Tonight’s Unified Government Commission budget meeting at 5 p.m. is expected to cover some, if not all, of three topics, according to officials at the July 11 budget workshop.
The topics expected to come up at Monday’s UG budget workshop are the police body camera project, investment in building security, and water pollution control funds and projects, including pending EPA consent decree requirements, according to Doug Bach, UG administrator.
On Thursday, July 11, the UG Commission heard a presentation about debt reduction, finances and taxes.
Priority-based budgeting was discussed, and the possibility of trimming the budget next year came up.
At the July 11 meeting, Bach said he plans to finish going through an evaluation of all staff and departments in August, and in September, he will bring all departments to the UG Commission for direction as to what areas where the UG can spend less. Then the administrator will come back in November with ideas for reductions in a plan for the UG Commission to evaluate, he said. Those would be acted on for the budget being considered in July of 2020.
Debt reduction options that came up at the July 11 meeting, according to Debbie Jonscher, UG deputy chief financial officer, included reducing the number of capital projects; using the fund balance to pay off temporary note projects; reducing operating costs and redirecting savings to cash finance projects; and enhancing revenue sources.
The drawbacks to using the fund balance to pay off the temporary note projects would include risking a potential downgrade by a rating agency, which would increase interest costs over a 20-year period; diminishing reserves for future emergencies; and operational disruption, according to Jonscher.
“There are no easy answers,” Mayor David Alvey said during discussion July 11. “There are always tradeoffs. So we can make a decision to do debt reduction, what does that mean for us? What are the tradeoffs, what do we forgo? What do we avoid? We do not get done some of the capital projects that need to get done. We could enhance revenue sources by increasing taxes, or generating economic growth, which would generate more revenues. There’s no simple way. This is it and these are the tradeoffs that we have to let sit with us and make our decisions based upon these exigencies.”
During discussion on July 11 Commissioner Tom Burroughs said the UG has an uptick of 6.5 to 7 percent in property valuation, plus growth in interest rates in assets, the UG has a tremendous pot of money and it is still deficit spending. It’s not cutting the mills, but just talking about holding steady, and they’re still $3 million short, he said.
“I’m having a little bit of trouble getting my head around how we are short of money when we had all this money come in,” Burroughs said.
He said he knows the UG had a bill of $10 million for the Turkey Creek expansion flood control project and some other critical issues, but he wanted to know why the UG would continue to deficit spend for the next few years and put its credit rating at risk.
CFO Kathleen von Achen said a chart she showed with projections for future years assumed that nothing would be done, but that the UG is absolutely committed to repairing the situation and prudently managing the finances of the organization.
“I’m excited to hear that you’re interested in becoming more involved in priority-based budgeting effort that we have been discussing and will be working on in August,” von Achen said. “The day after you pass the budget, we’re all going to be switching to the priority-based budget.”
Mayor Alvey said even though there was an uptake in the valuations, it does not translate into an equal increase in the revenues, because of delinquent properties and abatements. Property tax is only 32 percent of the revenues, so it is limited in what it can do, he added.
“What’s more concerning to me is the decline in sales tax, and that’s going to require a long-term shift,” Alvey said.
Some of the drop in the sales tax revenues in late 2018 was around the time there was volatility in the stock market, Commissioner Melissa Bynum said, and was sensitive to economic conditions. Yet most people have seen their portfolios recover from that activity in 2018 but the sales tax revenues do not seem to be recovering, she said.
Von Achen said business owners who think there could be trade disputes occurring on products they want to sell abroad may be less likely to make an investment in their industry. By not making that investment, they don’t create more jobs, and people don’t have money to spend on retail, she said.
She added she would like to bring in an economist, and she has heard an economist at a seminar state that he expects to see sales tax continue to underperform in the next few months.
The UG is dealing with fluctuating sales tax revenues. During the July 11 presentation, von Achen showed charts that depicted sales tax revenues dropping in other area cities in late 2018, and also nationally.
Kansas City, Kansas, was down 4.1 percent in January through June 2018, and a 6.5 percent drop in January through June 2019 in retail sales tax revenues, she said. Those revenues are 34 percent of the total sales tax in 2019.
In 2018, overall, there was a 6 percent increase, but it’s down 5.6 percent in 2019, she added.
Commissioner Jim Walters noted the UG is projecting a 2.5 percent increase in sales tax revenue in 2019 and 2020. Von Achen said that is 2.5 percent over the very low collection level of sales taxes in 2018.
Mayor Alvey said last year with the hot weather, the UG saw a bump in the revenues from the Board of Public Utilities PILOT (payment in lieu of taxes) fee. So far this year, however, Kansas City, Kansas, had some milder temperatures compared to last year.
Commissioner Harold Johnson asked about bond ratings in the long term if the UG continued on a course of using its reserves.
Von Achen said the target reserve is 17 percent, and if the reserves dropped significantly in the future, the UG credit rating would be downgraded, adding points to the interest cost. That works out to a cost of several million dollars over the life of a 20-year bond, she said.
“We need to be thinking on a three-to-five year basis in terms of the decisions we make now,” Johnson said.
The next UG budget workshop is at 5 p.m. at Monday, July 15, at the fifth floor conference room, City Hall, 701 N. 7th St., Kansas City, Kansas.
More details from the July 11 budget meeting are online at https://www.youtube.com/watch?v=zyB862399x0.