Ypsilanti City Council, staff begin working on plan to avoid looming budget shortfall
If the city of Ypsilanti were to cut its planning and zoning department, as well as eliminate its entire city hall staff, it still would not generate enough revenue to cover its public safety costs and Water Street debt payment in six years.
That’s how Mayor Paul Schreiber framed the city’s serious budget problems to residents in his recent mayoral update, and it’s the issue for which staff and City Council are seeking a solution at three budget planning meetings over three months.
If nothing changes, Ypsilanti’s $9 million in reserves will be wiped by fiscal year 2015 and the city will face a $5.9 million budget shortfall by 2017.
Ypsilanti has four main revenue sources — income tax, state shared revenue, property taxes and fees for services — and cannot significantly increase any option. It has been hit particularly hit hard by cuts to state shared revenue and a drop in property tax revenue.
Property tax revenues decreased by 5 percent, or $500,000, in 2010, and are projected to decrease to $6.2 million in 2017 from $8.5 million in 2010. The city is prevented by state law from raising more than 20 mills for its general fund, and it has already hit that ceiling. Additionally, the state legislature’s proposal to eliminate personal property taxes is expected to produce a $400,000 hit to the city.
Gov. Rick Snyder’s cuts to state shared revenue already mean $400,000 in lost funding for Ypsilanti. That figure could increase by as much as $800,000, depending on how the city fare’s in the state’s newly created economic vitality incentive program. In it, the state weighs how much money to give to a municipality based on its transparency, how it collaborates regionally to save money and the size of reductions to employee benefits.
Officials are uncertain on how the program will rate municipalities because it is in its first year, but projections call for a 25 percent reduction annually.
In 2007, voters rejected a proposal for a citywide income tax by a margin of 2 to 1, and the city can’t legally charge more for services than they cost. That leaves it with no obvious options for generating significant revenue.
Another main factor is Water Street debt — the city made its first $472,000 payment in May 2010 and must continue to make biannual payments through 2031. Those will grow to $1.5 million by 2017.
In total, the city’s revenue is projected to drop to $10.4 million in 2017 from $14.2 million. Meanwhile, general fund expenditures are projected to increase to $16.3 million in 2017 from $14.2 million this year.
How will the city avoid that scenario and the expected subsequent state emergency financial manager takeover?
Council is hoping to develop a five-year plan that will address the structural budget deficit through cuts and revenue increases and take action by the end of fiscal year 2012. Council and staff will select a strategy and outline on how to move forward through the next two budget meetings at Ypsilanti City Hall on Sept. 27 and Oct. 11. The first meeting in August was a review of the financial picture.
Among other topics, council will begin discussing possible revenue options at the Sept. 27 meeting.
In March, council member Pete Murdock said no revenue option should be off the table and offered several possible sources. Among them are:
- A pay-to-throw trash system.
- A citywide income tax.
- A Headlee override on solid waste millage to generate an additional $65,000 a year.
- A stormwater utility fee.
- Asking voters to approve a 4- to 5-mill debt retirement millage for Water Street debt.
- Reauthorization of bonds issued for street repair.
- Eliminating or restructuring the Ypsilanti Downtown Development Authority's funding.
Schreiber said the city is going to have to make cuts and find new revenue sources, but added that he felt there are no cuts or revenues that will make a big dent in the budget shortfall.
“How many cuts you can make and still have a city where people want to move?” he asked. “People feel comfortable here right now and I think that’s testament to how efficient energetic staff is. I don’t know how much further we can cut."
He highlighted the cuts the city has made over the past decade and called city hall a “very lean organization with no redundancy.”
In recent years, the city nixed its parks and recreation department and funding for human services. In 2008, fourteen vacant staff positions were eliminated, including six police officers. In 2010, two police officers were laid off. As part of their 5-percent pay reduction, city hall staff takes regular furlough days.
City Council must unanimously agree on whichever plan it moves forward with, Schreiber said, especially if the plan is to go in front of voters. He pointed out that council was divided over the personal income tax issue in 2007.
“If we can’t sell it to council, we’re never going to sell it to voters,” he said.
Schreiber attributed many of the problems to recent changes at the state level, and said the city can’t continue to improve as it has been when there are constantly new financial challenges being placed in front of it.
“We aren’t doing anything wrong,” he said. “We’re just trying to absorb cuts at the federal and state levels, and there’s no way we can shift our cuts down. We’re going to try our best, but we’re only going to do as much as council and voters can do, if anything ends up in front of voters.”