The city’s General Fund is a train wreck.
Property tax revenues are tumbling down like the walls of Jericho.
Housing prices are falling.
Ok. That last one is true. A2Politico being, well, A2Politico, and having a suspicious, cynical and curious nature, I went to the city’s web site, and took a look at the most recent audited financial statement. It’s a 100+ page document, and the best reading for understanding the overall picture of the city’s financial situation is in the section titled, “Management’s Discussion and Analysis.” During the last City Council races, self-proclaimed “budget expert,” Third Ward’s Leigh Greden (defeated by Stephen Kunselman in August 2009) harped on the fact that the state shared revenue is down, kind of like a wind-up doll.
Hizzoner is also fond of pointing out the woes associated with the city getting less revenue sharing from the state. As we can see from the chart I made, state shared revenues are down. Time to take our state representatives, Pam Byrnes and Rebekah Warren not to mention our state senator, Liz Brater, out back and rough the girls up a bit, maybe break their eyelash curlers.
State shared revenues have fallen by 50 percent since 2002. What’s up with the shared revenues? Well, partially, the state isn’t collecting as much revenue to share. Partially, our state legislators are playing hardball with municipalities and not doling out the same percentage of revenues, but rather holding on to them and using that money to shore up the state’s leaky tub of a budget. We could talk about the fact that the tub is leaking because there are state legislators with gold-plated augers, who went about creating the holes, but let’s stick with Ann Arbor for the time being. Take a look at the chart below. All the information is from CAFR statements posted to the city’s web site:
| Year | Property Tax Revenue | State Shared Revenues | Business-type Activities | Total Revenue | Total Expenses | Total Debt Service |
|---|---|---|---|---|---|---|
| 2002 | 58,095,088 | 21,877,296 | 46,978,051 | 155,479,402 | 135,016,056 | 1,029,598 |
| 2006 | 62,017,866 | 12,604,477 | 73,539,483 | 176,649,150 | 144,522,183 | 1,539,263 |
| 2009 | 69,994,107 | 11,102,183 | 68,882,686 | 190,244,281 | 184,811,290 | 3,229,523 |
You’ll note that between 2002 and 2009 property tax revenues rose. Now, look right to the “Business-type activites” column. First, you’re thinking, “what the hell are ‘business type activities’ that bring revenue to the city?” Good question, I’m glad you asked. Try to keep the swearing to a minimum. Those activities include: water, sewer, parking, Farmer’s Market, golf courses, airport, stormwater management. and solid waste (i.e. trash and recycling) removal.
On the Mayor’s website he croons: “At the root of my work as mayor is the desire to protect and improve the quality of life in my hometown. This includes holding down the city portion of taxes to make life here more affordable while at the same time delivering services as efficiently as possible.” I don’t know what kind of “root” he’s referring to, but I think it might be something like Devil’s Claw.
Now, if you’re a clever one, and I think you are, you’ll understand how the Mayor, that Demublican teller of half-truths, can claim on his web site, in his campaign literature and speeches to have “held down the city portion of taxes.” Anyone? Anyone? You, in the back? Mayor and Council have voted to raise the cost of those “business-type activities” provided to taxpayers by 65 percent since 2002. Con artists call it the Old Shell Game. Mayor Hieftje calls it, “holding down the city portion of taxes” to make Ann Arbor more affordable. Right. Here’s another fairy tale for you: Santa Claus is a jolly old fat man who lives at the North Poll with Mrs. C., Rudolph, and the elves.
Now, those of you who are on a tight budget, perhaps, Krogering more often than you used to, and bypassing Plum Market and Whole Foods, look at the total expenses line. As revenues rose, expenses rose, as well, despite the drop in state revenue sharing. In other words, those in charge of the city’s budget, City Administrator Roger Fraser, City CFO Tom Crawford, not to mention Mayor and City Council who are supposed to oversee the work of city staff, went merrily along and lived large, larger and, by 2009, largest. In other words, the more revenues that could be squeezed out of taxpayers through back-door taxation (raising the rates for those business-type activities), the more Mayor and Council allowed city staff to spend.
It’s really that simple. In business terms, under the current Mayor and City Council’s direction, they allowed the city staff to take the city backwards financially, to raise revenues significantly, and to spend, spend, spend.
Now, let’s throw in the debt service, which has more than tripled, since 2002. It’s clear that by allowing expenses to rise at the same pace as revenues, (referred to as “spending every dime you earn and then some,”) our city had no real money to make debt payments out of revenues.
