2012-13 budget forecast

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`obile, AlabamaProjected 2012-2013

Uwzx YxvtMayor Sam Jones

Barbara Malkove, Finance DirectorNovember 29, 2011

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Dear Mobile City Council members:

Attached in the enclosed package is the citys budget forecast with arecommendation that is going to be controversial. This underscores aserious issue confronting our city which merits thoughtful considerationand debate by each of us.

I am sure that you will be immediately inundated by requests forcomments. I would respectfully request that you not lock into any hard andfast positions until you have had the opportunity to fully consider allaspects of this issue. Your consideration in this matter is very muchappreciated!

Mayor Sam Jones

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The City of Mobile Budget Forecast

YEARS ENDING 2012/2013

Eighteen months ago, I warned the Mobile City Council, employees and moreimportantly, our citizens that the Councils approval of a one-cent sales tax for 16months, rather than the 28 months as I initially proposed, would not address the longterm fiscal effects caused by a downturn in the national economy. It would only delaythe inevitable. Once the 16-month tax ended, it would be dj -vu.

We also cautioned you then that this would happen at the worst possible time becauseeconomists had predicted greater instability in our nations financial outlook. So here weare in the 2011/2012 fiscal year with a balanced budget due to the one-cent sales taxincrease and the drastic cuts in city departments. We are now faced with the realizationthat our citys future is bleak because the sales tax increase has sunset. If you can recall,

we predicted this forecast in our initial recommendation which utilized actual financialdata and the expertise of local and national economists. The proposal to implement theadditional one-cent sales tax for a longer period was based upon sound reasoning andinformation provided by the aforementioned sources. If the 16-month sales tax increaseimposed by the Council was derived from other financial data or a forecast, pleaseprovide the sources to me and the citys Finance Director.

Mobiles approaching financial crisis is coming at a time when we can least afford it.The crisis will hinder our ability to provide adequate public safety and public worksservices to our citizens and threaten our collective effort to market Mobile as a city onthe move. The citys present momentum in this global economy is paramount in ourquest to attract some 3,000 new jobs by 2015. If we stumble now, it will ruin our bond

rating, and destroy our reputation as a growing, progressive city.Today I return with the same message. Mobile, like other cities across the country

and the world, is facing the worst fiscal crisis in its history with a projected$25,722,210 budget shortfall in FY 2013. Though the additional penny for 16 monthswas a band aid approach to shoring up our budget, it showed us that had it beenapproved for a longer period, Mobile would likely survive this devastating economiccrisis. A local economist, national economists, the U.S. Chamber of Commerce, and theNational League of Cities all projected no growth in the economy prior to 2014. Nowthe projection is 2016. We agreed with the projections because Mobiles numbers aretracking along the same projections. That is why we proposed the additional pennythrough 2013. The National League of Cities also issued an advisement that stated the

growth in the local economy usually lags 2 years behind the national economy. Theynoted that this assessment changes only when major economic development initiativesoccur in the region.

We provided actual figures 18 months ago to each Councilmember, answeredhundreds of questions, and requested data from the Council to help in finding solutions- all to no avail. The difference now as opposed to then is that the citys fiscal belt hasbeen tightened and reduced drastically. The citys $224,423,415 projected general fundbudget for 2011 has been reduced by $28,353,811.

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City government is non-partisan by original intent. While districts are vital in theelectoral process, they should not be the driving factor behind tough decisions thatsafeguard the well-being of our city. There is no place in city government for partisan,political ideology that hinders the decision making process to a point of inaction. Thosedecisions, based purely on politics, are without merit and are self-serving in application.

In city government, timely decisions based on what is in the best interest of our citysfuture, as determined by the merits of a situation, is the proper approach to protectingthe long term well-being of our city and its citizens. Tough decisions are not alwayspopular, but in local government they are necessary.

I urge you to assess where we are with little or no growth in the citys budget, anapproximate 11% unemployment rate, shrinking revenue and poor employee morale, alldue to a historic downturn in the national economy. The downturn in the economy iscausing a partisan blame game debate in Washington and has created hardshipsthroughout the nation, especially in cities. We cannot follow that approach. Ouropportunity to succeed, regardless of the national economy is before us. We can actnow and remain one of the most competitive cities in the nation; continue to recruit

economic development projects in 2013 and facilitate large retail developments that willcreate over 3,000 jobs.

We can establish a capital fund budget that will address many of our capitalneeds in infrastructure and equipment; maintain the best bond rating in the cityshistory; attract another cruise ship and provide excellent services to our citizens.

