The City of Dover has a balanced budget, but deficits loom over the future.
Members of Dover's city council offered no changes to the city's proposed $134 million Fiscal Year 2013/2014 operating capital budget Monday, despite warnings the city is teetering on the brink of multi-million deficits.
Council held the first reading of the budget ordinance in a short, 23-minute session at City Hall Monday night. Under council guidelines, an ordinance is considered "read" when the city clerk announces it only by its title; Council members are assumed to be familiar with any documents reviewed in this manner and can make changes if they desire.
Ordinances, including those setting up the city's annual spending plan, are adopted after a second reading, usually held two weeks after the first.
In this instance, Dover's Fiscal 2013/2014 spending plan will undergo a second reading at council's regularly scheduled June 24 session and will go into effect July 1.
Koenig read a statement to council members, offering highlights of the new budget:
n The general fund operating and capital improvements budget is just under $37 million.
n The city is reducing full time employees from 350 to 347.
n The city is hiring two part-time employees, raising that number from 36 to 38.
n There will be no property tax, water rate or fee increases; electric rates will drop an average of 11 percent.
n The budget honors existing labor contracts and provides a three percent cost of living adjustment for non-bargaining employees based on their July 1, 2012 salaries.
n Koenig has exempted his own salary from any increases.
The city manager again warned the public of "structural problems" with the city finances that will require either tax increases or more spending reductions in future years. For example, he said, if the city had not been able to draw on monies left over from this year's general fund budget, projected spending would have been greater than the city's revenues.
That would either have meant increases in taxes or fees, or cuts in city services, he said.
"We believe the budget document is frugal in the sense that we have managed to keep operating costs at their current levels," Koenig said.
Financial outlook is 'dire'
The final budget was completed during meetings on May 29 and June 5.
There was little debate during those sessions on either the water/wastewater fund, which has expenditures of $13.27 million, or the electric fund, where the city plans on spending $81.03 million. The electric fund budget includes an 11 percent average reduction in its customers' electric rates.
It was revenue and expenditures for the general fund's operating budget that took up almost the entirety of the June 5 session. The city expects general fund revenues to be slightly more than $37 million
City Manager Scott Koenig and Controller Donna Mitchell told council members they were able to meet the dual mandates of a balanced budget and a minimum of an eight percent budget reserve only by moving $620,000 from the FY 2012/2013 budget to the 2013/2014 spending plan. That amount was money budgeted, but not spent, for salaries for city personnel who had retired or otherwise left city employment during the year.
That transfer, along with other spending adjustments to account for a $112,900 addition to the budget for the Downtown Dover Partnership approved May 27, balanced the budget without implementing a property tax increase, at least for this year.
However, Koenig and Mitchell said that without additional revenue, the city could run up a $7 million deficit within the next five years, and the city's cash reserve would be 13 percent in the red by 2018.
Both argued for a three-cent property tax increase this year; the tax hike would cover an increased contribution to the Downtown Dover Partnership, added May 29, but would eliminate the need to bring over money from last year's budget.
The city's financial situation is dire, Mitchell warned, adding that without additional revenue in 2013/2014, future budgets only could be balanced if council approves at least a three-cent property tax increase for at least three of the next five years.
Each one-cent increase in the property tax equals approximately $316,000 in new revenue, Mitchell said. Currently, Dover properties are taxed at the rate of 33.78 cents per $100 of assessed value.
In arguing for a tax hike this year, Mitchell noted its effects would be offset by lower electric rates. Low electric costs are a major enticement commercial companies look for when considering moving or expanding their operations. New businesses and new people translate into additional revenue through taxes and fees, she added.
Councilman Sean Lynn was adamant something be done.
"I think it is our moral imperative not to pass on multi-million dollar budget deficits," he said. "We're not passing this on to our kids, this is us, now. We just can't do it."
Councilman James L. Hutchison Sr. concurred.
"The bottom line is that at some point, this city, this council, has to step up to the plate and accept that if we're going to continue to meet our needs, then it will have to be through a tax increase at some point."
However, the idea of tax increases met resistance from councilmen Adam Perza and William Hare.
"What you've just said, from what I'm hearing, is that there is no way to run this city without raising taxes every year for the next five years," Hare said.
Mitchell noted the tax hikes would be needed only in FY 2014, 2015 and 2017.
"It's either that, or you would have to figure out what services you want to do away with, from the way I see it," Mitchell responded.
"We have not explored adjusting the programs, adjusting the other services this city has impacted yet," Perza said. "From my perspective, I think we need to look and explore the full spectrum of what we can do."
If there must be a tax increase, then it could be combined with spending adjustments, he added.
Perza said that long-term solutions are needed, particularly because of the need to fix the city's decaying infrastructure, but, "I think at this point I would like to get some more input as to what other solutions there may be before we decide on a tax increase."
Perza added he did not want to be "badgered or bullied into taking a position" until council examined all of the options and the taxpayers were satisfied councilmembers had done their due diligence.
Koenig noted the FY 2013/2014 spending plan had been trimmed almost as much as possible, and that it might be impossible to cut more from future budgets without shutting down certain city services. He also reminded council it has more than $80 million in unfunded financial liabilities – primarily employee pensions – that still must be addressed.
Lynn ultimately offered a motion for a 2.5-cent increase in the property tax as a way of addressing the budget problem, but his motion failed by a 4-2 vote; Council rules require a minimum of five affirmative votes to adopt a motion.
A proposal by Hare for a half-cent increase to cover the Downtown Dover Partnership contribution failed for a lack of a second.
Koenig and Mitchell offered an alternative two-cent property tax increase as well as a transfer from the electric fund to cover the DDP contribution, but that also failed.
Note: Councilwoman Beverly Williams was unable to attend the June 5 meeting due to illness; Councilman Timothy Slavin was unable to attend because of a previously-scheduled medical procedure; Councilman David Anderson is deployed overseas on military duty.