December 5, 2009 Herald Review Editorial

Local government finances are under stress today. The City of Grand Rapids is not immune to the pressures every municipal government in Minnesota faces. Thanks to some foresight by previous Councils and staff management teams, the City is in reasonable shape, even as the City grows through annexation.

In the fall of 2007 the City Council voted to implement what is called a “revenue stabilization policy” to deal with anticipated large fluctuations in our revenue streams. We did this because we feared that a recession was looming. History has shown professional city managers that local units of government can expect to lose 10% of their revenues the year after a recession. The revenue stabilization policy allowed us to borrow from our fund balance (up to 10% of our total revenue) with a fixed payback period of eight years. This policy would buy us time to react strategically to a revenue crisis created by a national recession. Our concern was a recession would hit and rather than be a temporary or cyclical decrease in our revenues, it would be a permanent or structural change to our revenues.

Our fears became reality when in December 2007 the nation slipped into a recession. The State of Minnesota reacted to the crisis by un-allotting, or cutting, funds that we refer to as Local Government Aid (LGA). The checks are paid to the City twice per year, in August and December. The governor cut the December 2008 payment just two weeks before we expected to receive it at the end of the fiscal year. The City then utilized the revenue stabilization fund to make up the difference and began work to make permanent, structural changes to our operating expenditures to ensure that the “new normal” of revenues could meet or exceed our future expenditures.

In the coming weeks, February 2009, we got the news that by fiscal year 2010 our LGA allotment would be nearly $600,000 lower than had been originally allocated. Coupled with declines in other revenue sources, like investment income and building permit fees, we were looking at an approximate reduction in total revenues of 10%. It is funny how history repeats itself. But unlike recessions and un-allotments of the past, this one looks like it will be a permanent shift in our revenue base.

The City had two distinct options to deal with the budget crisis. We could have made a number of cuts, deferring capital budgets and making marginal cuts to employee salaries, which would have been more temporary in nature and had no long-term impact on operating budgets. Instead, the City Council and staff managers took a longer term approach. We chose to focus on the base budget, not the margin. We agreed to make fundamental changes to how we operate to meet this challenge. In order to make lasting reductions to the base budget, we realized we needed to reduce the total number of City employees. We implemented an early retirement incentive program to encourage those who were eligible to retire to take that step. We could choose to fill or leave those positions vacant. Twelve employees were eligible for the plan; 10 employees chose to retire. Of those 10 positions we will be filling only four in fiscal year 2010. We have since had one more vacancy occur that will not be filled making a total of seven positions, a nearly 10% reduction in our total full time workforce.

To make these reductions and keep the impact on service levels to a minimum, we made investments in technology that will allow us to streamline our work processes and enable us to do more with less.

· We began with updating our HVAC systems citywide and linking these systems to a centralized computer control system that can be monitored and optimized by our staff 24/7.

· We implemented the Legistar system to eliminate the use of paper meeting packets at the council meetings. The reduction in paper and the use of computers by the council during meetings is only the tip of the iceberg when it comes to what this system has allowed us to do. The system has significantly reduced staff time in the preparation and delivery of meeting information.

· In FY 2010 we will be implementing a new automated payroll system that will reduce staff time in completing payroll.

· We purchased a new snowplow/dump-truck for the public works department. The technology onboard this new truck will reduce our salt use by at least 33%. The cost savings in salt alone will pay for this new truck in five years, not to mention the reduced environmental impact on the lakes and the river.

These are only a few of the investments we have made in 2009, all of which are designed to fulfill one simple goal: reduce ongoing, permanent operating costs.

Another factor we had to contend with in 2009 was the $2,500,000 grant received from the American Recovery and Reinvestment Act that allowed us to complete the Southeast Seventh Avenue road improvement project. This project was not slated for completion until 2011 but got bumped up on our priority list when we received the federal funding. This project added several hundred thousand dollars to our debt levy making it even more difficult to keep the tax rate down. Still, with all these factors in play our general fund operating tax levy for fiscal year 2010 will be $181,558 lower than the fiscal year 2009 levy and $301,544 lower than the 2008 levy. It is important to restate: our overall levy for 2010 is lower than the 2009 levy.

Like most people, when I received my proposed tax statement I was disheartened to say the least to see how my tax bill had gone up. When the Council voted on the initial tax levy in September it was our intent to reduce the levy before giving it final approval in December. Since then we were informed by the County that our tax base had decreased over the last year. Commercial and industrial properties lost approximately $15,500,000 in value from 2008 to 2009. This meant that the tax rate jumped to a level that this City Council finds unacceptable. We have made further reductions to the budget to bring the tax rate down to a level below the 2008 rate. The Council will meet twice in December, and they intend to adjust the budget so the amount City residents actually pay in 2010 will be lower than the amount shown on the proposed tax statement.

Over the past 10 years the tax rate for the City of Grand Rapids has decreased by 26%. It is the goal of this City Council to keep the tax rate on a downward trend and decrease it by at least another 10% over the next five years. To that end, we have reduced the City’s base operating budget by $1,100,000 and we are continuing to find new ways to do more with less. The City Council has directed me to find any and all ways to reduce duplication and increase efficiency in all City departments, agencies and affiliate operations. This means that we will wipe the slate clean and rethink how we deliver service to the citizens of Grand Rapids. These are unprecedented economic times which call for unprecedented innovation from your local government. This City Council, department heads and city staff will meet this challenge head on.