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April 12 – With ‘Surprise’ $10 Million Overage as City Closes 2017 Books, Council Debates Whether to Spend or Save

Category: Local Govts & Politics

By Lou Phelps, Savannah Business Journal

April 12, 2018 – 3:15 p.m. - During the City of Savannah’s Nov. 2017 budget hearings process, the 2018 Operating Budget was developed based on the financial projections of City Finance Director David Maxwell, and City Manager Rob Hernandez.

Any projected unspent revenue that Maxwell believed would be left over after the 2017 bills were paid, was presented at those budget hearings, and his prior figures were added to the projected 2018 total revenues. Combined, the Council then developed a 2018 Operating Budget, and were convinced by Hernandez that the needed to impose a Fire Fee, projected to raise $14 million a year at a 70% implementation rate. 

But, somehow, Maxwell was off by over $10 million in his projections about how any decreases in expenses or increases in revenues in 2017.   Just five to six weeks before the end of the fiscal year at Dec. 31. 

This week, the City Council members were informed by Hernandez that the City’s books for 2017 are closed and there’s a surprise, more than $10 million in left over funds from 2017.  And, he presented them with a long list of how to spend the money.  On Thursday morning at 10:00 a.m. they got the list, and he had a vote to approve his list on the Agenda for the 2:00 p.m. regularly-scheduled Council meeting.  

Many believe that 2018 revenues will also come in much higher than projected by the city’s management team, but that issue was not addressed Thursday, as the Council considered Hernandez’s recommendations that he wanted them to approve Thursday afternoon in their regularly-scheduled session.

In the morning work session, several Alderman suggested that they needed more time to consider how to spend $10 million. “What’s the rush?” asked Carol Bell.

And, Alderman Van Johnson said that he wanted to see a presentation on other options, including returning the $10 million to taxpayers, including the possibility of reducing the new fire fee.  The city staff is already bogged down in complaints from citizens trying to file for a possible fire fee abatement, including seniors who do not use the internet to be able to apply online.

The City Charter requires that the City Manager provide the Council,  March 31 each year, a financial overview of the prior year.  Historically, this has not taken place many years.  Hernandez stated that the city staff was ready to make the presentation by March 31, but the Council’s work session schedule did not allow for the presentation last month. 

Maxwell went through the total revenue and expenses of 2017, versus last year’s approved budget, to explain the $10.9 million overage, now available. 

“As we were beginning to see this sizable surplus shape up,” said Ashley, “the city staff looked at the city’s strategic plan to align recommendations on how it be spent,” she said. 

Hernandez’s recommendations on how to spend the money was based on supporting goals of the strategic plan, existing programs that need additional funds, some immediate operating needs “that have come to light,” she explained, as well as long term capital needs.  Reducing debt service was also considered. An immediate need cited was the cost the city is still going through after a malware attack to the city’s internet and technology system. 

Included in the $10 million recommendation is:

- Put $2.5 mil into Reserve Funds, to be available for a natural disaster or financial disaster. This would bring the City’s Revenue Fund up to $36.6 mil.

- Spend $2.0 mil to fund the new Cultural Arts Center, now approaching completion.  The operating plan for its first year of operation was going to be funded by the sale of the land the city bought on MLK Jr. Blvd. that was bought for a new police station, but then decided that that was not a good location.  But, Hernandez does not want to sell the land now, he said Thursday morning.

- Spend $700,000 on outsourcing landscaping and concrete work that the Council wants done, that Hernandez had previously told the Council could be done by city employees. 

- Spend $1 mil for the proposed Montgomery Street redirection plan, which is related to the cultural arts center. The City had planned to bond that project, but could instead could pay cash for the project, and thereby eliminate future debt service.

- Spend $1.2 mil to relocated the City’s Revenue Dept, which is the last remaining department at the Broughton Street Municipal Bldg.

- Spend $800,000 for facilities repairs, including for the office housing the City’s Code Compliance Dept. that needs to be moved.

- Give $200,000 to the Metropolitan Planning Commission, to fund a new zoning director and to restore the department’s budget cuts that the city imposed in prior years.  The MPC states they need a new planning position, someone to focus on implementing the ‘New ZO’ – new zoning ordinances -  that the City hopes to have in force as of January 2019.   

- Pay off the last two years of the purchase of the Fairgrounds debt service, which is $690,000 a year. This would be returning money back to the parking services fund; the City Council borrowed from that Enterprise Fund to make the purchase of the Fairgrounds property on the city’s Westside.  No decisions have been made on the use of that land. 

“What does this all mean?” asked Alderman Miller during the work session. “We get hit with these things that we’re supposed to approve,” he said to Hernandez.

Hernandez added, “there are also still pay and compensation issues across the system,” and he thought the city would be able to “address some pay discrepancies” in 2018.  He said that he was recommending a one-time bonus at mid-year, because the Council gave 2% raises for 2018, versus the 3% he believed was warranted.  The cost for that was specified, and was not on the list for the $10 million, but the assumption was that the bonus would be possible due to increased 2018 revenues. 

“What is the degree of urgency that we have to discuss this today?” asked Alderman Carol Bell. “We need to discuss this as a council, I don’t want to vote on this today.”

“At first thought, it looks wonderful, but it’s also a trap. It’s one-time revenue,” said Alderman Van Johnson.

“All of them are legitimate expenditures, that you will have to make now or later. He’s got the money. Get it out of the way now,” responded Mayor Eddie DeLoach, who appeared ready to move forward on Hernandez’s list.  

Johnson said that he wanted to hold a discussion “about the option of returning the money back to the citizens, in terms of the fire fee, for 2018.”

“That will cause us in 2019 to significantly raise that fire fee,” replied Hernandex.

Durrence asked why a discussion of Hernandez’s recommendations couldn’t be part of the Council’s May 4 quarterly meeting.  It was agreed to move the discussion to that date.

But, before the discussed ended, Alderman Miller wanted to raise another point. “Eighteen weeks ago, we talked about putting out a flyer on the City’s new parking plan to local businesses, and we still don’t have it.  We talked about other flyers we still don’t have. And we talked about getting signs up for SPLOST projects.  It took us three months to design a sign, and then we bought only 10 of them.  We changed our street cleaning plan, and then started giving out tickets without telling anybody about it.  I asked it the media had been informed, and if it was on the City’s website, and was told ‘Yes,” that those were done. And it turns out we didn’t do those things.  Our communications is in DIRE need of attention. And, I have to keep mentioning that.  I want to put that back on the table.  We’re doing an amazing job on many things, but we’re not telling our story,” he stated. 

The new inserts in the water bills were a positive improvement, he acknowledged.  

Overview of 2017 Revenues

The total 2017 property tax digest ended up 5.53% over 2016.  There was also a $2.7 million increase in sales taxes in 2017 over 2016. 

The Hotel/Motel tax revenue total was up significantly over 2016, hitting $20.7 million in 2017; that’s a trend expected to increase.  The city’s General Fund gets 50% of those dollars; the rest goes to the CVB and other entities such as the convention center.  

The adopted 2017 budget was $187,111,305, but the City ended up spending $6,933,537 less. There were also additional revenues.  

City managers also highlighted initiatives and programs implemented last year, that were part of the city’s new Strategic Plan that the Council adopted in February 2017, an effort led by Hernandez.

Michelle Gavin, Director of Public Communications, presented a powerpoint on what was achieved in 2017, including the restructuring of city government, and the city’s new website to improve communications. The powerpoint can be found at the City’s website.  

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