Lexington’s Financial “Crisis”

I thought growth was good…..I even saw the bumper sticker:  Growth is Good.

Instead, it turns out that having to deal with a lot more people in a low desnity city without a corresponding and large increase in the number and quality of jobs really hurts local government.  (Which is you and me, as a reminder.)  Yeah, growth is good…. for some financially, but for most of us, it’s a total loser…..Now we get a choice of less services, meaning a lower quality and standard of life here, or higher taxes.  And that aint happening.

Yeah growth was good….

Now watch for the pro-growth lobby to crank into high gear and say that the solution to our problems is……wait for it….more growth!

I would bet that is what Bernie Madoff told his clients – “give me more and I’ll make it all back.”

Mayor Gray does make a very interesting statement:  “We have to re-size government to fit the revenue stream,” Gray said.

That’s a very business-like comment.  And it’s technically right.

But what if?

What if we can’t re-size the city at the same time?  What if the city keeps on “growing?”  What does government do then?  We are in uncharted territory.

Here’s a brain teaser just for fun:  What if someone were to say, “We have to re-size the city to fit the amount of government we are able to provide.” What would that mean?

Absent an unlikely huge influx of high paying jobs in the next year, this is just going to get worse.  This is what the peak oil times look like.

——

Officials: Layoffs in Lexington government ‘highly likely’

By Beverly Fortune — bfortune@herald-leader.com

  • While city officials struggle to put together the budget for next fiscal year, the unfinished business of balancing the current-year’s budget remains.

The budget for fiscal 2011, which ends June 30, has a $9.2 million shortfall.

In a budget briefing on Wednesday, Division of Revenue director Bill O’Mara said the city has taken several steps to halt spending and save money. As a result, the shortfall is projected to drop by $6.9 million.

Among the main sources of those savings:

 A “tight” hiring freeze has been imposed. The freeze is expected to save $2 million. Only the chief administrative officer, Richard Moloney, can grant an exception to the freeze.

 All discretionary spending has been cut, including travel, training and office supplies, to save $2.25 million.

“Only things needed for direct services like gasoline for police cars and firetrucks will be allowed,” O’Mara said. “Everything’s on the table, to pinch every penny we can.”

 Another $1.1 million will come from matching money allocated for grants that won’t happen.

 Building maintenance and all capital projects are being reviewed for a possible $750,000 savings.

This still leaves a $2.3 million gap between revenue and spending.

The city has approximately $14 million in its rainy-day fund, which could be tapped as a last resort, budget director Ryan Barrow said.

Lexington faces a somber financial outlook that makes layoffs at city hall “highly likely” in the fiscal year that begins July 1, according to senior officials in Mayor Jim Gray’s administration.

As Gray’s staff and the Urban County Council began working in earnest this week on a new budget, a first round of economic projections showed expenses outpacing revenue by $25 million in fiscal year 2012.

“We have to re-size government to fit the revenue stream,” Gray said Monday at a budget workshop for top staffers and the council.

“We do have a crisis. As much as someone like myself would like to think that it’s not there. It’s here,” said Gray, who will make a formal budget proposal to the council on April 12. “It is going to be hard. It is going to be painful.”

The city’s General Fund revenues are projected to remain flat at $271 million next year, increasing a meager $21,000 from what is expected this year.

Meanwhile, Gray’s administration says spending will need to increase from an expected $280 million this year to $296 million next year, thanks in large part to increasing personnel-related costs, which make up about 65 percent of the city’s total budget.

For example, the city’s collective bargaining agreement guarantees pay raises for many police and fire, health care costs have historically gone up 10 percent a year and the state legislature increased the amount of money the city must contribute to the state pension fund, said Division of Revenue Director Bill O’Mara.

The resulting gap between revenues and expenses is too large to fill with one-time money transfers and temporary spending cuts, said Geoff Reed, senior adviser to Gray.

“So many times the budget, in the past, has been reduced primarily through operating cuts,” Reed said. “This budget is now down to the bone. The only way we are going to get the budget balanced is to make reductions in personnel costs.”

