Hutchinson city staff lay out 2015 budget challenges

April 28--Over the next three-plus months, Hutchinson'sCity Council will be working on their 2015 budget, trying to find more money wfor street improvements, give employees a raise and cover the increasing costs of retirement and other benefits.

And all the while they'll be trying to maintain a five-year streak in which the tax rate hasn't varied by more than a tenth of a mill and today is the same 41.4 mills as it was in 2009.

Core services, such as police and fire protection, streets, sewers and the like, are the priority, Council Member Nancy Soldner said. Everything else, Mayor Cindy Proett agreed, is ancillary and vulnerable.

Nonetheless, the Council will wrestle with how or whether to fund extras such as an annual subsidy to keep Fun Valley operating or start making improvements to the Sports Arena to keep the NJCAA men's basketball tournament.

In a two-hour meeting last Tuesday, City Manager John Deardoff and Finance Director Frank Edwards gave the council and overview of some of the challenges the city will face in the 2015 budget.

The cost of salaries, benefits, retirement and overtime for city employees make up nearly 75 percent of the general fund expenses, or about $22.5 million in 2014.

That's up from $19.2 million in 2010, despite the fact that the number of employees is relatively flat. Edwards said the rising cost of benefits and retirement contributions and wage increases account for the change.

Salaries represent about 70 percent of the personnel services budget line. Retirement benefits are 10 percent and health insurance and other benefits are 15 percent. Overtime is only about 5 percent.

A wage increase could cost $300,000 to $400,000 in 2015, Deardoff said.

On the revenue side, property taxes, which are usually what gets people's dander up, represent only 30 percent, or $9.5 million, of the general fund income. Sales taxes are 37 percent, or just under $12 million; franchise fees, which are paid by utilities but ultimately by the customers, are 15 percent, or just under $5 million. Public safety charges, licenses and permits, fines and penalties and other small sources make up the rest of the $31.9 million in General Fund revenue expected in 2014.

Thanks in part to income from licenses and building permits coming in $436,389 over budget, mainly because of all the roofs replaced after the July 23 hail storm, the city took a big step toward its goal of having a two-month operating fund reserve of $6.2 million. That reserve, now about $5.5 million, was only about $4.5 million at the end of 2013.

Sales tax revenue also helped the bottom line. It was about $649,000 over budget -- partly because of the improving economy and partly because of the purchase of building materials for new roofs.

Although the permits for new roofs are still running above normal so far this year, Deardoff told the Council that he doesn't expect the income from building permits to match last year's total. Sales tax revenue also is volatile, and the city will lose some of that revenue since the Sears store at the Hutchinson Mall closed this year.

In budgeting for 2015, Deardoff and Edwards will base their projections for permits and sales taxes on revenues in 2012 rather than 2013.

Replacing aging equipment is another concern. For years, while holding the line on the mill levy, the city has been postponing the purchase of new equipment, trying to get one more year out of an old pickup, for instance.

"Now we're pushing vehicles beyond their life, and it's costing more in maintenance," Deardoff said.

When it comes to replacing aging equipment, the city's policy has been to pay as you go, which involves a transfer of money from the General Fund into the Municipal Equipment Replacement Fund.

Deardoff said he'd like to set up a depreciation program. Say Public Works gets a new dump truck. The city would depreciate the truck over a number of years, and each year the Public Works department would transfer the depreciated amount from its operating funds into a MERF reserve fund so that money would be available to purchase a replacement truck when the time came. Depreciation, he said, "is kind of a forced savings account."

"It's a good plan, but financially you have to make it work," Deardoff said.

All the new equipment requested by department heads in their preliminary budget proposals for 2015 comes to $1.9 million, or about $200,000 more than budgeted in 2014 and $600,000 more than was spent on average in the three years before that. The requests, Deardoff said, undoubtedly will be cut down, probably to about $700,000.

"Every year we spend less than we need," he said. "The requests are legitimate. You've got an old truck. Can you get another year out of it? Yeah, you probably can."

The same is true for the Capital Improvement Fund, the account from which money is paid for major items such as street reconstruction projects, trails, sewers and the new Rivers Banks Orchard Park. But when money is tight or grant funding doesn't come through, some capital improvement projects get postponed.

Most of those projects are funded by the sale of general obligation bonds, however.

In recent years, the city has sold bonds for new projects as old bonds were paid off.

The city currently has about $32 million in outstanding general obligation bonds, but that's only about 35 percent of the statutory debt limit, which is based upon how much revenue the city takes in.

"We compare quite favorably with other cities," Edwards said.

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