What would you do at your house? Would you build an underground parking garage and incur more debt? Would you build a new city hall and incur more debt? Would you rein in expenses related to running government, and defer non-essential capital improvements?
What’s the answer? First off, anyone who has ever touched a checkbook knows that it’s neigh on fiduciary negligence that no one on the Council Budget and Labor Committee over the past five years (Ward Four’s Marcia Higgins, and Margie Teall, Mayor Hieftje, and Stephen Rapundalo), ever bothered to bring to Council the issue of the unsustainable yearly rises in spending.
Instead, city staff were allowed by the City Council Budget Committee’s inattention or sheer ignorance, to bring budget proposals to Council to cut high profile programs and services, such as human services funding, Mack Pool and the Burns Park Senior Center. Meanwhile, the cost of running city government was raging out of control. Now we have the proposal to sell parkland. City income tax or sell parkland? Burn to death or freeze to death? Those are always the only options given Ann Arbor taxpayers.
All of this leads us to Grandpa. He’s on life support. On January 25, 2010, financial services staff presented Council with a document that outlines pulling the plug on Grandpa. To pay the bills they’ve been allowed to run up, city staff have come up with the brilliant idea that we can sell our parkland. No matter that it’s the worst possible time to sell land since the Great Depression. We need to the money, Daddy. You’ll be terrified to know that in the meantime, A2P hears Hizzoner is all over town glad-handing, telling would-be voters that ”At the root of his work as mayor is the desire to protect and improve the quality of life in my hometown. This includes holding down the city portion of taxes to make life here more affordable while at the same time delivering services as efficiently as possible.”
If the chart above should make anything clear, it’s that for the past ten years John Hieftje and City Council members have kicked back, collected paychecks, and let city staff spend every dime they could squeeze out of the city’s overburdened taxpayers. Do we want to live in a city where citizen services are provided like side dishes in a French restaurant?
Are you prepared to hear the following:
“You want solid waste service? Zat is extra, mon petite tax vache.”
City services in Ann Arbor, a city with some of the highest per capita property taxes in the state, are slowly becoming ala carte items on the bureaucrats’ menu.
Unless we get a new head chef, and send John Hiefje packing, we can look forward to being pitched a city income tax along with the sale of parkland. Here’s a better pitch. We need to elect a mayor and council who will make the financial services staff put together a scenario that reduces city operating expenses by 20 percent without a single cut to city services.
Can you hear the screaming? That’s Roger Fraser— upon learning his car allowance has been eliminated and his salary reduced by 10 percent, and IT Director Dan Rainey upon learning that his $ 7 million dollar IT budget has been reduced by 30 percent. We can’t hear City Attorney Stephen Postema’s screaming. His $2.5 million dollar department was outsourced.
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I must say this is a great article i enjoyed reading it keep the good work
Comment by Sue Massey — January 26, 2010 @ 2:02 pm
Great chart. Could you or one of your readers add two more columns for Total Staff Expenses (including benefits) and for Consulting Expenses? Also, what is the amount of the unfunded liability for pensions and how much has it grown since 2002?
Comment by Kathy Griswold — January 26, 2010 @ 4:19 pm
Nice post. I was beginning to think that A2P was going the route of ArborUpdate, with just weekly postings.
In the last 5 years, the City’s spending has increased by more than a third. In that time, the city administration has cut police and fire staffing. Yet, even the police and fire budgets have increased while the staffing levels declined. We have witnessed astounding growth in the IT and legal budgets in that same period. Now that it’s time to stop spending, the city is recommending cutting service levels, human services and parks budgets. No mention of cut backs in the budget-growth-areas of the IT and legal departments.
Repeatedly, Ann Arbor voters have supported taxes to finance park purchases and maintenance. We have never had the opportunity to vote on increasing debt burden for things like the addition to city hall or the unneeded underground parking lot. And likely, we will not be asked whether we want to assume the debt risk for subsidizing the hotel/convention center that is planned for the library lot. In spite of our strong support for park funding, the city administration wants us to consider selling some parks.
How did we end up with such misplaced priorities? Taxpayers deserve to receive basic services for our relatively high tax assessments. Is it too much to expect to ask for adequate police and fire staffing, properly maintained roads and bridges, adequate parks and diverse recreational opportunities?
The current proposal to sell park land is an example of the mind set of the current administration. It is a ploy to divert attention from the real spending problem. The sale of public land will result in one-time economic return. Conversely, trimming spending on consultants, IT and legal cost would result in ongoing savings. I haven’t heard any mention of those expenses in the budget process.
