Tim and I Write a Budget Letter

I’m posting a letter former Takoma Park Councilmember Tim Male and I sent to Takoma Park city officials on April 22, 2022, following his cover note —

Dear Mayor Stewart and Members of the City Council,

We wanted to share our thoughts on the budget you are now grappling with.
Our concerns are three: a budget structured to effectively use city resources to best serve Takoma Park residents, businesses, and other stakeholders; financial sustainability in a time of crisis; and capacity to appropriately and humanely respond to the health, family, social, and economic stress created by that crisis.

Given the unpredictable severity and duration of the COVID-19 pandemic and the economic shocks that will endure beyond it, we’ve tried to put together ideas that reduce expenses.  The crisis will affect – has already impacted – multiple city tax, fee, and program revenue sources, and it is sure to diminish FY21 and future years’ income-tax and intergovernmental revenues. Residents and our treasured small businesses are also feeling an impact, and the effects – high unemployment, degraded food and housing security, shuttered businesses, will – may be felt for years. We know that no cut is easy and every program of the city feels essential, but the reality is that not all of them are and that in a time of tough choices, there are some that are easier than others.

We offer approximately $2.5 million in recommended changes. These ideas involve the use of reserves, reductions in reserve deposits and shifts in how and when vacant positions are accounted for. Having spent years of work on the Council and done the same kind of exhaustive work you all must go through, we know there are policy calls you can make associated with the ‘cushions’ you keep in the general fund and around reserves that are yours to make. The City Manager may have one view on these issues, and may argue strenuously for it, but they are your decisions, and we believe you are closer to the pain that your constituents are experiencing in this crisis to know whether the choices to help those constituents outweigh the risk that you might make your FY22 budget choices harder.

We recommend that the city keep property taxes flat (no intended increase in revenue) by lowering the tax rate. Yes, the city can collect money from residents and distribute it to the people you think most need it.  We argue for that below. But we think you should acknowledge that everyone is feeling pain right now – people whose incomes or social security payments once felt secure and sufficient no longer do- and even this little bit you could do for all families would be both a help and an acknowledgement of their worry, and financial distress and hardships.

It’s said that a budget is a reflection of our values. We ask you to enact an FY21 Takoma Park city budget that reflects sensible caution, fairness, community, and compassion. You can do this by finding budget savings, addressing revenues, and creating capacity to meet community needs unprecedented in our generations.

Recommended savings:  $1.9 – $2.8 million

The following 13 changes could save between $1.9 and $2.8 million:

1.     The draft budget includes a number of new positions and partial positions.  Freeze FTEs from FY20 (at the level of filled positions, i.e. not including those unfilled positions above).  Potential savings: $120,000 for eliminating 2 FTEs from proposed budget plus $200,000-$400,000 for leaving unfilled FY20 positions unfilled through FY21.  Savings: $320,000-$520,000.
2.     We know you have reached an agreement (with one or both?) unions to freeze wage increases for now, but you should really look at the wage numbers in the budget because some are shocking:

• Under ‘General Government’ there are 18.5 positions with a $320,000 wage increase.  That is $17,297 per employee in increase (approximately 20% raises).
• The Criminal Investigations Division of the Police Department would see a $20,798 per position increase for the 12 staff in the division (approximately 32% raises).
• The Public Works Vegetation Management Division would see an $18,750 per person average wage increase for 4 people (approximately a 50% raise).

Wage savings through FY21 could save you $400,000.
3.     Ask the Finance Director to provide Council with a total – across all city departments – for current wages and fringe benefits and for budgeted FY21 proposed wages and proposed fringe. These numbers are not in the budget, and so it might be helpful and allow you to get an understanding of any percentage increase in fringe costs per dollar of wage.  In some departments fringe costs appear to be 25% of wages while in others it increases to 45%.  If Council doesn’t yet understand why it varies by department, you might ask.  Regardless, assuming a 25% fringe cost, cutting wages by $400,000 would save you another $100,000 in fringe costs.
4.     Eliminate $80,000 increase in Council and Mayor wages.  We hope you already plan to, but it would just be an awful time to change Council compensation.
5.     In the legislative Division, there is a $59,000 increase (940%) in special event costs.  Savings: $59,000
6.     Delay the Community Survey by a year, possibly redirecting a portion of the funds.  Savings to a systematic and on-going assessment of community and business needs arising from the covid-19 crisis: up to $80,000
7.     In Public Works, freeze the $100,000 in additional building maintenance proposed over last year’s total and stick with only allowing a 5% increase in this budget (which appears to be billed to the General Fund, not equipment or other reserves).  Savings: $100,000
8.     For all departmental operational budgets, seek flat expenses (i.e. subcontracting, supplies, new equipment, etc.) to save perhaps $100,000 across the whole budget.
9.     Non-Departmental Expenses rise by $550,000 (40%) including $300,00 for special events and programs.  And there is a $110,000 increase for office expenses (360%).  Saving: $400,000-$510,000
10.  There are $557,696 in projected replacement costs from the Equipment Replacement Reserve.  Delay 50% of these expenses by 1 year, and similarly add one year to 50% of the expenses in the next year.  Savings: $275,000
11.  Cut the $175,000 in new sidewalk planning costs and commercial center improvements.  Savings: $175,000.
12.  There is a $150,000 increase (22%) in General Government ‘Services and Charges” as an expense (not income). If you don’t know why this is increasing this much, it might be helpful to ask.
13.  Evaluate Police Department staffing. The Takoma Park Police Department reports that crime here has trended down over 10 years, from 739 crimes in 2008 to 483 last year, in 2019, tracking national trends, with no interruption during long stretches of understaffing. Just last year, the TPPD was at 36 sworn officers for 43 authorized positions. We expect that the city can safely reduce the number of sworn officers authorized, with budget savings in the hundreds of thousands of dollars. At minimum, the added position to the police Operations Division should not be added – we have gotten along well, safety-wise, without that officer.

