The city is looking at a $1.25 million budget gap for 2013.
While the number is high, it's half the size of the budget gap the city faced as it received its early budget forecasts for this year.
"While the budget gap is significant, it is not insurmountable," John Ruggini, city finance director, told the Budget and Finance Committee on Tuesday.
However, closing budget gaps becomes more difficult each year one exists because the easier and most obvious options for closing a gap likely already have been implemented, he added.
Ruggini presented the first look at what it would cost to continue existing city services in 2013. He used 10 years of city financial data to forecast next year's budget picture and made the assumption that the national economy continues slow but consistent recovery through 2013 with interest rates remaining flat.
Revenue sources faltering
The reason behind the gap isn't too complicated: "Revenues aren't keeping pace with expenditures," Ruggini said.
The largest factors affecting revenues are levy limits, interest on investments and the use of surplus funds.
The state's levy limits prohibit Wauwatosa from raising property taxes beyond the increase in new development, which looks to be about 0.25 percent - or $90,000.
The city will lose significant interest income when certificates of deposit carrying a more than 5 percent interest rate mature in December. It's impossible to get anywhere close to that rate in this market, Ruggini said. In the past, that money has been used to pay off debt service, which is increasing for 2013.
Administrators also plan to apply $500,000 from the fund balance, about half the amount used last year, to help cover costs. That fund balance is typically placed in the budget as a safety backup and it was determined in the past that it was larger than necessary.
If the city can maintain enough job vacancies - equivalent to 1.5 percent of the city's total $26 million in salaries - throughout the year, it will prevent the city from needing those surplus dollars, Ruggini said.
For example, the Fire Department has about $10 million in salaries. So there would need to be at least one position vacant throughout the year, Ruggini said.
Expenses will rise
As for expenses, any services the city contracts for are expected to rise. Wage increases also are anticipated, but those costs would be almost entirely mitigated by the fringe benefit reductions negotiated through the police and fire union contracts, Ruggini said.
With personnel costs accounting for nearly 80 percent of the city's costs, reducing the number of employees is really the only way to narrow the gap.
"People is where the money is at, there's no question about it," City Administrator James Archambo said.
Departments already have vacant positions that won't be filled for 2013, he said. Administrators are looking hard at whether positions will be filled.
"We need to be picking apart every function, eliminating redundancy or unnecessary tasks," Archambo said.
Worried about the long-term
Ruggini wanted to give the committee an early forecast so its members would have time to develop a strategy for narrowing the gap. Typically, the city administrator, finance director and mayor work through the summer to create the executive budget, which then goes to the Budget Committee for review in the fall.
Alderman Dennis McBride said he appreciates the heads up on the city's budgetary problems, but he is concerned the city will keep having to make cuts until services are significantly eroded.
"We have flat revenues with ever-increasing prices," McBride said. "We are going to be looking at a never-ending series of budget gaps."
The finance director will soon bring a five-year forecast to the committee to show how changes made for 2013 could help narrow future gaps. In 2012, the elimination of positions and changes made to the city's health insurance plan resulted in savings that will have a lasting impact, Ruggini said.
The budget in 2015 could prove especially difficult as the police and fire contracts will have expired, and with them the concessions like pension and health insurance contributions, Ruggini said.
At a glance
The following is the look at anticipated changes in revenues and expenditures from 2012-13:
|Revenue sources ||Change from 2012 |
|Property taxes ||$91,388 |
|Hotel/motel taxes ||$118,407 |
|Other taxes ||$16,590 |
|State grants ||-$39,307 |
|Law and ordinance violations ||$12,180 |
|Permits and licenses ||$69,730 |
|Fees ||$79,488 |
|Intergovernmental revenue ||$36,989 |
|Interest ||-$361,751 |
|General fund surplus applied ||-$482,506 |
|Transfer from Water Utility to general fund ||$43,235 |
|Total ||-$415,558 |
|Expenditures ||Change from 2012 |
|Regular pay ||$350,065 |
|Overtime ||$26,253 |
|Fringe benefits ||-$323,780 |
|Other operating expenditures ||$43,250 |
|Contractual services ||$136,381 |
|Gasoline ||$42,332 |
|Interdepartment charges ||$129,412 |
|Charges to capital ||-$21,250 |
|VISIT Milwaukee ||$17,439 |
|Remission of taxes ||$25,000 |
|Transfer to parks ||$60,502 |
|Capital improvements ||$43,000 |
|Transfer to amortization fund ||$-361,751 |
|Transfer to debt service ||$664,589 |
|Total ||$831,441 |