Ann Arbor city officials beginning to plan for more cuts in next fiscal year's budget

City officials are expected to begin planning for future budget cuts during an all-day budget workshop at the Wheeler Service Center, 4251 Stone School Road, on Dec. 4. It's the kickoff to a six-month budget process where city officials will come up with a new two-year fiscal plan.

At last year's budget retreat, Fraser told council members the city was facing a deficit of several million dollars and would need to make painful cuts to city services. That led to months of discussions about laying off employees and eliminating various programs — but ultimately the city adopted a budget with less severe cuts than expected.

"We're anticipating that the first year of our next two-year cycle will not be nearly as financially difficult as the present year has been in getting to a budget," Fraser said. "But we're still expecting that we're going to have to take 4 to 5 or maybe even 6 percent out, as we used to do from year to year, just as a consequence of the structural deficit that we have in our finances."

Fraser said the year after that looks worse.

"If we're not getting the kind of recovery that we're talking about, we could be in the 7 to 10 percent range for the second year of this process," Fraser said. "We'll know better as we get farther down the road. It's still going to be a magician's ball that we're working from."

The city's general fund spending dropped from $85.81 million in 2008-09 to $81.45 million now budgeted for 2010-11 — a $4.36 million decrease. Trimming the general fund by 4 to 6 percent more would reduce the budget by $3.2 million to $4.9 million.

While the general fund has been shrinking due to declining property values and cuts in state revenue sharing, total city spending has grown from $260.3 million in 2008-09 to $345.5 million budgeted for 2010-11, city records show.

Tom Crawford, the city's chief financial officer, said today he doesn't yet have estimated budget figures for fiscal year 2011-12, but those will be presented to council on Dec. 4.

City staff has kicked around the idea of implementing a city income tax to help stabilize the budget, a measure a majority of council members have said they'd consider.

Mayor John Hieftje called it "a little early" to put a number on the expected revenue shortfall for next year. He said a lot depends on what happens in Lansing.

"The state has been cutting funding to the cities off and on for a long time and they will have to cut some more next year," he said. "The best thing the governor and Legislature could do for local governments would be to abolish Act 312. It tilts the playing field for labor negotiations."

Hieftje said he considers the city's general fund reserve healthy and the city's debt load moderate, which is why the city has maintained a good bond rating.

"Adjustments will be needed to balance expenditures with expected revenues in the operating budget," he said of the upcoming budget process. But he said "it looks like things will work out" with a parking agreement between the city and the Downtown Development Authority, which has fed $2 million a year to the city's general fund for the past several years.

"That, along with the efficiencies put in place in past budgets, means we won't face as steep a challenge as last year," Hieftje said.

The work schedule for the two-year fiscal plan is as follows:

• December — Council offsite workshop, Capital Improvements Plan approval by Planning Commission.
• January — Council adopts Capital Improvements Plan.
• February — Council workshop: review service area proposals.
• March — Council workshop: review service area proposals.
• April — Council working session: Administrator's draft budget recommendation, town hall meeting at CTN television studios.
• May — Council meeting: proposed fee changes, budget approval.

Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529.