Budget Workshop - City Financial Situation Rather Bleak

IRONWOOD, MI - Tuesday, April 22, 2008 - At 5:30 PM CST last evening City Manager Scott Erickson called Ironwood City Commission Budget Work Session to order. The meeting was held at the Women's Club Room on the second floor of the Memorial Building in Ironwood. There were approximately a dozen City staff members and elected officials at the meeting along with three members of the media (from the Chronicle and IronwoodInfo.com) and two appointed officials.

Erickson attempted to brace the audience for the bleak economic situation the City was in, before City Financial Director Julie Fredrickson gave her presentation. Frederickson gave a PowerPoint presentation, and the Chronicle will post it as soon as it becomes available to us.

Frederickson pointed out to the group that the City must have a balanced budget by State Law. She explained that the preliminary budget has been submitted, and that is what she was presenting last night. She cautioned that none of the figures mentioned in the preliminary budget were "etched in stone," and that changes could be made – and more than likely will be made – after the budgeting process is complete. She outlined the process, explaining the steps the Charter and State Law required.

Frederickson pointed out that the topic for last night was primarily regarding the Major funds, particularly the General Fund. According to Julie, the General Fund is the largest fund in the City. It accounts for 36% of our 10 million dollar City-wide budget. She told the audience that the Utilities funds and the street funds were also considerably large, followed by the equipment fund.

Her next topic of conversation was the Revenue fund for the City. She discussed the fact that the source of City revenues was changing. The amount of State Revenue-Sharing (from State sales tax) has been shrinking – putting the City in the predicament of relying more heavily on property taxes. State Revenue-Sharing back in 2000 was approximately 39%. Property tax revenues accounted for approximately 45% of the City revenue. Miscellaneous and grant money made up the remaining 16%.

Back when Julie first began with the City (in the mid-1990's), property tax revenues and State revenue-sharing was fairly evenly split. Revenue-Sharing was slightly over a million dollars then.

Currently, property taxes make up approximately 51% of the City's revenue fund, and 31% is from State Revenue-Sharing. "We are depending more and more on our property tax stream," Frederickson declared, "we're also looking at charging more for different services that we are providing folks."

Frederickson explained that larger communities are generally not hit as hard by shifts in revenue-sharing as smaller populations like Ironwood. Marquette, for example, she says has a much larger tax-base to draw from, and larger cities tend not to be as dependant on State revenue-sharing.

On the brighter side, property tax revenues are up about $50,000 from last year. Frederickson was quick to point out, however, that the increase in property taxes isn't enough to offset the loss of State revenue-sharing funds. She went on to say that it will be interesting to see what affect the City-wide reassessment of property will have on the overall tax revenues.

Frederickson showed the crowd her projections for this year's property tax revenues. Based on the 19.2 mills that the City currently collects for operations, the total sales tax revenues should be $1.48 million. The library's millage collection will be about $74,000. Police and fire pensions millage, which is expected to drop from 6.65 to 6.5 mills, will generate approximately $501,000. The Memorial Building millage is expected to increase in order to meet their debt service of $161,900. Downtown Ironwood Development Authority's (DIDA) 1.94 mills will generate approximately $11,600 (from downtown properties only). The Civic Center's 1 mill will generate about $77,000. Overall, Frederickson explained, the millage will be about the same. It was 31.75 last year, and this year it will be about 31.7 mills (including DIDA).

Frederickson presented an article from the Escanaba Daily Press that showed how each city in the U.P. ranked in regards to millages. Gladstone was one of the lowest millages on the Peninsula. Ironwood has the highest overall millage (27.72). Many of the other communities are just under 20 mills. Frederickson went on to say that police and fire "are killing us!"

All in all, with a few grant exceptions, general revenues for the City have flat-lined. There hasn't been a significant increase or decline. The fact that expenses are constantly increasing, however, makes the stagnant revenue stream a serious problem.

Frederickson then went on to discuss some of the City's expenses. She pointed out that fuel costs have caused a major problem. She also pointed out that personnel costs have been on the rise despite the fact that cuts have been made in labor. It was asked if fewer workers resulted in increase overtime. Frederickson said that the issue of overtime would be explored later as the budget workshop continued.

Frederickson explained that pensions and retirement health benefits have been a big headache for the City. Previously the City didn't put money aside for retirement, now they are, and that is putting an added burden on the general fund.

Lou Bonagura asked Ms. Frederickson how long union contract negotiations have been going on to resolve issues like pensions and retirement. Frederickson told Bonagura that they had been discussing these issues for about a year. Bonagura asked what the City was paying in legal fees during these negotiations. Off the top of her head, she estimated that the charges were in the two to four thousand dollar range.

Bonagura pointed out that Public Safety has taken a 35% hit in employment while management is only down 10%. "Shouldn't we be looking at more across-the-board cuts?" Bonagura asked.

Frederickson stated that part of the employment hit was due to the fact that Ironwood eliminated their dispatchers.

Bonagura pointed out that the people are still paying for the Negaunee dispatch through their phone bills. So, although the City may be saving 100% on dispatching, the people are not. Bob Erspamer told Bonagura that he was uncertain how much the people are paying now compared to before 911. But he was fairly certain that Ironwood paid 50% of Gogebic County's 911 charges.

Bonagura made the point that the realized savings as a result of removing the four dispatchers was actually minuscule to the people of Ironwood. The City may be saving money, but the people, through their phone bills, are either paying the same or – more than likely – more.

Frederickson and Erickson highlighted upcoming City projects.

Several issues were discussed, including... "Why does the DIDA fund the Pocket Park?" The City has a Parks fund for all of the rest of the parks in the City. It was asked why the DIDA was being forced to use their limited revenues to fund the park. The issue will be address later in the workshop.

"What will pay for the Jessieville Project?" The water/sewer utilities rates ultimately end up funding the improvements.

"Why is the City considering opening a skate park considering the current economic climate, and the fact that it can't adequately maintain what it already has? What will be the ongoing cost of the new skate park to the City, for maintenance, etc.? Wouldn't it make sense to locate the park in the Civic Center where the City's costs would be virtually eliminated?" The parks fund is in excess of $100,000 now and it has been adequate to take care of what the City currently has, however, Erickson has applied for grants to help fund and enhance the current parks.

"Will the City commit to helping out the DIDA to get into the `BluePrint' Plan?" Erickson said it can be considered.

Before the meeting ended, a discussion came about related to the sale of City surplus properties. At the last City Commission meeting Tom Laabs suggested that proceeds from the sale of larger parcels of surplus land should be earmarked to be used exclusively for road improvements. Laabs and Mayor Noren got into a rather heated debate regarding this issue. Noren favors putting the funds in the General Fund, however he did say a budgeted "Roads Fund" would be a good idea. The vocal interplay seems to be leading to some common ground, and it is this reporters belief that some sort of road improvement commitment will result.

A more detailed report on last night's meeting will be posted later in the week. The next budget workshop, dealing primarily with water and sewer, will be held at 5:30 PM CST, on Tuesday, April 29, 2008.

Jim Albert