November 26, 2008

Budget blues

Could layoffs be the next step in shrinking the city’s $20 million budget shortfall?

Our nation’s economic troubles have hit the proverbial Main Street in Louisville, with the city facing its worst budget crisis in nearly three decades.

In response to a projected $20 million budget shortfall this fiscal year, Louisville Mayor Jerry Abramson last week announced a series of rapid remedies to reduce the deficit, including an immediate hiring freeze, restrictions on travel and discretionary spending, unpaid furloughs and pay cuts for the highest-salaried personnel.

This handful of cost-cutting measures will shave off only a fraction of the deficit, however, suggesting the worst is yet to come. The mayor told the media last week that employee layoffs are still among the options being considered to balance the budget.

Last night, Metro Police Chief Robert White met with the police union to discuss options for trimming the department’s budget in response to the citywide shortfall. The union rejected the options — which included losing vacation, forgoing raises and paying more to use take-home cruisers — meaning layoffs might be the next step. Calling the options “absurd and unreasonable,” Larry Priddy, vice president of the Fraternal Order of Police, says employees are being told to bail out the government by taking hits in benefits and raises.

While layoffs are a possibility throughout city government, the mayor’s office has made it clear Abramson does not intend to raise taxes and hopes to avoid cutting money for social-service agencies.

“Before we lay anybody off we have to ask: Are city services being delivered at maximum efficiency?” says Metro Councilman Ken Fleming, R-7, who sits on the budget committee. “They should have done that first.”

Last year, Fleming introduced an ordinance to audit city services, a move he says could have saved city agencies between 15 and 25 percent. In the proposed ordinance, Fleming specifically suggested the city must be more self-reliant due to the uncertainty of future federal and state funding (the state currently is experiencing a $456 million budget shortfall).

Now, Fleming says the administration will have to decide whether to lay off employees, a situation that could have been avoided if the city had established a more fiscally responsible foundation.

“There are quite a few departments out there that we really don’t know what the true cost is to deliver those services,” he says. “If you have an inventory, we can go through and determine the cost without applying a hatchet.”

After shedding light on the budget crisis last week, the mayor supplemented the hiring freeze with an order to place about 4,500 nonessential employees on unpaid furlough for three days. Metro government offices will be closed on three Fridays — Dec. 26, Jan. 2 and May 1, which is Oaks Day — and employees will not be allowed to use vacation or personal time for these days.

The mayor’s office says the unpaid closings will save the city about $2 million.

In a symbolic attempt to share the burden with Metro employees, Abramson also announced that he and the city’s top leadership team would take a 10-percent pay cut starting Jan. 1, which will save another $200,000 and affect about 35 people.

“I consider this is another non-decision,” says Councilman Kelly Downard, R-16, referring to the furloughs. “You are not setting a priority in terms of services in the government, you just cut everybody.”

As co-chairman of the Metro Council budget committee, Downard says he would have preferred a more thoughtful assessment of the city’s economic crisis. By designating furloughs, he says, employees earning the least are the ones affected the most.

“That’s who those three days pay means a lot to,” Downard says. “It’s a regressive situation.”

Though garbage collection and public safety agencies will be fully staffed during the furloughs, those agencies are not exempt from the hiring freeze or potential layoffs.

“If [Abramson] starts reducing police and fire, then you’ll see the fireworks begin,” Downard says. “That is the ultimate mark in the inability to manage a city.”

Like most council Republicans, Downard openly questions the fiscal decision making of the administration in these troubling economic times. Council Democrats, on the other hand, have remained mostly quiet on the topic thus far.

The mayor has already met with the head of every major city agency, including emergency services, to discuss how each department might make necessary cuts. Throughout December, Abramson plans to meet with union leaders representing Metro employees, says Chris Poynter, a spokesman in the mayor’s office.

“There are a lot of things we in Metro government have done over the years that are good things but are not really necessary,” he says. “But we have to police the community, we have to remove the snow from the streets and we have to pick up the garbage.”

Poynter wouldn’t specify those needless expenditures that could be on the chopping block, but says the mayor’s office will announce the full breadth of the city’s budget cuts in December. However, other variables could deepen the hole in the city’s pockets.

For example, late last week, the board of trustees at the Kentucky Retirement System — the state pension agency responsible for the investment of benefits for more than 267,000 state and local government employees — voted to raise the city’s annual pension bill by 23.6 percent. As a result, the city will have to budget another $70.5 million for the next fiscal year.

The pension bill normally goes up each year, Poynter says, but it’s typically offset by the city’s revenue growth and occupational tax base. The fiscal forecast for the 2008-2009 budget had initially estimated the city’s revenue would grow at a sluggish 2.9 percent rate — the smallest projected increase since the merger of city and county government in 2003. Revenue numbers from the first quarter, however, showed a 1 percent decrease. The unemployment rate also increased to 7 percent, lowering the revenue generated from payroll and business taxes. Now the city will have to pay a bigger pension bill with a smaller pool of money.

“We’ll get through this but it’ll be painful in the short term,” Poynter says. “Our focus, however, is the basic stuff we have to do to keep the city running.”