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COMMENTARY: (UPDATED) Hernandez and Mayor DeLoach are Boxing the Council into an Up or Down Vote on One Budget Option

Category: Editorial & Opinion

COMMENTARY:  By Lou Phelps, Publisher, Savannah Business Journal

December 13, 2017 - UPDATED 8:45 p.m. - The Savannah City Council members who are asking the most pointed questions about the 2018 budget options for next year – Van Johnson, Estella Shabazz, Julian Miller and Tony Thomas - have allowed themselves to be boxed into a corner:  pass the budget on the table or vote against it.  A ‘No’ vote would leave the city without its statutorily required need to pass a balanced budget by Dec. 31.

Instead, they should be demanding that multiple budget options get put on the table, with each option fully vetted, including options that do not have a Fire Safety Fee. 

And, those who support a Fire Safety Fee should be making clear to the public the amount of revenue the Fire Safety Fee will bring to the City in YEAR TWO (2019) versus year one. The fee will generate $31 million in new fees, if fully implemented, according to City Manager Rob Hernandez;  therefore, a  70% implementation of  that figure is $21.7 million a year in new money to spend.   

But in 2018, the first bills are not going to go out until September; therefore, the revenue in 2018 to balance the budget will not be $21 million.  The figure Hernandez is using is $14,634,930, based on a chart given the City Council on Tuesday at their most recent budget workshop (see picture above from a handout Tuesday Dec. 12.) 

On top of that, ADD $6.1 million in additional revenue in 2018 over 2017. This money comes from the city’s 420 different sources of revenues, less the proposed one mill rollback in 2018 if the fire fee is approved, which will cut about $5 million.  Since the first budget presentation, Hernandez has estimated that there will be $11.1 million in new revenues in 2018 from increases in property taxes, sales taxes, hotel/motel taxes, increased fees and all those other revenues.  If the fire fee is approved, we are told that the millage rate will be rolled back one mill from 12.48 to 11.58, which will cut that $11.1 million by $5 million = $6.1 million. 

Therefore, what is currently on the table, is a plan to increase General Fund spending $14,634,930 in 2018 plus $6.1 million for a total of $20.7 million. That’s an 11.2% INCREASE in city spending over the 2017 General Fund Budget of $187 million  - which has a $3 million overage - so this year's ACTUAL spending is projected to be about $184 million.

Perhaps that's why percentage increases year-over-year are not shown in the budget documents made public. And, of note, for every line item presented, there is no column for 2017 spending levels, either.   

The City will also collect additional millions in 2018, according to Hernandez, because the City failed to hire a firm to collect delinquent property taxes.  He stated two weeks ago that he anticipates that will result in approximately $3 million, reducing their Accounts Receivable. 

Hernandez’s approach, on some of the handouts given to the Aldermen during the five budget workshops to date, has been to combine expenditures of the General Fund with those of enterprise accounts, such as Tuesday’s chart on proposed 2018 capital expenditures, or presentations on the number of employees to be added or cut. 

Enterprise accounts, such as the water, sewer, trash and parking garage funds, are supposed to be self-sustaining.  They have revenue and they have expenses.  They are either making a big profit – like the parking garages – breaking even, or they are running short.  We have yet to see clear operating budgets for each fund, and there has been no voting on each proposed operating budget for each enterprise fund for 2018.   

The approach is confusing, if not intentionally misleading.  Certainly, questions remain on whether the water/sewer/trash billing fiasco – and the lack of professional collection efforts – has left any of those enterprise funds without the cash they need to cover next year’s operating expenses and their capital needs for repairs.  For example, the sewer dept. is facing a significant cash need to comply with state and federal mandated improvements to the Savannah water treatment system to clean up water dumped into the Savannah River.  The money needed will be borrowed, and the borrowing costs should be paid by revenue into that fund – or raise sewer rates, for example. 

Hernandez’s approach is not enunciating the significant percentage increase in revenues that the City will have in 2018 into the General Fund.  And, the additional money from the Fire Fee in 2019, when there are 12 months of collection.

No one disagrees that the City has significant new revenues coming in during 2018; in fact, some business leaders believe the projection figures Hernandez is using are too conservative. 

