Crestwood administrator warns city headed for financial ‘storm’

City officials estimate more than $3.7 million debt by end of 2011


Crestwood City Administrator Frank Myers last week said the city is headed for another financial “storm,” warning aldermen they need to reevaluate the city’s revenues and expenditures.

Expenditures will exceed revenues combined in the city’s three major funds each year from now through 2011, according to projections formulated by Assistant City Administrator Justina Tate. By the end of 2011, based on those projections, the city will have a net deficit of expenditures over revenues in those three major funds of more than $3.7 million.

Tate has calculated revenue-to-expenditure projections in the city’s three major funds — the general fund, the capital-improvements fund and the park and stormwater fund. Each fund was projected in three separate revenue models of no growth, low growth and moderate growth.

Even with Tate’s best-case scenario of moderate revenue growth, the city is projected to end 2007 with a combined deficit of $53,846 in its three major funds. While the general fund is estimated to end the year with $165,364 in revenue over expenditures and the park and stormwater fund is slated for a $118 balance, the capital-improvements fund is estimated to have a deficit of $219,328 in expenditures over revenues.

In those three major funds, Tate’s projections show that even assuming moderate revenue growth in all three funds combined, the city will lose $53,846 in 2007, $615,772 in 2008, $705,434 in 2009, $839,635 in 2010 and $1,512,976 in 2011.

Based on those projections, the city’s expenditures-over-revenues debt over time in all three major funds combined would be $53,846 in 2007, $669,618 in 2008, $1,375,052 in 2009, $2,214,687 in 2010 and $3,739,663 in 2011.

The city already has grappled with debt and persuaded voters in April 2006 to approve the Proposition S tax-rate increase to help pay off $2 million in debt and eliminate a $1.5 million line of credit. Prop S, which will last seven years and generate an estimated $553,000 each year, is collected through a tax-rate increase of 20 cents per $100 of assessed valuation.

But even with expected revenue from Prop S being generated through 2013, the city is looking at projected debt in its three major funds climbing each year up to more than $3.7 million by the end of 2011.

Aldermen face some tough decisions if they want to alleviate the city’s projected debt, Myers said.

“Despite the passage of Prop S, despite some pretty significant cutting by this community and by this staff and by the board over the last several years in downsizing the workforce and despite a great 2006 audit report that showed significant financial progress, what this shows is we’re heading into another storm,” Myers said. “And so the goal of presenting you with this data is as a governing body tell you using reasonable assumptions, some of which are debatable … many of which are debatable … but using reasonable assumptions, we’re heading into a storm. And knowing and projecting out over that five years how severe that storm could be, we have an opportunity now to … evaluate and figure out how best to adjust that storm.”

But Myers is optimistic that the city can have a balanced budget in 2008. After that point, he anticipates “tremors.”

“I do believe that, as I’ve shared with employees, I believe we can get by even though we’re looking at a negative number in 2008,” Myers said. “I think we can get a balanced budget in 2008 … With that said, that’s going to require some adjustment within the assumptions. With that said, as you start moving into 2009, I think that’s where we’re going to start seeing some more tremors in terms of what we’re going to do. And of course 2010 is going to be real, really severe. So I believe we can get through the 2008 budget. But clearly, we need to think about the storm we’re heading into and how we’re heading into it.”

Myers said he would like to stabilize the city’s sales-tax revenue, which is projected to decline from 2 percent to 4 percent from now through 2011 even with projections of moderate revenue growth in other areas, including gross receipts, property tax, permits and fines and court costs.

“Our cash position isn’t very strong at all,” he said. “And we need to be building on our cash position, not taking money away from our cash position. We just came out of negative numbers in the general fund. And because of the passage of Prop S and because of radical downsizing in our workforce and because of belt tightening, we took that negative number and finally popped it into a positive position. We have to protect our cash position. That being said, I think we need to move forward in the budgeting process. And I would hope that we start moving into a multiyear budget.”

During a June 26 work session, Ward 2 Alderman Steve Knarr said he would like to see future projections also take into ac-count the city’s reserves so that the public and aldermen can have a clearer picture of the city’s total financial picture.

“It’s sort of a straight-line projection of where we are if nothing changes,” Knarr said. “And I think that’s a good place to start and I think that’s good information honestly to get out to the voters and the public. In fact, I wish there were some here tonight to hear this. I’ve had people call me and read in the Call from this latest audit report, we’re just all cotton. And I don’t think that they have a clue that this is what’s coming around the corner. This could be good information to at least let everybody know that we’ve got some hard work to do.

“… About reserves, I think that needs to be accounted for somewhere on this balance sheet and know why that’s being held back to strengthen our cash position. Because if it’s not reflected in those numbers, somebody’s going to say ‘What about this reserve we’re supposed to have? Where’s that money being spent?’ And we need to justify why we’re keeping it where it is.”

Ward 1 Alderman Richard Bland believes the city’s message to the public should be that although the city has taken measures to regain financial stability through Prop S and some reduced expenses and a 2006 audit report shows much improved tracking of those finances, these measures have not been enough and that possibly “radical” change is needed.

“If you take all three funds, we’re going to be over $3.7 million to the bad …,” Bland said. “I think the over arcing message needs to be that in ’03 things were not monitored maybe as closely as they should have been. We’ve had audit problems. Those were identified. We’ve fixed those problems. Our auditors are very pleased with what we’ve done. There’s been no major issues. We’ve pretty well cut everything we can cut. We’re running as about an efficient of a government as we can.

“And by ’11, we’re still going to have problems unless we radically change some things we’re doing … We’re presenting all of our numbers out in the open to the public so that there’s nothing behind closed doors and we’re still as responsible as we’ve been. And as responsible as we’re projecting to be, we’re still going to have some serious problems.”