The fiscal year 2020 budget challenges the Billings City Council to close a gap of about $6 million between the cost of continuing existing services and the amount of projected revenues.
This isn't a crisis because the city has maintained reserves that can close the gap for the upcoming fiscal year and, probably for the next year. But spending down reserves year after year isn't a sustainable way to operate the city.
First, let's put the budget gap in perspective. The council is considering a budget that will spend $379 million, including all departments and all capital projects. But the gap is only in the general fund budget that covers police, fire, parks, Municipal Court and City Hall. The city's other departments (e.g. water, sewer, solid waste, airport) are on sustainable financial footing because they generate enough revenue to cover their budgets.
The general fund departments depend on property taxes for most of their funding:
- The general fund levy, which is capped by the City Charter at 74 mills, is projected to collect $17 million in fiscal 2020.
- The first of two voter-approved public safety levies for police and fire services is capped at 20 mills and is expected to yield $4.88 million.
- The second public safety levy is capped at $8.2 million a year; it doesn't increase as the city grows and the value of a mill increases. As the city's property values rise, this levy actually goes down for individual property owners because the same amount of tax is spread over a larger base.
Those three property tax levies don't generate enough money to operate the police and fire departments, which together have annual budgets of just under $50 million for the fiscal year starting July 1. So the city also uses much of its state entitlement funding for public safety. That leaves relatively little revenue for all other general fund departments.
One way to close the budget gap would be to lop $6 million in spending from general fund departments. That would mean laying off staff members and cutting services significantly below the level of recent years.
The City Council also could decide, as City Administrator Chris Kukulksi has recommended, to move all park department expenses out of the general fund and cover it by increasing the citywide park maintenance district fee by about $2.5 million. City administration estimates that would increase the park fee about $41 per year for the average homeowner.
Kukulski said the council will need to discuss options for seeking voter approval of a public safety levy increase next year. "There's no way to solve this sustainably without a vote," he told The Gazette last week.
But first, the council must approve a budget to keep our city running for the year starting July 1.
The city's longstanding policy has been to maintain reserves equal to 29 percent of the general fund operating budget in case of emergencies — such as stabilizing rocks on the Rims. Maintaining reserves helps boost the city's bond rating, allowing it to borrow at a lower interest rate for such projects as the voter approved library and ballpark. Because most property taxes are remitted to the city in June and December, reserves assure sufficient cash is on hand to meet expenses every month of the year.
The city's total general fund reserves have been decreasing since fiscal 2017, according to Finance Director Andy Zoeller. Reserves decreased by nearly $9 million in this fiscal year and would decrease by about $6 million in the coming year, if used to close the entire general fund budget gap. After that, the city would be near its minimum reserve level.
Our 11 City Council members need to be budget experts and they need to hear from the public as they make some of the toughest, most important decisions of the year. The budget will be on the council agenda for meetings throughout June.