Although Reed say layoffs are “highly likely,” he said timing and number of them “are still to be determined.”

Officials also dismissed the idea of a quick economic recovery.

Total employment in Fayette County stood at 141,984 in June 2010, the latest data available, down nearly 6,000 from June 2007, according to the U.S. Bureau of Labor Statistics.

With about 56 percent of city revenue generated by an occupational tax on individual wages, and 11 percent from net profit tax on businesses, job losses have a big impact on how much money the city has to spend, said Kenneth Troske, director for the Center for business and Economic Research at the University of Kentucky.

Troske, who spoke at Monday’s budget workshop, said it is particularly troubling that a majority of the jobs lost in Lexington were in higher-paying professions like accounting, legal services, management and real estate.

There is not a “good, clear answer” why this segment of the job market has taken such a hit, he said.

There’s also concern going forward about two of Lexington’s strongest employment categories — health care and education, which are largely paid for with state and federal funds.

Health care spending has been driven lately by changes in Medicaid, Troske said. The city’s tax revenues will be impacted if the state significantly cuts Medicaid expenditures, as Gov. Steve Beshear has threatened to do if lawmakers can’t agree on how to cover a shortfall in the Medicaid budget, or the federal government is able to rein in the cost of health care, he said.

The same goes for education spending. When the state legislature talks about cuts to higher education, that feeds into the city’s revenue picture because that means UK and other schools don’t hire “or even start laying people off, potentially,” he said.

“So the ongoing debate in Frankfort will have a very real impact on our revenue,” Troske said.

Given the city’s job losses and uncertainty about education and health care spending, “wow, I’m concerned,” he said.

Read more: http://www.kentucky.com/2011/03/10/1665765/officials-layoffs-in-lexington.html#ixzz1GG40bgB6

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7 Comments

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7 responses to “Lexington’s Financial “Crisis”

  1. Rod lindauer

    I feel we actually have the opportunity to grow the city economy and reduce the budget by some smart moves. We could green up our existing public buildings. I think a public/private venture that uses the vacant GE glass plant to build evacuated hot water solar collectors would be smart, especially if these were installed on public buildings and at the university. Use bonds to fund a low/ no interest loan system for local residents to purchase and install them. Start a micro enterprise zone where new hip and culturally relavant local businesses could cluster in affordable, energy efficient retail spaces. Use
    a higher sales tax for purchases there to subsidize rents, maybe 1%. Open a full time, dedicated farmers market with a state certified value added processing co-op. Professional retail staff take some of the burden off small local farmers, there are shared coolers/freezers, loading docks, close to rail line, bathrooms for customers, and commissary for prepared food carts. Money leaves the city in droves by “erosion”, the profit that moves to multinational corporations never to return. People want something other than McDonalds. Give them a reasonably affordable alternative and they will spend their money there. It attracts exactly the type of people that a vibrant economy needs, educated people who are interested in quality. Creative people with a passion to share. You cant get a tomato on a sandwich at any fast food place in town right now because a freeze somewhere far away killed the crops. A local food economy will spawn local hothouse tomatoes! Where is the vision? There should be money pouring into localizing our economy! Make smarts cuts in the city budget, I’m sure there is fat to trim. But don’t be afraid to invest in the future. The time to make the change is now. If things get going again nationally, we won’t be able to afford it.

  2. Danny

    Sound great Rod, but the city’s bonding capacity is diminished after all the money spent on, among other things, WEG upgrades. And I have yet to see any serious move toward a food economy by this city and its leaders. I’ve been trying to get city council to just _consider_ the expansion of food markets into places where people live (which for the most part is not downtown), and have only gotten 2 responses back from our city council members. One of these responses was to tell me that my idea, 5 small weekly 2-3 vendor markets at different parks throughout the city, was too big for city council to address.

    I think what Steve’s partially pointing out is that there have been investments in the future by the city–they’ve just been the wrong investments, and it’s starting to bite Lexington (along with most every other city in the U.S.) in the arse now that easy money’s drying up.

    I think/hope the things you cite will happen eventually, but I don’t see it happening as a result of city planning. It will be a response to increased poverty, scarcity, and necessity, which city leaders will only deal with when it’s too late for them to have much power over what happens.