Comment by Jack Eaton — January 26, 2010 @ 4:34 pm
I hope the mayor and council have a rainy day fund; they’re going to need it. It’s amazing they didn’t think the city might have benefited from one.
Comment by Janelle Baranowski — January 26, 2010 @ 6:04 pm
Your table above shows a cash surplus of $20 Million for 2002, $32 Million for 2006 and $5 Million for 2009. What happened to the surplus cash?
Comment by ChuckL — January 26, 2010 @ 6:21 pm
One of John Hieftje’s first acts as mayor was to reduce the city’s general operating millage. This was in the face of a known structural deficit. When Roger Fraser began cutting staff and services (about 2002), the “surplus” went into the municipal center fund and was used as a down payment for the new city hall. Neither one of them seems to know the concept of a “rainy day fund”. It would have been nice if our city leaders understood economic cycles and dollar averaging.
Comment by Vivienne Armentrout — January 27, 2010 @ 9:20 am
Vivienne you are absolutely right. It’s one of the reasons our city slowed slid into structural deficit. Messers F & H may not understand the rainy day fund concept. However, it’s not just a rainy day fund that was (is) needed, but rather the will to actually examine the cost of running City Hall. No amount of reductions in expenses can offset an unsustainable cash burn rate. At some point, the budget sinks into deficit, and can only recover with lots of tough love. Hieftje has been most concerned with his own political career than with the actual ins and outs of the city’s budget and actually overseeing its implementation by staff.
Comment by A2 Politico — January 27, 2010 @ 10:08 am
The city’s services to citizens are not “business-type activities”. Rather they are the reason for the existence of city government. the city cannot provide services if it fires the people who actually do the work–police, fire fighters, clerks, inspectors–then hires managers and consultants. All the managers can do in this instance is oversee the work that is not getting done and then beg for a consultant to figure out why.
The city administrator has transformed essential services and parks (which we have voted to tax ourselves to support)into enterprise funds. Again, the city is not a business. We fund the government for the provision of services. Increases in the costs of water, sewer, trash and park use have a serious inpact on the affordability of the city.
Also, even the mayor’s claim that he is holding down the “city’s portion of taxes” is clearly whacky when we see what the taxpayers are actually shelling out. Has your house lost value? I dare you to visit the assessor and try to get the assessed value reduced. Be sure to come in rags, smirred in hog slop and cut off a leg or two before entering.
Comment by Lou Glorie — January 27, 2010 @ 10:42 am
A lot of the cash is sitting in the utility funds. Based on statements of Public Services Director Sue McCormick, it appears the purpose of a cash surplus is to make it easier to borrow lots of money. We need to spend money on our crumbling water/sewer system but whether McCormick’s priorities are the best ones is suspect. Every time there is a utility fee hike we hear about how we need to fix the pipes but the money just disappears and the pipes keep breaking.
The liability for pension and retiree healthcare has grown every year. Last year the city failed to make the required VEBA (retiree healthcare plan) contribution. There was some double talk trying to explain how the city really made the contribution even though they didn’t but it’s just more of the shell game.
Comment by Karen Sidney — January 27, 2010 @ 10:55 am
I googled “dollar averaging” and found nothing. Did you mean “dollar cost averaging”, Vivienne? Could you say more about what you had in mind?
Comment by Steve Bean — January 27, 2010 @ 10:55 am
Steve, while I can’t speak for Vivienne, I believe the principle of dollar cost averaging can be applied to just about any financial situation. You keep the invest (or budget) equal over time. On the stock market, this means that you will be investing in more shares when the market is down, and less when the market is up. For budgets, it means that in times of surplus to put the money away for times of need. Hence, the rainy day fund. You don’t use times of surplus to increase the budget, because the increases are unsustainable over long periods. History has shown that the economy is cyclical: ups and downs, booms and busts, feasts and famines. Our current city government acted like gluttons during the last feast, and left us totally unprepared for the current famine.
Comment by Janelle Baranowski — January 27, 2010 @ 11:21 am
Janelle, part of the issue is that the “famine” has been invented thanks to bloated administrative costs associated with running our city government and providing services.
Comment by A2 Politico — January 27, 2010 @ 11:32 am
Steve, you are right, I should have said “dollar cost averaging”. I can’t beat Janelle’s excellent explanation, so won’t try. (Wish I’d said that.)