ADD to that, the $7 million that Chatham County owes the city over the police dept. arguments of the past two years, and Federal hurricane reimbursement funds still not received.  Those funds can be spent, along with that delinquent property tax money, or put into the City’s ‘Operational Contingency Fund,’ or put into its savings account, the Reserve Fund.  

ADD to that new property taxes from the sale of Memorial Health, Inc.  And, ADD to that the growth of the property tax digest from new construction within the city limits.  No new revenues from these two areas are included in the 2018 projected new revenue figures. 

Yet, with all of that new revenue, Mayor Eddie DeLoach is supporting adding a Fire Safety Fee that if fully implemented, can generate $31 million a year. It’s a new tax that is not tax-deductible.

Once implemented, we will never get rid of it.   Yes, other cities have fire fees, but that’s because they do not have the massive growth, the growing tourism industry of the City of Savannah and millions in SPLOST monies.

The City Council is either planning to spend 11% MORE in 2018 OR … they’re subsidizing some of their Enterprise funds. 

The budget discussions need to be pulled apart, with a vote on the operating budget of each enterprise account – water/sewer/trash, the parking garage fund, etc.   Then, take up a vote on the City’s General Fund.  When you’re done, you have a combined 2018 Operating Budget.

Most importantly, multiple options for the General Fund Budget need to be on the table. And, there are many options for next year’s General Fund without imposing a Fire Safety Fee:   

Option One:  Start with this year’s ACTUAL spending level (not what was budgeted) because the city is ending 2017 with a $3 million surplus.  Take away any one-time expenses, such as hurricane expenses.  ADD to it the $11 - $14 million in NEW revenues that Rob Hernandez projects the city will receive in 2018 due to increased property tax revenues, increased sales taxes and increased hotel/motel taxes. 

Those new revenues alone mean that the City will have from a 6% to a 7.4% increase in spending without imposing a Fire Safety Fee.  Certainly, the public schools do not have the luxury of that kind of increase in revenue next year.   Do NOT impose a Fire Safety Fee.

Option Two:   Take Option One revenue and add a small level of borrowing for the one-time start-up capital costs of the new Savannah Police Dept., such as buying new police cars and equipment that was owned by Chatham County and the city needs to purchase.  Hernandez also has $3 million in ‘capital costs’ in 2018 to come from the General Fund, which can be borrowed.  And, NO Fire Safety Fee.

Option Three:  Take Option Two plus add one-half mil increase to the property tax rate for 2018.  That leaves the option on the table to reduce the millage rate in 2019 back to the 2017 level of 12.48 mills when even more money flows into the city by the completion of $300 million in new hotels, the resultant increase in tourists, sales taxes and hotel/motel taxes, etc. 

Alderman-at-Large Brian Foster, well respected for his economic outlook knowledge, has stated multiple times that everyone recognizes that 2019 will be ‘a big year’ for revenue as all the hotels and other projects are completed and hit the tax rolls. 

This city council continues to support more in-filling of the city, with apartment complexes and other hotels on the drawing boards.  All of that increases the property tax base.

Option Four?  ALL of the revenue and funding options above PLUS take us down the path of the imposition of a $31 million Fire Safety Fee, an expense that hits our schools, our non-profits and our churches, versus living within our means.

And lastly, when is the City Council going to look at its pension plan, and other personnel options that it has not publicly explored, that would streamline operations, such as outsourcing the running of the Civic Center that Foster has suggested they consider?   Hernandez is working on streamlining operations, which is to be applauded, but Alderman Johnson, an HR professional, has made clear that there are pension and benefits changes that should be discussed to cut spending. 

After each total revenue level from the three options above are agreed to, then vote on SPENDING options.  For example, Alderman Van Johnson tried on Tuesday to state his opposition to the current budget approach because it includes cuts to programs and the funding for private agencies that help fight poverty.  The budget under discussion is not consistent with the Council’s stated priorities developed in its ‘Savannah Forward’ plan.

Without this approach of multiple options on the table, any vote against a one-budget option approach becomes little more than a protest vote. 

And, the public is left without really being able to discern the priorities of each of their elected Aldermen and the Mayor. 

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