12/21/08 — City's revenue shortfall forcing tax talk

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City's revenue shortfall forcing tax talk

By Anessa Myers
Published in News on December 21, 2008 2:00 AM

City officials say residents will likely pay more in taxes in mid-2009 -- especially with a projected $1.8 million revenue shortfall.

And that deficit is linked -- in part -- to reduced citizen usage of some city services, and more people taking more time to pay their utility bills.

Earlier this month, city officials projected a $2.2 million deficit -- $931,349 from the general fund and $1,360,897 from the utility fund.

But late this week, they altered their prediction, setting the shortfall in the general fund at a projected $445,000. The utility fund shortage remained the same, city finance director Kaye Scott said.

The general fund covers all of the operating costs of the city -- police, fire, public works, recreation, administration and finance, for example, but does not include utilities.

The utility fund is used for costs associated with treating water for drinking and usage, providing sewer service and keeping up the facilities for both services.

And city officials are worried the projected losses could get worse.

To address the projected shortfalls, the city has already frozen hiring and is counting on continued low gas prices in 2009 -- saving $1.32 million and making what had started out as a $1.77 million deficit in its general fund a more manageable $445,100.

But those savings still might not be enough if revenue collection continues to drop and the economy does not improve. There will still be bills to pay for city services -- and less money to pay those bills, Ms. Scott said.

From July to November, many of the city's projected revenues haven't hit the mark.

Vehicle tax revenues, for instance, are down more than $100,000, mostly because people don't have the money to pay their tax bills, Ms. Scott said.

She expects the same result with property taxes.

Right now, the projected property tax total is higher than last year -- $11.7 million -- but Ms. Scott said she expects the actual revenue collection to be much less.

"The property tax bills aren't past due until January," she said. "So we will not see the full impact until the end of January or beginning of February when the county sends us a check."

The problem will not be with taxpayers who have their property taxes deducted from a mortgage escrow account, but those who pay their own tax bills in a lump sum, Ms. Scott said. Foreclosures also are likely to reduce the property tax total, she added.

Goldsboro isn't the only city expecting to have trouble collecting property taxes in 2009.

Ms. Scott said the National League of Cities is reporting that property tax collection rates are expected to be down 3.6 percent across the nation.

And the news isn't any better for sales tax collection, either.

Sales tax revenue -- money that comes from tax paid on retail items in the city's stores -- fare even worse, with a 4.2 percent decline in collection, according to the report.

From July to October, the city's sales tax revenue is already down from last year.

The checks for the sales tax, which are collected and distributed by the state, are always two months behind, Ms. Scott said, so the city won't see the effect of Black Friday or holiday sales until January or February.

Goldsboro's October check was $161,000 lower than last year's.

Shortfalls are also expected in other areas that have been affected by the economic downturn.

Revenue collected from building inspections and permits as well as plumbing, gas and electrical inspections is also down through November by more than $82,000 since fewer people have the money to build homes and commercial buildings, Ms. Scott said.

A slower economy also means less money spent on entertainment and other recreational activities.

That is true in Goldsboro as well, Ms. Scott said.

Paramount Theatre rentals are down more than $38,000 so far this year, as are park rentals, basketball and softball fees, day camp fees and even golf course revenue.

Greens fees are down $21,099, with cart rentals down more than $37,000. Membership revenue is down $15,202 as well.

Also affecting the general fund shortfall is what is affecting everyone's bottom line -- the stock market.

Through November, the gains from the city's investments, which are mostly CDs, are down $113,382 from what was expected, with the interest paid dropping from 5 to 2.6 percent.

Ms. Scott said she has spoken to some economists who say interest rates on the city's investments could go as low as 1.47 percent in 2009.

And even though revenue is down, the city still has bills to pay.

New sanitation trucks or mowers might be necessary before the year is out, and that also will cut down on what money the city has in the general fund.

Right now, there are several capital items that have been requested but haven't been given the go-ahead for purchase.

In the general fund, $76,400 in equipment has been requested, including a $25,000 dump truck for recreation and parks, $8,500 in park maintenance equipment like Weed Eaters, a $7,500 copier for the Paramount Theatre, a $7,500 heating and air unit for the golf course, a $4,900 mower for parks and recreation, a $1,300 leaf bagger for the cemetery and a $1,500 4-in-1 bucket backhoe for the cemetery.

And the general fund is not the only place the city might have expenses in 2009.

In the utility fund, $52,900 in technical equipment needed at the water plant, water reclamation and compost facilities has been requested.

The utility fund is much worse off than the general fund, and Ms. Scott said she doesn't see it getting any better anytime soon.

"We are still seeing about a $1.4 million shortfall in the utility fund," she said.

Residents' savings in sewer and water use mean lower bills for them, but less money to work with for city officials.

For the most part, people have tried to cut back on both services, Ms. Scott said, but with sewage service costing more than twice water service, sewer is the first place they look to conserve.

Through November, revenue from sewer service is down $405,252, and water revenues are down $145,998, making for the bulk of the utility fund's $636,021 estimated shortfall for the first five months in the fiscal year.

Ms. Scott said most of the revenue loss comes from people conserving, but a portion also can be attributed to those who do not pay their bills.

For the city to cut off water or sewer service, the resident must not have paid two consecutive months.

"We cut off about 100 people a week," Ms. Scott said. "You can tell that people are struggling."

But many people struggling to make ends meet pay one month and leave one month past due so they can still receive the service, and that, too, affects revenues.

Another $143,301 in revenue losses in the utility fund comes from a decrease in investment returns. The same interest change -- 5 to 2.6 percent -- applies to the utility fund investments just like it does to the general fund investments.

Despite the bleak financial forecast, city officials still hope numbers will level out.

City Manager Joe Huffman said he believes that even with economic uncertainty, the budget will be close to what was projected in the summer.

"When you start looking at everything, our original budget, I don't think, will be that far off," Huffman said. "I think that retail sales are going to be better than we thought they'd be for November and December, and that will help us."

But he isn't without doubts.

"There are things we could get hit on, though, and that's the investment earnings and the sales tax. We don't know. It could be down," he said.

At a special meeting held Dec. 8, City Council members mentioned that a tax increase will likely be in the city's near future, but a precise amount wasn't determined.

And if city officials decide to move forward with the Community Recreation Center, a 5-cent increase will only pay for the payments on the loan-- another 5 to 7 cents will be needed to cover the operating costs of the facility.

But that will not take care of the city's budget issues.

City residents could have to pay additional taxes to keep the budget in the black.

Ms. Scott said she will likely come to the City Council with another budget update in the next few weeks.

In the meantime, city officials watch and wait.

"We just need to keep our eye on it," Huffman said.