First, the current year’s Water
and Sewer Enterprise Accounts are presently in deficit by approximately $3.8 million.
Second, the snow and ice removal budget is in a deficit of approximately $1.4 million.
Thrid, just last week the City became aware that the debt service budget for this current year is in a deficit of approximately
$1.7 million. Funds will likely have to be transferred from the Stabilization
Account to pay these items.
- Where are we now? $4.8 million in structural deficits, depleted free cash reserves, and a Stabilization Account that will
likely be reduced by another $6.0 million.
As the City approaches the end of the present fiscal year, it has $4.8 million in structural
deficits, has spent nearly all of its approximately $4 million in “free cash”, and will likely see its Stabilization
Fund drop significantly below $5 million, an account that the City’s finance/bond advisor just two weeks ago stated
should be over $20 million. Lack of sufficient reserves will likely result in
a lower bond rating for the City, which will greatly increase the costs of financing the School Construction Project.
Free Cash Stabilization Account
Fiscal
Year 2006 $11.4 million $ 5.3 million
Fiscal
Year 2007 $ 5.7 million
$10.1 million
Fiscal Year 2008 $ 3.9 million
$12.8 million
As of 5/22/08: $ .5 million
$10.7 million
As the end of Fiscal Year 2008 approaches, the City faces $4.8 million in structural deficits, depleted
free cash reserves, and a Stabilization Account that will likely drop significantly below $5 million.
The Dismal Prospects for Fiscal Year 2009
Given the above, Fiscal Year
2009 presents as critical a financial situation as this City has experienced in many years.
- Past Errors Create Hardships for Fiscal
2009.
In order to account for the obligations incurred last year, i.e. contract settlements, the Honeywell Lease, and the
structural deficit created by transferring $2 million from the Stabilization Account, Mayor Koch filed a “level services”
budget with the City Council, i.e. a budget that attempts to provide the same level of services as last year, one without
new programs or initiatives. In introducing the budget, the Mayor stated that
it would prompt a “substantial” tax increase.
As many of you are aware, how much the City can raise in taxes each year from its citizens is governed by Proposition
2 ½. Under Proposition 2 ½, a “levy limit” is established. The City’s levy limit is the maximum amount it may raise in property tax revenue in any given year. The amount it actually taxes is called the “levy”. If the City taxes less than the levy limit, it has what is called “excess levy capacity”, i.e.
the ability to raise more tax revenue without a Proposition 2 ½ override. Without
a Proposition 2 ½ override, the City can only levy taxes to the levy limit. The
FY 2009 budget presented by Mayor Koch essentially results in the City levying taxes to the maximum amount allowed under Proposition
2 ½. It will, if passed as presented, result in the average residential single
family tax bill in Quincy increasing approximately $605.00. Despite the substantial tax increase, taxing the maximum amount limits the City’s
ability to respond to fiscal error, financial emergencies, or unplanned/unanticipated expenses.
- Fiscal errors, financial emergencies
and unplanned expenses have already arisen.
Since the introduction of the Mayor’s FY 2009 budget, it has been discovered that the budget is under funded
by approximately $300,000.00.
Beyond the fact that the budget was under funded when presented, there are several other areas of concern. For instance, as has been the practice for years, the Snow and Ice Removal budget is funded at $300,000.00,
which is barely enough to purchase sand and salt and get the equipment ready for the winter season. The budget will likely be in deficit before the first snow fall, and the deficit will likely grow to approximately
$1.5 million. Further, the Health Insurance Benefits budget shows only
a modest increase based on a claims review analysis and due to employees paying a larger share of their health insurance premiums. The City is self-insured, so if actual claims exceed estimated claims, that budget
will be in deficit. Further, one of the contracts settled last year has a vacation
“cash-in” plan, which if exercised could immediately put the departmental budget in deficit. In the budget proposed by the Mayor, there are no funds for new police cruisers, so if a cruiser
is involved in an accident, replacement would place the budget in deficit. With
soaring fuel prices, it is uncertain whether the fuel budget is sufficient to meet the City’s needs.
The errors cited above have already occurred, and the unplanned occurrences are in fact very likely. The City, because the budget as presented requires taxing to the Proposition 2 ½ limit, is limited in its
ability to meet such circumstances. To balance the accounts on these items would
likely require further transfers from the Stabilization Fund.
- The Stabilization Fund will
not be sufficient to protect taxpayers from the debt obligations associated with the School Construction Project.
When the School Construction Project was introduced by Mayor Phelan to the City Council for bonding authorization,
the financial plan showed that the City’s debt service, i.e. the funds needed to pay the schools bonds, would spike
by approximately $6 million over three years, and then stay at an elevated level for approximately three years. The plan at the time was to use the Stabilization Fund to offset those increases, for taxpayer savings
and to avoid a possible Proposition 2 ½ override. As it stands now, even before
likely transfers within the next three weeks, the Stabilization Fund will not be sufficient to protect taxpayers from the
debt obligations associated with the School Construction Project, particularly the new High School. It certainly will not be sufficient to offset the costs of land acquisition for, and the construction of,
a new Central Middle School, or to provide
for the renovation of Sterling Middle
School.
The City Needs to Make Difficult Financial Decisions
Given the above, with
the “to the Proposition 2 ½ limit” budget presented by the Mayor, the City will not be able to stabilize its finances,
and will find itself struggling, most likely unsuccessfully, to avoid a Proposition 2 ½ override. The responsible reaction
to the Mayor’s budget, and the responsible action to restore and stabilize the City’s financial standing, is to
make the difficult decision to reduce the budget by $5 million and put in place a rational financial plan.