But nothing just happens. We must act to make things happen. I urge you to lookvery closely at the information provided. It will give you a clear picture of our 2013projections, and show the sacrifices and reductions made by city departments over the16 months the one-cent sales tax was imposed.

City departments have been good stewards with tax dollars since the sales tax

increase was implemented, reducing the citys costs by $3,694,458 less than budgetedand $1,830,105 less than FY 2010 and freezing and eliminating 181 non-public safety jobs which represents almost 15 % of non-public safety employees. Please note thedrastic drop in all city departments overtime cost:

2008: $11.5 million 2010: $5.6 million

The training and travel budget for all city departments was reduced by 50%, whichwill definitely leave the city in a deficit as it relates to the development andimplementation of new and innovative technological software/hardware that willassuredly help us to continue effective and efficient delivery of services to citizen.

Technology is the backbone of our human and organizational infrastructure.In the close observation of the citys day-to-day operations, we find that morale in

most departments has declined due to budget cuts and the uncertainty of the future.This has resulted in more grievances, employee conflicts, higher turnover and moreworkers compensation issues and increases in health plan costs, all of which results inadditional expenses for the city.

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Our recommendation is based on the limited options that are available to our city atthis point and time. Make no mistake about it; time is not on our side, nor is it in ourcitys best interest to make decisions that are not adequate to bridge us through thenational economic downturn.

The National League of Cities Research Brief on Americas Cities offers a bleakeconomic forecast which does not provide hope for revenue increases. In fact, the briefreports that the fiscal condition of cities continues to weaken. This document can befound online at http://www.nlc.org. We are facing a new normal indicative of thelower property taxes and declining sales taxes and business licenses. We are facinghigher cost of employee and retiree healthcare and pension contributions and yet wemust remain competitive in our quest to attract new jobs and industries. In spite of thelack of financial growth in the community we must continue to fund future economicprojects. Our contribution to Austal brought us 4,000 good jobs. These employees liveand spend their money here. That is where our growth will come from. We know thatthere are new opportunities waiting for Mobile. It is our fiduciary responsibility to helpthem with infrastructure and/orinvestment of funds. We have made the effort to give

our citizens all the advantages that our city can afford, such as:

Providing an adequate level of services; Maintaining all employees and benefits; Continuing accountability measures to assist the city in weathering the

economic slump;

Continuing an adequate level of public safety and public services; Hiring additional police officers and firefighters to staff the Theodore Fire

Station done to comply with federal grants;

Replacing aged vehicles beyond their life expectancy by the citys Garage,whereby reducing the strain on a severely depleted staff of mechanics;

Continuing measures to create an economic development environment tocreate sustainable jobs.

RevenueOur total revenues have fallen from the 2011 projected budget of$224,423,415 to

the 2012 adopted budget of $189,908,646. That is a loss of approximately $34.5million. We project that we will receive a greater loss of revenue by $37 millionbetween 2011 and 2013. We can raise business licenses revenue by changing theregression tables and gain another two million; we can charge a storm watermanagement fee that will generate $11-12 million; or we can add a garbage fee that will

raise enough to cover the cost of trash and garbage collection and disposal but would bea real burden on the poor and fixed income citizens. We can do all these revenueenhancements if approved by the City Council.

We expect sales tax revenue to grow from $140.7 million for 2012 to $141 millionby 2015. We cannot survive on revenue growth alone with the reduced tax rate. Ourprojections for 2013 show a deficit of nearly $26 million dollars since we will have usedmost of the carry forward in 2012.

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Reduction Of ExpendituresThe administration has monitored all expenditures during the 2011 fiscal year

and we have reduced expenditures by $1,830,105 million actual dollars and came inunder budget by $3,694,458 million. We followed our budget plan with the:

Reduction of the operating budget by $1,110,493 for selected departments,excluding police and fire. We face the loss of grants for new public safety officerswithin the next two years. The difference, the city will have to fund.

Increase in retiree insurance cost of $94,200 to reflect current patterns. Theretiree portion of our insurance cost continues to rise at a rate much higher thanthe active employees. Perhaps it is time to change the retiree benefits for all newhires.

Increase in workers compensation cost of $204,000 to reflect current patterns.With fewer workers trying to perform the same level of work we cant help buthave more incidents and injuries.

Increase in property insurance premiums by $230,057 to reflect added facilities.We have added the new Police Building, Woodcock School, several armories andwill soon have the Gulf Quest Museum to insure.

The Citys Departmental NeedsOf course, we have not taken into effect, the toll the revenue shortfall has placed on

capital funds.

