Biennial Budget Process - Spring 2019

Budget deliberations are notoriously on the dry side, so strap in!

This budget process was a particularly sensitive one because of both process and content issues that came up two years ago during the last biennial budget process. Fortunately, several of the interim positions that were in place during the previous cycle (City Administrator, Administrative Services Director (e.g. finance director), and Public Works Director) had since been filled with very skilled permanent hires and the team was working well together by the time the budget process began.

In addition, an ad hoc committee made up of Budget Committee members from the previous process had worked to improve the budget planning process ahead of the 2019 budgeting effort. Finally, city staff had also implemented the Open.gov platform that allows Ashland residents to view the City’s finances in real time.

These several adjustments allowed for a much smoother public process this time around. It started with the appointment of two local residents to fill out the seats on the committee. Oregon state law requires that local budget committees be made up of an equal number of elected officials and local residents. In our case that means our mayor and six councilors are on the Budget Committee along with 7 appointed members from the community.

The challenge was great for a variety of reasons. The first is that the Public Employee Retirement System (PERS) is underfunded in relation to the promises the system made to former public employees, so communities, school districts, counties, and universities across the state have to pay additional money into the fund each year. That number is allowed to grow by 26% every two years and it has been doing that, which far outstrips our ability to keep up with it from our tax base.

The same is true for health insurance benefits paid to city employees. Those have risen by roughly 12% per year for the last six years. This has been putting severe pressure on our budget for many years. A gap of $1.2 million per year in the General Fund (explained below) was addressed in the last budget cycle with one-time only funds, so that gap had to be covered along with the other expenses that had risen faster than our taxes could keep up. The total per year gap that had to be addressed in the General Fund during this budget process in order for us to have a properly balanced budget was $2 million.

Our budget is made up of what we call “Enterprise Funds” that are essentially the services the City provides to the community, such as electricity, water and wastewater, AFN, etc. Those funds get their funding from the money we send in each month to pay for those services. The increase in PERS, health care, etc. for staff of our Enterprise Funds is handled through rate increases in those funds.

Then we have our General Fund, which is where our taxes go, along with some other smaller sources of funding. This money is basically unrestricted meaning that we can spend it on whatever we need as a community. There are four programs supported by the General Fund – fire, police, community development, and parks and recreation. Fire is the largest program followed closely by police in terms of dollars spent from the General Fund. Finally, there is a Central Services fund that pays for administrative services (payroll, human resources, city administrator, etc.) across the City, including Enterprise Funds and the General Fund. Each fund pays their portion of these administrative services. And, the public works department works in a similar way with infrastructure projects for each of the funds being paid for by the fund that needs the project.

We started with a proposal from staff to balance the budget that included cutting six positions (two police officers, one court position, one administrative position, one community development (planning) position, and the communications position). Some of these positions, but not all, were already vacant. Having seen the writing on the wall, our Police Chief had not filled two of the positions Council authorized and the City did not fill the communications position when it became vacant. The Budget Committee accepted this staffing proposal.  

It also included Parks and Recreation coming forward with a 9% decrease in their requested allocation from $2.09 per $1,000 assessed value to $1.89 per $1,000 assessed value. They had been working to reorganize and gain efficiencies so that they could come into this budget process in a way that contributed to closing the gap. Other departments offered cost savings as well.

The Committee worked its way through several decisions, such as allowing the Marijuana Tax proceeds to continue going toward the Affordable Housing Trust Fund and maintaining the investment of General Fund monies in the community grants program. I voted against keeping the Marijuana Tax proceeds in the Affordable Housing Trust Fund, not because of a lack of commitment to affordable housing, but because that vote was taken early in the process before I could tell what trade we were making. Essentially, if it came down to this investment in affordable housing or keeping ½ of a firefighter, I wanted to be able to have all of the pieces still on the table. I voted for the community grants program investment because the selection process was already underway and local organizations would be caught off guard if we suddenly pulled the anticipated funding so close to the award date.