  3. Rod lindauer

    Yes, unfortunately I imagine a too little too late scenario is the most likely one. Which is sad because Lexington is actually well positioned to prosper in a power downed world amid economic uncertainty. We are still well served by active rail lines that radiate out to many smaller cities, our farmland and water is top quality and well suited to small holder farming, and there is still a agrarian knowledge base to draw from. It seems that instead of focusing on high tech and manufacturing, our push should be along the lines of our historical strengths. Ky was a major wine producing region, and we should be nurturing our current revival. There should be more value added forestry products, especially fine furniture and flooring. The region should be largely food independent. I saw a report done in 1933 which was Lexingtons first development plan and the infrastructure description was heartbreaking! There were 60 passenger trains a day and electric trolly service to all surrounding cities. I wish that people had the vision to take the best from the past, make it better with some modern technology, and build a bridge to the real future.

  4. Aaron German

    Danny, I was hoping you could clear something up for me. What was it that the council member thought was “too big” about your idea for the council to address? That is, what was the proposal exactly? Was it merely a request for permission to hold farmers’ markets at neighborhoods parks? Or was it also a request that the council find the farmers to work these markets?

    I do not think either of these requests is “too big” for the council to handle, but I would be a bit more understanding if the council member’s response was given to the latter request. If, however, the response was given to the request merely for permission to use the parks for markets, I find the claim outrageous. Maybe it’s time that I stop writing in the comments sections of blogs and start emailing council members.

  5. Danny

    To be honest, Aaron, I’m unsure. To me, the CM response seemed designed to deflect action (or perhaps more specifically, to deflect my participation in any future, as-yet-unnamed council actions), and the way to do it seemed to be a general statement that, the CM wrote to me, “[t]his is not a small or a short term problem, as the many concerns and needed actions you cite in your [North of Center] article suggest. Taking it all on directly (as opposed to looking for opportunities and working on related issues as they arise) would be a substantial commitment” that the CM did not want to take on. I followed up by stating (1) that using public park land was, in fact, an example of “looking for opportunities and working on related issues as they arise,” and (2) that the only specific immediate action I called for was to set up 5 public markets on public park sites. The rest was just longer-term vision, highlighted by paragraphs beginning with phrases like “In the long term”–a not uncommon practice when proposing new ideas.

    I asked this council person specifically, in each of 3 subsequent emails, whether CM involvement in fostering once-weekly markets was outside the scope or ability of the council. I never received a response to that question from that council person.

    I’ve since followed up with a second article, which I circulated to council, and received a vaguely positive though noncommittal response from a different councilperson. But so far crickets. Maybe they are doing things related to bolstering access to food and stimulating a food economy (conducting more studies, looking for private partnerships), but so far they haven’t said anything to me at least–and I’ve asked–about what they as council plan to do.

  6. Rod, the “60 passenger trains a day” were spread out over 3 rail companies and the electrified “interurban” services went to only five towns (Nicholasville, Georgetown, Paris, Versailles and Frankfort), although there were plans to service many more. Sadly all of these lines have been pulled up and replaced by “modern” travel methods.

    Danny, you may have helped trigger some of the thoughts which will influence the next comprehensive plan. From what I have read, a(and possibly, THE) major theme will be creating a sustainable community. This is a great departure from past plans if it is true. One of the ways that you, and actually we all, can play a part is to watch the upcoming Planning Commission dockets and gather comments for their public input sessions.

    Growing food on little used public land and marketing it on centralized park land is not something that a council looking for high paying jobs will easily wrap their heads around.

  7. Danny

    I don’t see them wanting to wrap their heads around it, which is why I make sure to point out to them whenever I can when their high-priced plans don’t make out.

    I’ve got a book on Lexington’s inter-urban lines, Traction in the Bluegrass, by William Ambrose. Got it at Morris, I think. Not the most engaging read, but for public transport enthusiasts, very interesting. It follows Lex transportation development from the omni-busses to the inter-urban lines. Many bankrupt incorporations, I was surprised to find.

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