The finance department must purchase new software for its financial system. Ourpresent system is more than twelve years old and is not meeting the needs of all thefinance departments and the garage. We can finance the system on a lease over severalyears but we will have to have the funds to make the payments. With the loss of thecruise ship, the debt on the building is approximately $2 million and is paid from

our capital budget. This, plus an additional $4 million in scheduled debt service payments has our overall debt service increasing by approximately $4 million2013. Revenue collection will be hampered severely without adequate equipment toinclude city cars driven by Field License Investigators. Without cars Field LicenseInvestigators will not be able to answer SROs (Service Request Orders), identifyunlicensed businesses, collect delinquent business license and tax money or issue MOTs(Municipal Offense Tickets) to bring businesses into compliance. This could be a greatloss of revenue to the City of Mobile.

As you can recall, we secured an efficiency study from the Public Affairsand Research Council of Alabama (PARCA) to evaluate the citys operations.PARCA duly recommended that the city should establish a capital budget to

address critical infrastructure needs. Though we agree with their assessment, weare mindful of our future financial outlook.

We find ourselves with the looming dilemma of having to provide more than $4million to match the needed obligations as required by the Metropolitan PlanningOrganization (MPO). As it stands presently, the city does not have the capacity tosatisfy the required match. This will obviously result in a delay or loss of these MPOdollars.

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Public Services OutlookThere are 37 major storm water drainage projects ranked in the top 10, some

have equal ranking. All projects have not been estimated (11), but the projects cost farexceed $35,000,000. If the projects are not addressed, they will continue to deteriorateand the cost to correct the problems will increase. Major cave-ins will go un-repaired

without funding. Match for Metropolitan Planning Organization projects is needed. Ifwe fail to meet the 20% MPO match requirement, we will lose nearly $22 million instate and federal infrastructure investment in our community and the subsequent loss ofthe following projects;

$2.2 million for Zeigler-Athey to Forest Hill FY 13; $900,000 for Zeigler-Cody to Schillinger FY14; $100,000 for Dauphin Street-Sage to Springhill hospital-FY13; $700,000 for Dauphin Street-Sage to Springhill hospital-FY14;

$500,000 for McGregor-Dauphin to Eslava Creek-FY15; $470,000 for McGregor-Dauphin to Eslava Creek-FY16.

It is crucial for the city to provide at least $2 million to maintain the citys currentlevel of services. The funding will provide for the acquisition of garbage trucks, trashtrucks and trailers, knuckle boom loaders, vactor trucks and bucket trucks. Without thisequipment, there will be delays in garbage and trash collection and inability to cleanclogged drains. In addition, the mowing cycles in parks and public right-of-ways will bereduced greatly due to a lack of funding.

Due to very old equipment and a shortage of mechanics, outsourcing of repairs is

occurring at the garage. This means higher costs and longer time to repair vehicles.More importantly, further cuts will hamper the citys ability to address the growingneed for operable vehicles in Public Works, Police and Fire.

Public Safety

Fire Department

At the present time we are continuing a downward trend in performance thathas continued for almost three decades; and we see no light at the end of the tunnel. In1992 our response reliability was 72.5%; in 2007 it was 55.86%, in 2008 it was 55.68% in2009 it was 54.05% and in 2010 it was 50.08%. The only way to have a positive impact

on this is to reduce the number of runs or increase resources. Two ladder trucks shouldhave already been replaced because they have far exceeded longevity. But due to therecent budget constraints, we have been unable to purchase new ones. Failing to replacethese trucks will continue to have an adverse impact on service delivery and the citysInsurance Service Organization (ISO) rating. This rating affects homeowners insurancerates.

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The departments operational budget has been cut to the point that anyadditional reduction will necessitate the closing of fire stations. Last year, we ended theyear with less than 2% of our operating budget unused, which is cutting an operation ofour size very close. We have maintained a good level of service delivery systemthrough the hard work of our staff and the dedicated personnel of this department andtheir commitment to the citizens of this community.

Fire Department Grants

The personnel assigned to the new facility at the Airport are being fundedthrough a SAFER GRANT. Please note that the grant funds end on June 29, 2012,which will require the city to budget $1,165,644 additional dollars in the FireDepartment 2013 personnel budget. The grant that funded the new station inTheodore is set up in the same manner. Funding for this stations personnel will runout in May of 2013, therefore the city must have at least a $635,566 increase above the$1,165,644 in 2013s budget; and, an additional $1,271,166 in 2014s budget to sustainthese positions. Failure to provide the sustaining funding will require the city to forfeitthe SAFER grant immediately. The amount we will have to return to the federalgovernment is $4,863,560.