Recommended Revenue Increases:  $2.3-$2.5 million

The following three changes could increase the funds you have available to cover General Fund expenses by $2.3 to $2.5 million:

1.     In the past years (15) for which we have compared anticipated General Fund balances at the end of the fiscal year from the budget with the audits that show what the actual fiscal year General Fund balance was, the difference is about $2 million. That means that in an average year, you can assume that at the city will get a little more revenue and spend a significant amount less, such that you will have about $2 million more in the General Fund at the end of the year. For example, you end up with a lot of ‘savings’ because positions are vacant. It is pretty safe to assume that you will (once you have the audit) have $2 million more at the end of FY20 than the budget said you would have and that the same will be true at the end of FY21. Thus, there is potential revenue here that you could count on.  Conservatively assuming this might be $1.5 million.
2.     Ask the Finance director and HR director for summary of all the currently vacant positions and how much money the city has not spent on salary through vacancies this year.  Suspend hiring for all those positions. The savings from unfilled positions throughout FY20 is something that gets booked at the time of the audit, but if you estimate it now, you will have information on a predictable increase in unassigned general funds that could be counted as revenue for FY21. Potential ‘revenue’: $200,000-$400,000
3.     An Equipment Reserve is almost unheard of for Maryland municipalities; only a few have them.  You are not required to have one: a reserve is a policy, not a law. When we last looked at more than 25 cities in this area of Maryland, Takoma Park had exceptionally more money in reserves than any other. You do not need to allocate $600,000 for the Equipment Reserve this year. Think about it. Your balance in that fund is already enough to buy 5 years of replacement equipment without a single deposit. On a personal level, it would be like buying a new car (100% in cash) and already having enough money set aside in the bank to buy the replacement for that car in 5 years. Keep this $600,000 in your General Fund revenue for other expenses. General Fund Revenue increase: $600,000

Predictable Revenue Shortfalls and Property Tax Reduction
If you were able to cut expenses by an amount like the $2 million proposed above, and count those three opportunities above for revenue, you free up $4 million to cover predictable declines in Speed Camera Fund Revenue, in Income Tax Revenue, and from smaller contributing sources including the Hotel and Motel Tax and Amusement Tax. Intergovernmental revenue, from the State of Maryland and Montgomery County, may also be significantly impacted.

We believe you would also have enough to hold property taxes at this year’s estimate of revenue (i.e. forego even an inflation adjustment to property tax receipts).

Redirection of Spending to Meet Emerging Emergency Needs
We suggest you budget for on-going local response to the covid-19 crisis via steps that include:

• Carrying out an on-going assessment of the city’s response to residents’ health, food security, and housing security needs, working with the county and state and local nonprofits, including by creating an Emergency Aid Commission that includes business, faith and community leaders to guide support for residents and businesses.
• Providing an FY21 budget allocation of funds in anticipation of sustained, pressing community needs. The city has programs in place. We suggest you maintain the city manager’s proposed FY21 contributions to the city’s Emergency Assistance Program ($40,000), Housing Reserve Fund ($110,000), and Community Partners Program ($135,000), and allocate an additional $600,000, in place of the budgeted FY21 Equipment Replacement Reserve contribution or directed from another source, among those programs, to help Takoma Park residents and businesses in need of help weather the crisis.

The steps we have detailed are not exhaustive. Many additional ideas, and variations on the ideas we present, have been suggested via public comment, and we have additional ideas and advice ourselves that are outside the budget process. We recommend that you:

• Direct the city manager to institute an immediate freeze on hiring for all but positions essential for public health and safety.
• Initiate a systematic assessment of the city’s ability to respond to residents’ health, food security, and housing security needs, working with the county and state and local nonprofits. Do this now, continuing the monitoring and assessment through FY21 as suggested earlier in this letter.
• Pay special attention to state and county relationships, working as indicated with the Maryland Municipal League and influencers who support Takoma Park’s interests, to ensure maintenance of promised, appropriate levels of intergovernmental funding.
• Maintain environmental sustainability programming at recommended levels. The covid-19 crisis has eclipsed, for the moment, the existential threat posed by climate change. The city’s Climate Emergency response has been exemplary. Let’s keep up that good work.

Of course, we are at your disposal to discuss all points raised in this letter.

We thank you for your work on behalf of Takoma Park residents, businesses, and other stakeholders and for your consideration.

Sincerely,

Tim Male and Seth Grimes