Comment by Vivienne Armentrout — January 27, 2010 @ 12:44 pm
Mr. Bean I think you have written previously that you Chair the city’s Environmental Commission, yes? Would you care to comment on the post concerning the cost of maintaining the parks? What’s your response to the policy suggestion concerning alternatives to cuts in services. A2P’s suggestions would bring us environmental gains to boot rather than the uncreative suggestion that services be cut to save money.
Comment by Yale89 — January 27, 2010 @ 1:32 pm
A2Politico points out some startling facts that have been right there under our noses for, literally, years.
To A2P: CAFR statements, eh? A2P are you one of those geeky number freaks who actually enjoys reading that stuff? Better you than me is all I can say. I made a donation and don’t spend it all in one place.
Thanks for the effort you put into this blog.
Comment by lighthouse — January 27, 2010 @ 1:40 pm
@14/Yale89: If you’re asking about “The Politics of Parks” post, ask me there and I’ll respond.
@9/Karen: My understanding is that some of the cash in the enterprise funds is budgeted for upcoming capital expenses. Such spending is done irregularly, more in line with five-year plans, like that for solid waste/recycling, than the general fund’s two-year budget. Given that, the spending numbers that A2P provided can be misleading. Maybe you could say something about yearly budget numbers vs. yearly spending numbers from your perspective to better put the numbers provided here into context.
Is there some reason you didn’t include the intervening years’ numbers, A2P (other than time)? I appreciate the effort. The value of seeing all years would be to see some of the variation in spending due to the planning that I’m referring to. I think that close examination is needed and is most worthwhile when we have a clear understanding of the context.
Comment by Steve Bean — January 27, 2010 @ 4:15 pm
Absolutely fascinating, A2P!
Is “Total Debt Service” included in “Total Expenses”?
Also, is “Business-Type Activities” actually a category the City uses, or is this a label you created?
Plus, how did “Total Expenses” grow so fast in the past three years? Is there a breakdown for the numerically-challenged you could point us to?
Comment by David Cahill — January 27, 2010 @ 4:22 pm
@16 I chose those years simply to view the growth in revenue and spending over time. 2009 is the culmination of the growth of revenues, expenses and debt service. The CAFR statements, unlike the city budget, present actuals and the numbers from the previous year for comparison. Council approve budgets without ever seeing actuals from the previous year. So, the 2002 CAFR has 2001 numbers, and so on.
The “Enterprise Fund” is General Fund money simply called a different name. It’s a slush fund for pet projects. It’s money siphoned off of the General Fund.
This Fund needs to be eliminated, so that it’s crystal clear when money is spent from the General Fund for non-essential projects such as the FITS boondoggle.
Comment by A2 Politico — January 27, 2010 @ 4:25 pm
@17 The CAFR statements, for someone like me, are real page-turners. Identifying patterns in financial data is my second favorite hobby. Negotiating contracts is my all time fav past-time. So, to your questions, most conveniently, the CAFR statement break those categories out individually, then post totals. As for the “Business Type Activities,” download a CAFR statement and you will see this is how those line items are broken out and reflected in both income and expenses. There was one other line item I red-flagged and that was the rise in the cost of solid waste services. Back-door taxes for a decade have kept all of the so-called veteran Council members in office. If they had jacked up property taxes equal to the amount they jacked up the fees for “business type activity” items, Hieftje, Higgins, Teall, Rapundalo and Greden would have been out on their ears years sooner. Imagine jacking up property taxes by 60 percent to raise 25+ million in additional revenues every year. That’s exactly what happened, just in a much more under-handed and sneaky way. It’s also why Sue McCormick is funding art administrator Katherine Talcott’s salary from the water fund. McCormick is swimming in revenues, and Council finds creative ways to launder that money by linking takes from the water & sewer fund for their “projects,” like FITS.
Comment by A2 Politico — January 27, 2010 @ 4:38 pm
Steve
Enterprise funds deduct capital costs over time (depreciation) so the timing of capital spending should not distort the numbers.
One of the most powerful analytical tools is to look at spending over time, which A2Politico has done. Because revenues and expenses for items are moved among funds, I prefer to look at the financial statements for the city as a whole. These statements were required to be included in governmental audits beginning in FY02. These statements also use depreciation to record capital spending so there is no distortion from big projects like the Wheeler Center, the police/courts building or the sewage treatment plant work.
