Last night, June 2nd, the City Council received the Mayor Sullivan’s proposed budget for next year. The City Council now has until June 30th to recommend cuts and/or approve the budget.
As my article title suggests – Nobody’s Going to be Happy! The budget is very tight. Things that should be budgeted aren’t. The budget assumes massive tax increases, new taxes on dining and hotels, and draining the Free Cash savings account. There are hardly any real cuts or changes in business practices that will significantly reduce operating costs. However, there are pay increases as well as increases in benefit costs.
This is unconscionable. If we can’t pay for necessities, we can’t pay for capital improvements, and we can’t pay what we owe employees, we should be looking at ways to increase revenue (preferably non-tax revenue) or decrease costs – not giving out pay raises and expecting the taxpayers to fund things with massive new taxes.
Revenue is really tough. We have three primary sources: Local Property Taxes, State Aid, and Local Receipts(fees, excise taxes, interest, etc..). We also have two “savings” accounts: Stabilization and Free Cash.
I’ll discuss these in reverse order. As of last night, we had $1,597,289 in Free Cash, and $5,894,241 in Stabilization. This is quite a drop from December when we had $4,298,820 in Free Cash, and $6,314,434 in Stabilization. For the past several years, we have tried to preserve Stabilization so that we have some reserves in case of natural disaster, a costly repair, expensive law suit, or an unexpected decline in revenue. Though $6 million sounds like a lot to most of us, it really represents only about two-and-a-half weeks’ worth of expenses for the City. We shouldn’t ever plan on using Stabilization for normal operating expenses. Free Cash is more flexible. It’s leftover money from one year that can be used in subsequent years. Generally however, it shouldn’t be used to fund recurring operating expenses, since the money is a declining account and there is no guarantee that the funds will be there from one year to the next. That’s what you see now. We used almost $2.7 million of Free Cash last year, leaving only $1.6 million available. There’s no way to fund last years’ $2.7 million worth of expenses when we only have $1.6 million available. Adding to the challenge is about $2.5 million in new spending. That’s why the mayor is proposing new taxes on dining and hotels, and a 3.5% property tax increase.
Local Receipts are really tough. The City collects about $14 million per year in excise taxes, fees, interest, school tuitions, etc… The projections for this year are about 1% higher than last year – roughly $150,000. There’s not much we can do about this. The largest components of this $14 million are completely out of our control. We could raise fees I guess, but in the big scheme of things, that really won’t make much of a difference.
State Aid is flat again, and show’s no indication of changing any time soon. We get about $40.5 million per year – most of which is earmarked for schools. This year we’re seeing a projected increase of about 1.3% in State Aid – roughly $540,000. We can’t do anything about this except beg our representatives to try to get more funding – something that every other city and town in the Commonwealth wants as well. State taxpayers – like you and I – don’t want to pay more state taxes, and the State has massive debts and obligations, so the chances of any real increase in local aid are slim. Another thing to note is that we give back the state about $4 million in State and County Assessments (mostly related to schools and retired teacher health care costs).
That leaves Local Property Taxes. Last year the Local Property Tax Levy was $68.3 million. The Mayor’s budget assumes a 3.5% tax increase of approximately $2.4 million on top of an estimated new tax growth of $1 million (from new developments, upgrades to property, etc…).
There is very little support in the community for a 3.5% tax increase. However, the way the calculations work is that the taxpayers are on the hook for whatever is needed to balance the budget – up to the limits of Prop 2 ½.
Essentially, the calculation is: approved spending (including State and County Assessments), minus State Aid, minus Local Receipts, minus withdrawals from Free Cash or Stabilization, minus certified New Growth, equals Local Property Tax Levy (up to the limits of Prop 2 ½).
As discussed earlier, we really can’t change State Aid or Local Receipts. New Growth is what it is (the state approves the number based on the realities of development and assessments).
What we can control is spending and withdrawals from Free Cash or Stabilization.
Most of us don’t want these massive tax increases, and personally I’m also not in favor of draining more out of the Free Cash account for operating expenses (I’d prefer to use it to pay for emergencies or one-time small capital items that have a useful lifetime of several years).
In order to accomplish this, we’re going to need to find a way to cut $2.8 to $3.8 million from the Mayor’s Proposed Budget. That’s a major challenge – especially when the budget is very tight to begin with, and when every proposed cut needs seven councilors to vote for it.
Some of us would like to see more spending on declining infrastructure and real efforts to reduce long-term debt and obligations (currently over $300 million). Addressing either of these issues will require more cuts in other areas. Not addressing them will cost us tens of millions and more in the long-run.
The largest departments in the City are: Schools, DPW, Fire/Ambulance, Police, and Information Technology (together approximately $80 million). The largest expenses are Health Insurance ($16 million), Pension ($9 million) and Debt Payments ($7 million). All this adds up to $112 million out of the total City Budget of $123 million.
Schools are about to announce a new “wonderful” contract with the Teacher’s Union. From what I understand (it’s not public yet), this contract calls for rate increases of approximately 6.6% over three years, reduction in professional development days, and reduction in severance payouts (payments for unused sick and personal days when someone retires). I really don’t think the School Department or School Committee understand the financial condition of the City, and how their actions affect the entire City Budget. Their “Level Services Budget” – before talk of these raises – was a 6.79%* increase in City contribution. 6.79%!!! The School Committee reduced the request by about $700,000, but that is still an increase of 3.68%* – and again, that was before any new contract, and before that early retirement incentive that was offered recently. Where do they think the money is coming from? Every 1% raise in the School Department costs approximately $440,000 per year. On top of that, you have to add in step increases and education incentives. Agreeing to a contract that calls for over 6% in raises in unconscionable. We can’t afford what we have now; we can’t pay for necessities; we can’t pay for capital expense or improvements in the city (we have a list of approximately $111 million in needs); we can’t pay for new technology or other required repairs or improvements in schools (over $3 million);and, we can’t pay what we owe employees already (over $300 million in retiree benefits). The City Council is working on reducing FY17 budgets as discussed in this article. The School Department could be looking at additional budget reductions of between $400,000 and $1.2 million. NOTE: the word “cut” when used by many departments and employees refers to a reduction from their budget request – not a reduction when compared to last year’s actual. As it stands right now, the school budget is $1.024 million higher than last year.