There were many good conversations about structural possibilities at the City, but decisions like that need to be thought through carefully and there simply is not time to do significant system re-organization in a spring budget process. When the initial proposal had been gone through line item by line item, the Budget Committee had made enough cuts and accepted enough revenue enhancements to carve the gap from $2 million to $600,000. That was exactly the amount required to keep three firefighters on staff. Staff had proposed that we have an additional Public Safety Tax to cover the expense, but there was strong resistance from the community because of the impact on already struggling families in town. The Budget Committee did not have an appetite to recommend an additional public safety fee, so it was back to the drawing board to figure out that last $600,000.

Many questioned why we were even discussing firefighter positions in the wake of the Paradise and other fires last fall. The reason was because there were three firefighter positions authorized by the Council several years ago with the expectation that savings in overtime would cover those additional costs. Because of a structural management shift the acting fire chief made at that time, those cost savings never materialized, so we came into this budget process with essentially three firefighter positions that were filled, but did not have a sustainable funding source. That’s why they ended up on the list in the first place.

There was not an appetite within staff or the Budget Committee to lay off firefighters, so we worked with staff to find $300,000 in cuts through a combination of management re-organization, a franchise fee on the Ashland Fiber Network, and other sources within the General Fund. The Fire Department was asked to find the remaining $300,000 in savings without eliminating firefighter, emergency preparedness, or fire preparedness positions. The Fire Chief at the time reported back that he could not find that savings and tendered his resignation. The Interim Fire Chief found $100,000 in supply savings that could be found annually over the next two years, but cautioned that this was not sustainable over the long haul. Between the position left open by the Fire Chief’s resignation and the supply savings, we were able to navigate the last $300,000 of the gap for the short-term. The City will do an assessment of the management structure at the Fire Department to determine whether this cost savings can be maintained with changes to that management structure or whether additional funding will need to be found to keep the management structure adequate to meet our community’s needs (see last paragraph for more info on this).

I voted for this budget recommendation to Council without enthusiasm. It is never easy to make a decision that negatively affects a person’s livelihood and I could tell with the rest of the cuts that we were hovering on the edge of reducing our capacity to the point where we could easily begin to see reductions in service levels. There is only so much shaving you can do in an organization before you compromise the integrity of the structure and I think we are perilously close to that point here in Ashland.

But we are not alone. If the PERS and health care problems were not present, we would have a functional and sustainable budget. And while health care benefits will be reduced in the next policy cycle starting January of 2020, we simply cannot keep up with this ever-widening gap and maintain the many services our resident call on the City to provide.

At the end of the budget process, after the budget recommendation to the Council was finalized, another motion was put forward to do the work between now and the next Budget Committee process in 2 years to look for efficiencies and cost savings across all departments of the City and to also look at how to address community resilience issues, such as the PERS/health care situation, reducing fire risk within the City, implementing the Climate and Energy Action Plan, and improving emergency preparedness. Fortunately, this motion aligned very nicely with the goals and priorities that came from the Council’s strategic planning process early in the year. The motion passed and the mayor set about putting an ad hoc committee and a working group together to begin to address these two needs.

How the budget addresses the $2 million annual shortfall:

Elimination of six staff positions

Reduction in City of Ashland contribution to Parks and Recreation (from $2.09 to $1.89 per $1000 assessed value)

Reduction in overtime and operational expenses for the Fire Department

Reduction in operational expenses for the Police Department

Increase in the Ashland Forest Resiliency Fee

Increase in Building Plan Review and Permit Fees

Creation of a Franchise Fee for the Ashland Fiber Network (paid by AFN to the General Fund)

Increase in Fire Department revenues for ambulance billing contract re-negotiations

Administrative efficiency adjustments

Increase in Property Tax rate to the full local limit (added 4.5 cents per $1,000 assessed value)