If you try to do trend analysis for the general fund, which pays for most core services, you get distorted results because so many things have been moved around. Compared to FY02, the general fund no longer records solid waste expenses, IT expenses, or the city’s engineering department. The general fund has added the two city dams that generate power. Because of all the expense shuffling, if you compared total general fund operating expenses over the past several years, you don’t see big expense increases. That’s not because expenses did not increase. It’s because expenses were moved to another pot.
If anyone gets curious enough to actually look at the audit, my recommendation is to read the notes to financial statements and the report on internal control (on auditor letterhead) in the back of the statements. The city got a clean internal control report for FY09 but the reports for prior years reported abuse of city credit cards and evading purchasing policies to purchase 7 flat screen TV’s in the last month of the accounting year
Comment by Karen Sidney — January 27, 2010 @ 6:30 pm
Thanks, Karen. That makes sense that depreciation would be included in each year’s “Total Expenses”.
A2P, your readers might like to know more about the enterprise funds (plural, there are more than one), such as the ostensible(?) reason for their creation.
Comment by Steve Bean — January 28, 2010 @ 10:30 am
I am nonplussed (grossed out) by the $40 million increase in “total expenses” from 2006 to 2009.
The only reason I could think of for this increase is that somehow the expenses for the new courts/police facility have been included in the 2009 figure. However, if that were the case, then the money the city got from selling the bonds to pay the expenses would have been included in “total revenue”. In that case, the increase in “total revenue” from this unnecessary project would have roughly matched the increase in “total expenses”.
A2P, did you somehow include the expense for this project without including the revenue? I doubt it, but if that is not what happened, then can you point out how come expenses jumped by $40 million in these three years while revenue increased by $13 million?
Folks should understand that I am fiscally challenged. My big achievement in this area is that I balance my checkbooks in ink.
Comment by David Cahill — January 28, 2010 @ 10:54 am
@21 The “Enterprise Funds” were created for the reason that Karen Sidney outlined. In order to rob Peter to fund Paul. If the Mayor had to say to the press that the money for FITS was coming from the General Fund, and then that the General Fund doesn’t have money for Project Grow, human services, police, fire and other services, he would catch political hell. Saying the money comes from an Enterprise Fund is little more than an effort to mislead the public into thinking that there are multiple pots of money out there available for use on these non-essential capital projects. Those funds are General Fund revenues diverted. Period.
Comment by A2 Politico — January 28, 2010 @ 10:54 am
@22 You’ll have to have a gander at the CAFR statements. There are other line items I didn’t include in the table for the sake of simplicity. I wanted to show the three biggies: income, expenses, and debt. Oh, and very impressive with the checkbook balancing trick.
Comment by A2 Politico — January 28, 2010 @ 11:08 am
I have confirmed the validity and the multi-year comparability of A2P’s financial figures as to expenses. They are from pages 128-130 of the 2009 Comprehensive Annual Financial Report, Table II, entitled “Changes in Net Assets Last Eight Fiscal Years”. Check this table out if you do *not* want to have a good time.
The big jump in expenses is in “governmental activities” from 2007 to 2009. In 2007 these totaled $97,548,949. In 2009 they had grown to $130,177,876.
Within “governmental activities”, the largest increases seems to be in “general government”, which went from $15,219,894 to $24,108,111, and in “public safety”, which went from $42,368,701 to $56,723,757.
Comment by David Cahill — January 28, 2010 @ 4:12 pm
@25 Je suis desolé that you doubted the validity of my multi-year comparability. That public safety jump is a kicker. How many police and firefighters have we lost, total? $13 million more for fewer officers. Oh, and that “General Government” increase is precious. It’s called overhead in the biz world and when overhead jumps that much, you sit up and take notice. Unless, of course, you vote for the budget in which the rise in overhead appears. Then, you pray to God no one ever reads the CAFR statements.
Comment by A2 Politico — January 28, 2010 @ 4:20 pm
I have worked very close with Stephen Postema for years. I can verify and say that his best interest is not in the city of Ann Arbor, or the people of Ann Arbor!! He runs a ego driven staff, in many cases the City Council and local newspapers collaborate the news and info of the readers, it’s a shame that a great place like Ann Arbor is being operated by these idiots!!! There are many scandals and corruption in City Council, the real person in charge is MR. POSTEMA!! It seems to me that the current mayor is just a puppet…..I hope the future of Ann Arbors political office will change, Mr. Postema has covered up many things going on in the city, we need the FBI to investigate the actions of our trusted City Attorney………………………….. “times change we need change as well”…….
Comment by a2local — July 20, 2010 @ 1:30 pm