Staff Report

MEMORANDUM

TO: City Council

FROM: David J. Deutsch, City Manager

SUBJECT: Impact of State Budget

DATE: September 1, 2009

Municipalities and counties were notified last week of significant reductions in State Aid as Governor O’Malley continues to try to balance the FY10 Budget. There is a 90% cut in the Highway User Revenue, which for Bowie equates to a Revenue loss of $2,084,076. We received $233,981 last week. This amount was actually $2,400 higher than listed on the State document, although it is an inconsequential amount compared to the budgeted Revenue figure. The FY10 Budget shows $2,200,000 in Highway User Revenue, so the net reduction is $1,966,019.

The State is also cutting approximately 17% from the Police Aid allocations. The FY10 Budget contains $312,300, but the State document shows our allocation declining to $311,581 from $376,884. If the State numbers hold, this revenue item will remain virtually intact.

The Highway User Revenue must be spent on street maintenance. We report the various uses of the State money on a form mandated by the State. One of the most significant costs in this area is the resurfacing program. Council awarded a contract for the FY10 resurfacing program in the amount of $1,010,420. The contract is on hold pending your review.

Clearly a two million dollar revenue loss is significant. This memo has two goals: first, to provide FY10 Budget perspective; and second, to provide Council with options for your consideration.

Budget Perspective

The FY10 Budget was prepared as the recession had almost all economic sectors in its grip. The Budget was developed in an extremely conservative manner, with a constant eye on the external impacts of the recession. Department Directors submitted lean budget proposals that reflected the economic reality. With the exception of two
police officers, no new personnel were added. The resurfacing program was trimmed by $300,000 reflecting reductions in Highway User Revenue which occurred in FY08 and FY09, and anticipated in FY10. No one could have anticipated a 90% cut in State support for this vital program.

The most significant modification to the FY10 Budget was a $400,000 reduction in salary costs which was achieved by a reduction in merit pay opportunities for most employees, and the elimination of merit raises for senior staff.

Other reductions in FY10 included a 50% cut in the Public Art program ($25,000), reduced funding for summer concerts ($8,000), and the elimination of a $50,000 allocation for emergency storm debris cleanup.

The City Hall project continues to yield positive financial dividends. The FY10 Budget contains a transfer of $5,884,900 from the General Fund to the Capital Projects Fund to supply cash for the project. With the project cost being so much lower than the estimate, this allocation is not needed. The 3.58% interest rate on the General Obligation Bonds, coupled with the lower principal and the use of the level principal repayment approach are all factors in producing a debt service cost in FY10 of $282,391. Based on earlier estimates of borrowing costs, we had budgeted $795,000 for Debt Service. Thus, there is a FY10 savings of $512,609.

Another bright spot in the FY10 Budget is that the contract awarded for landscape maintenance of MD 450, Mitchellville Road and Evergreen Parkway is $92,500 below the budgeted figure. The synthetic turf field will be under budget by approximately $30,000. The bid for portable toilets was $14,000 under budget. These items together amount to $136,500 in budget savings.

Budget Options

Although the positive outcomes associated with the City Hall project more than offset the $2 million State Aid reduction, Council may want to consider some other options:

Resurfacing Program. The contract prices were favorable, reflecting the recession’s impact on bidding. Council could still implement the full $1 million program, or you could modify the scope of the program to a lesser dollar value, or you could rescind the contract entirely.
Leaf Collection. Although a popular program, it is a costly one. Given that bagged leaves are still picked up, shelving this program would yield approximately $80,000.

Police Schedule. A modified schedule is being analyzed that would potentially reduce some overtime court costs.

Travel/Training. Reductions throughout the Budget of approximately $10,000 total will be obtained.

Indoor Sports Needs Assessment. This $30,000 item, deferred by Council in FY09, could be postponed until FY11.

Commercial Façade Improvement Program. This program could be suspended, for a savings of $10,000.

All expenditures are thoroughly analyzed. Staff continues to seek opportunities for cost cutting.

We look forward to facilitating a discussion of the FY10 Budget.

DJD/asf