The City Council Unanimously Responds by Stating its Intent to Cut the Budget by approximately $4.7 million.
At the first meeting of the
City Council’s Finance Committee on May 13, 2008, a public hearing was held on the FY 2009 budget. Subsequently, after a review of revenue projections and an overview of the budget, the City Council unanimously
voted that it intended to cut the budget by approximately $4.7 million. As Chairman
of the Finance Committee, over the next two days I performed the analysis requested by the Committee, and presented a proposal
indicating a cut in the overall budget, detailed by department, of approximately $5 million, an overall cut in the budget
of approximately 2.2%.
- Cutting the Budget –
a Rational Approach
The budget proposed by the
Mayor was in the amount of approximately $233.9 million dollars. Cutting the
budget to realized cost savings is rather difficult because so much of the budget is fixed, and so much of the remainder of
the budget goes to the Police Department, the Fire Department, the Department of Public Works, and the School Department. The chart bellows illustrates the structure of the City’s budget:
|
Department |
Department
Budget |
%
of City Budget |
|
Schools |
82,733,562 |
35.4% |
|
Police |
21,919,173 |
9.4% |
|
Fire |
18,859,012 |
8.1% |
|
Public Works |
3,223,976 |
1.4% |
|
Fixed – Health Benefits |
42,632,576 |
18.2% |
|
Fixed – Pension |
18,390,129 |
7.9% |
|
Fixed – Debt |
8,908,002 |
3.8% |
|
Fixed - Honeywell |
2,609,706 |
1.1% |
|
Fixed – Waste Disposal |
6,823,096 |
2.9% |
|
Fixed – Medicare |
1,300,000 |
.6% |
|
Totals |
207,399,232 |
88.7% |
As illustrated, 88.7% of the City’s budget goes to the above departments
and costs. Clearly, the School Department has the biggest budget, so it follows
that much of the needed savings must come from that department. The budgets of
the Police, Fire and Public Works departments are the next largest, and so it follows as well that needed savings must come
from those departments.
School salaries dominate the budget. Another factor in allocating
budget cuts is that most of the City’s budget other than the fixed costs set forth above, goes to pay salaries, and
the majority of the City’s salary obligations are in the School Department, as follows:
City’s Total Salary
Costs, including School Dept.: $127.8 million
School Dept. Salaries:
$ 68.8 million
School Dept. Salaries as % of Overall Salaries: 54 %
School Department salaries in the aggregate have increased 36% since FY 2003, while
City salaries in the aggregate since FY 2003 have increased 24%.
School positions dominate the budget.
A review of overall positions within the City’s budget indicates that approximately 60% of all positions within
the City of Quincy are within the School Department.
The number of School
Department positions in the aggregate have increased by 167, i.e. fifteen percent (15%) since 2003, while other departments
within the City, in the aggregate, have been cut by 18 positions, i.e. – 2%.
What the above indicates
is that the structure of Quincy’s budget and the growth
in some departments over the years, dictates that to make the cuts necessary to restore fiscal stability, the larger departments
must bear a proportionate amount of the overall proposed cuts.
The cuts adopted by the City
Council Finance Committee include, among others, the following:
Street
Cleaning 28.9%
Human Resources
8.7%
Assessors
6.5%
Traffic Control 5.5%
Public Works
5.0%
Police Dept.
3.5%
Fire Dept.
3.5%
Public Works 5.0%
Education
3.5%
Parks
3.0%
Library
2.4%
As is evident, the cuts
are broad-based, despite the difficulty of there being scarce capacity in many of the smaller departments to absorb cuts. In determining the above cuts, personnel costs were reviewed, as well as expenses
and contractual items. Reasonable minds may disagree as to whether some budgets
were cut too much or too little, but the effort was made to take a rational approach.
The Plan for the Future
Cutting the budget alone
and reducing the amount levied, i.e. the amount taxed, by the same amount will not resolve the City’s short-term financial
situation. In fact, I argue that it does not improve the situation at all because
the City would still be left without the funds necessary to respond to foreseen and unforeseen obligations. Further, it would not help the City’s long-term financial health either, as it would not provide
the fiscal stability needed.
My recommendation is
for a combination of budget cuts this year, as difficult as they may be, and a rational tax/levy plan that provides needed
emergency funds in the short-term and longer-term stability. With budget cuts
this year and a rational levy plan, the City will be able to restore services over the next few years without resorting to
a Proposition 2 ½ override.
In my opinion, the choice
is rather stark. One choice is to avoid difficult cuts this year, or compromise
on what should be done, and face a couple of years of continued deterioration of the City’s finances and then a likely
Proposition 2 ½ override. The second choice is to resolve the present crisis,
make the difficult decisions to cut budgets, and implement a rational tax/levy plan.
This method, in my opinion, is best for the overall future of this City. It
will serve to distinguish us from the many cities and towns that have not made the tough decisions, and find themselves now
being torn apart by the debates of Proposition 2 ½ overrides.
I wish to thank all
who have participated in this debate. Reasonable people can reasonably disagree. On one thing there can be no disagreement - we are all involved in this debate because
we love our great City and want what is best for its future. I truly believe
that with the interest and passion shown, Quincy’s best
days are yet to come.
Thank you.
John F. Keenan