Police Department

The department currently is responsible for an area covering 296 square miles.The current automobile fleet consists of approximately 601 vehicles, but due to budgetconstraints, over 380 of those 601 vehicles have mileage over 100,000. Nearly 90 ofthose vehicles have over 200,000 miles. On average these higher mileage vehicles costsubstantially more in maintenance costs than newer, lower mileage vehicles. In additionto these increased maintenance costs, inoperable vehicles require officers to double up invehicles. This will result in a loss of productivity, reduced police presence, reducedperception of safety by the citizenry and slower response times as two-person units

respond to calls for service that could be handled by one officer. The replacement costsof the 380 vehicles currently over 100,000 miles would cost approximately $17 million.

COPS Grants

The departments COPS hiring grant funds 100 percent of the salary for 20officers for three years ($2,464,800). The agency is required to be at full budgetedstrength (currently 545) to be eligible for these funds and to maintain those numbers(545 + 20 = 565) for the duration of the grant. Failure to maintain these numbersduring that period will result in the loss of funding equal to the deficiency until thenumbers are back at the required levels. Additionally, the department is also requiredto continue to fund the full budgeted number of officers plus the 20 grant officers for a

minimum of 1 year after the grant expires. Failure to maintain these staffing levels canresult in loss of future Federal COPS grant funds for a period of up to three years.

The department is budgeted at 286 civilian employees. However, due to budgetconstraints, we are currently down by 33 civilian positions (several in Communicationsand School Traffic Officers). These positions are critical to the effectiveness andefficiency of the departments operations.

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Conclusion and Recommendations:

In conclusion, we point to the citys budget comparison for projected 2011 andactual 2011 which clearly show the painstaking drastic reduction in spending, whichwas done in consultation with local employee groups. In 2011, we reduced departmentalexpenditures by $1,968,747. But it will not solve the problems facing the city. If an

additional revenue source is not designated, services to citizens will erode to the pointwhere there would be serious reductions in the operating hours at city libraries,museums, parks, recreation centers, athletic activities, band programs, animal shelter, aswell as reductions in the overtime budgets for parks and rights-of-way maintenance,special events and public safety/public services.

The best solution to our financial problems is to reinstate the one-cent sales taxwith a realistic sunset date based on economic indicators to bridge us through thiseconomic downturn. It is important that we make this wise decision soon. If passed bythe City Council immediately, the Revenue Department would have time to give propernotification to taxpayers, the Alabama Department of Revenue, and give MunicipalInformation Technology department the needed time to make computer adjustments.

Businesses will begin collecting the tax January 1, 2012 and submit payments tothe city by February 20, 2012. The financial statements will be produced by March2012 to show the additional amount collected. It will take time to reprogram and re-implement the tax collection system as we lose $2.5 million per month.

If we reinstated the additional sales tax, Mobile would be able to continueprogressing during a time when other cities and the nation are grappling with thishistoric downturn in our economy.

Our history with the temporary one cent tax shows that it did not have a

regressive effect. The volume of gross sales increased rather than decreased during the

time the tax was collected.

The reinstatement of the sales tax increase would also give the city the capacityto establish an aggressive Capital Plan, as requested by our Engineering Departmentand recommended in the PARCA study.

Further, please note the reinstated sales tax increase would not place Mobile at acompetitive disadvantage with neighboring communities. A temporary 10% sales taxwould compare favorably with the following cities:

Saraland (10); Spanish Fort Town Center (10.95); Daphne Eastern Shore Center (9.5); Prichard (10); Fairhope (9); Chickasaw (10); Foley Outlet (9.5); Satsuma (10).

According to the Alabama Department of Revenue, fifty-five cities haveincreased sales tax during 2010 and 2011 to maintain an adequate level of essentialservice during this downturn.

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Despite the many challenges enumerated in this document. We must moveforward immediately. We have consistently said that when we reach an 8%unemployment rate, and the tax should stay in force until the economy rebounds to thatlevel, we can seriously consider tax reductions. But if we contribute to an 11%

unemployment rate, we become a part of the problem. There are no easy or painlessanswers during these turbulent times. However, there are leaders who are able to putaside political ideology and keep the citys interest in mind as we seek solutions.

Each of us must be accountable for our role and our actions or inaction. My

desire is that we travel this road together to safeguard our citys future. If we choose to

do nothing, it will not matter who is sitting in any of our seats. We would have failed ourcity and its citizens.

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2012-13 budget forecast

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