Fort Smith Director opposes ‘faith-based budgeting’

The Fort Smith Board of Directors got their first in-depth look at the proposed fiscal year 2014 budget Thursday night (Nov. 14) and it did not take long for questions to arise about how long it would be before the city runs into a deficit situation.

At issue for Director Keith Lau was the budget comparison summary in the general fund.

The line item showing either an excess or a deficiency in revenues over expenditures from FY13 through FY15 projects out to slightly more than a $10 million deficit in FY15. That would bring the end of year fund balance in FY15 to a negative $6.664 million.

Not only are the FY15 figures running at a deficit, Lau said, but taking any unspent funds from the current fiscal year and using those to help balance the budget for FY14 shows that the budget really is not balanced.

"I understand the governmental accounting method of saying (you have) a balanced budget, but it's really not a balanced budget because you're spending money out of that end of year fund balance," he said. "And I'm concerned because of this collision course I think we're on."

City Administrator Ray Gosack pointed Lau to the budgeting process from last year, saying that the same could have been said of FY14.

"We're usually in the same position every year. The staff, we will never give you a budget that's not balanced. So even though you look at 2015 and it shows some concerning numbers, if you look back at last year's budget, you would have seen the same thing for 2014 yet we have not given you a 2014 budget that is not balanced. We've given you a 2014 budget that has a fund balance of 7.5% (remaining at the end of FY14). And we think that's the absolute minimum we need for cash flow, that we can still meet our cash flow requirements with that 7.5% balance."

Gosack also said during the last several budget cycles that the end of year balance has been presented with a 7.5% balance.

Lau asked Gosack for a plan on how to address the collision course he described, saying that while he understands Gosack's points on the year of end balances, it does not address the concern over the end of year fund balances steadily declining each year, detailed on page 64 of the proposed budget for FY14:
• FY13 (estimated): $7.343 million
• FY14 (proposed): $5.629 million
• FY15 (projected): $3.426 million

Gosack said the city had done everything within its power to save money, especially this year with actual revenue coming in below estimates which forced 4% across the board cuts to all city department budgets.

"But here's the long term solution to strengthening the financial position of the general fund, if that's where you're going. There's two choices – you either cut expenses or you increase revenues. It's really that simple. Some combination of those two. We have cut expenses significantly. I think if we have to make more significant cuts to expenses in the general fund, those cuts are either going to be to positions or employee benefits because there is simply nothing left in these operating budgets to go after. There's very little capitol in there. We've cut training and travel budgets. Some departments are very concerned about their employees' work skills not getting adequate training because we've been cutting those budgets for the last few years to get to a balanced budget."

Finance Director Kara Bushkuhl explained in her presentation that proposed FY14 expenditures were $20,000 less than last year's 2013 estimate and personnel authorizations (hiring) for next year shows a decrease of 0.6 full-time employees, essentially ensuring that the overall general fund payroll will not increase. Additionally, employees are not receiving cost of living raises and the city had to absorb an increase in health care expenses of $1.4 million, she said.

Following the meeting, Lau said regardless of what changes the city has already made to its budgets in previous years and this year, even with cost cutting that has been in place, he still expects that more will need to be done.

"If you follow the trend line of the general fund budget (going into the negative), that's where somewhere at the end of the road we're going to have to reconcile that by raising revenues or cutting expenses. And where is that? I don't know where it it."

Lau said his concerns are out of a responsibility to the citizens of Fort Smith.

"Where I'm concerned is being a responsible city director," he said, sounding the same call he made during last year's budget meetings and saying that even though the city came out with a balanced budget this year, he was not comfortable with following the same methods year after year when projected deficits are coming.

"I don't like faith-based budgeting. I don't like that."

In addition to the presentation of the budget overview Thursday, department heads answered questions about their individual budgets. An additional meeting will be held on Monday night (Nov. 18) with the city's remaining departments before the Board of Directors starts making cuts and changes, a process Lau said could last through February.

"I think this is going to be sort of an evolutionary process with this information that comes in and then the directors hopefully will have an overview at the end of Monday night meeting and then we can say, 'Hey, what are we going to do?' and then we can come back and (possibly make changes)."