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With tax revenue down, city plans budget shift
(by Sue Reid - June 30, 2010)
With tax revenue down, city plans budget shift
By SUE REID
City Council's finance committee last week approved preparing legislation for an amendment to the 2011 tax budget. A shift in millage is proposed to increase amounts in the city's general fund.
Finance Director William Weber said the primary purpose of the legislation is to establish the allocation of inside millage among different funds for the 2011 budget year.
Mr. Weber told the committee that there are two major changes being proposed for next year. One is the downsizing of the work force through attrition, which will be between seven and 10 full-time employees paid from the general fund. The second change is the reallocation of property tax.
"At this time, we are proposing shifting 0.5 mills from the bond-retirement fund to the general fund," Mr. Weber said. "The reason for downsizing is obviously related to the continuing decline of income-tax revenue."
However, Mr. Weber said, the reason for the shift in millage is "somewhat complex."
"It starts with the $4.7 million in bond-anticipation notes that will be due in November," Mr. Weber said. Because they will have been paid off by the end of this year, "we won't need the additional revenue for the millage from the bond retirement fund in 2011, so we can make the shift," he said.
"If the note is paid off in November, then we can make the shift of 0.5 mills from the bond-retirement fund to the general fund in 2011, because we won't need that tax revenue it generates for paying down the notes."
He reminded the committee that these notes originally were issued to pay for one-third of the cost of Solon Community Center and most of the costs associated with Fire Stations Nos. 2 and 3. They have been rolled over each year with a pay-down of about $1 million annually.
The 0.5 mill equates to about $550,000 to $600,000 each year, Mr. Weber said, and the city has been combining it with either extra income tax or interest revenue to make the $1 million annual pay-down.
"But times have changed and we can't make the annual $1 million pay-down from revenue anymore. To make a $1 million pay-down this year, we would have to use reserves." Mr. Weber said, "I am suggesting we pay off the entire $4.7 million in November from reserves in the bond retirement and general fund, in addition to the 0.5 mills of this year's bond retirement fund revenue."
Mr. Weber said the reason behind his recommendation is that the extra income tax and interest revenue for pay-down is no longer available for accelerated pay-downs, and the interest rates on the city's invested reserves average the same as the interest rates on notes. Therefore, there is no gain in issuing debt as there was in the past, he said.
In addition, Mr. Weber said, paying off notes will free 0.5 mill, or close to $600,000, in future years to be used in the general fund to help with the income-tax shortfall or to subsidize the capital-improvement funds.
Councilman William I. Russo said he agrees with Mr. Weber's proposal.
Councilman Lon D. Stolarsky said the legislation will be before City Council at its upcoming special meeting July 12.
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