The last time the School Department negotiated contracts they told us they would be self-funded through retirements, and the replacement of highly paid professionals with lower paid professionals. In reality, that didn’t happen. We’re paying millions more than a few years ago and there are many fewer students and employees. They’re telling us now that the severance reduction is “HUUUUGE” to quote Donald Trump. Someone really needs to do the math. Show me the money! Both sides know that that State is changing the rules about severance, and that their changes are likely to trickle down to cities and towns in the coming years. There is time pressure to work out a deal before that happens. As proposed, the employees will be getting decent raises for several years in a row, and those raises will compound and roll forward for many years while the employee works for the Schools. Upon retirement (around age 62 or so for many), the employees will receive higher pensions for life (these days many people live 25 or more years in retirement). Some will argue that the “State” pays the teacher pensions. Well, that’s not really true. The teachers contribute the majority or their retirement funds through payroll reduction that’s certainly earned by teachers, but that’s paid for by taxpayers. Shortages are covered by the state using taxpayer money collected from all of the taxpayers in the State. Some will argue that “we’ll save money because employees won’t use their benefits”. I don’t know what their experience is, but I’d bet a fortune that those sick days will get used up with hangnails and headaches, and that the school system will see quite an increase in the number of substitutes.
I got home last night after the council meeting and happened across a Chuck Norris, Walker Texas Ranger episode. Coincidentally, Walker offered students $100,000 today, or a penny today that would be doubled every day for a month. That’s similar to the School Department and City negotiations (give up the current severance plan in return for recurring compounded increases in pay). The students all wanted the $100,000. After doing the math, that doubled penny per day turns into over $5 million in 30 days. Someone needs to do the math on this contract deal BEFORE the School Committee ratifies this next week. NOTE: they have scheduled a whole 15 minutes to talk about this and vote on it next week, so you know it’s pretty much a slam dunk already. Parents, students, taxpayers, and City Councilors should be asking how they are going to pay for this. More teacher layoffs? Cuts to music, arts, sports, languages, libraries? Continue to delay repairs or investments in educational technology? Increased fees? Larger classroom sizes? Does the school department expect the City Council to take money from Fire, Police, and DPW to pay for this contract? Do they expect taxpayers to pay massive tax increases?
Back to the City Budget issue… So, the big question is “Where do we cut?” Some suggest just cutting 3-5% across-the-board from every department. We, the Finance Committee, tried that one year (with a much lower percentage) and got killed. Two prominent – very smart – committee members didn’t get re-elected, and almost every cut recommendation failed to get the required seven votes. The former mayor had all the department heads write City Councilors letters talking about how devastating these cuts would be to their departments. The Audit and Legal departments told us we couldn’t cut some things because of various state laws. The unions complained that the council was cutting funding for promises that were made during negotiations. The School Department enraged families by threatening to cut music, arts, sports, languages, libraries, and transportation services. That failed across-the-board effort has directly, and predictably, led to the situation we face this year – only it’s worse now because almost all employees received salary increases (compounded year-over-year), operating expenses have risen, benefit costs have risen, and we’ve burned through most of the Free Cash.
Some suggest cutting the Health Insurance or Pension. First, Pension is a legal obligation and the state has laws that say we are obligated to pay. Second, the Health Insurance is a union contract issue, and there are state laws to be concerned with, so we can’t just cut the funding. The Mayor, City Council, and unions are discussing changes that may reduce the overall costs to the City, but nothing is firm yet, and my guess is that the unions will want something (more money in the short-term) to make up for any negotiated increases in healthcare cost contributions.
So again, “Where do we cut?” I have a couple of ideas, but I don’t think I can come close to $3.8 million – especially when it takes seven votes. Maybe my fellow councilors can suggest cuts? There are some very smart people on the City Council, and many got elected by promising to reduce taxes, eliminate waste, or improve efficiencies. I’m hoping we can work together to make some very hard choices. It’s not going to be easy. None of us want to advocate for reducing budgets for Schools, DPW, or Public Safety.
My questions to the readers are “Where would you cut?” and “What are your priorities?” Are you OK with a 3.5% tax increase and new taxes on dining and hotels?
I, and the other councilors, would like to hear from you. The entire City Budget will be posted on the City website at http://www.CityofWestfield.org. The City Council Finance Committee will be holding public meetings with City Department heads on six different nights in the coming weeks. The schedule will be posted on the City’s website.
The City Council will be holding a Public Hearing on the budget on June 27th at 6PM. Please review the budgets, communicate with your City Councilors, and attend the public meetings.
In closing, congratulations to all of the new graduates, congratulations to all of the sports teams, and Happy Father’s Day to all of the dads.
Dave Flaherty
Westfield City Councilor
[email protected]
* The reason these percentages may be different that those promoted by the School Department and reported in the press is that the School Department report’s year-over-year change on their entire budget. Unfortunately, a huge portion of their budget comes from State Aid, and State Aid has been rather flat. Therefore, in order to satisfy the budget request, the city contribution has to increase by the percentages I mentioned in this article.
