BY CHUCK VANDENBERG
FORT MADISON – With sales tax revenues coming in soft for the past two years, property taxes not helping keep pace, and quite a few “one-off” large expenses, city officials say it may be time for some tough decisions.
In recent weeks, the city has told the Lee County Economic Development Group that it had no money to contribute this year, and would look at upcoming budgets to see if they could muster an annual $25,000 payment to the group.
On Tuesday night, City Manager David Varley suggested capping tourism commission contributions to local events and attractions to $2,000 per event. Several groups, including Fort Madison Area Arts Association and North Lee County Historical Society, had budgeted in past years with contributions of six or seven times that amount.
Both those groups had funding requests in from the city’s Tourism Commission on Monday night and had their requests deferred due to lack of funding.
The total general fund revenue was down about $300,000 in the last fiscal year, or about 5%. Varley said this year sales tax revenue from the first three months is down 15%.
“Last year we ended down 15.7% and we’re down another 14 or 15% to start this year on top of that. That hurts the general fund, but it’s also split with some going to capital projects so we get hurt there, too,” Varley said.
He said the city had a gradual increase in revenue over the past couple of years, but couldn’t explain why because the State of Iowa won’t release details on sales tax expenditures. They only release a payment of the 1% local options sales tax on an estimate on a quarterly basis, The state calibrates those payments regularly, but Varley said it’s a “crap-shoot” trying to budget with the state’s processes.
“They expect us to put together a budget six months in advance, but we don’t really know what those revenues will look like,” he said.
Large dollar items like auto sales aren’t assessed the 1% sales tax as they were exempted when the city passed the 1% sales tax option. Groceries are also not taxed in the city, so purchases in those areas don’t add to city coffers.
He said another area that is hurting is several one-time expenses including a $250,000 payment to Boulders Inn and Suites as part of a $500,000 incentive package. The other half is a 14-year tax rebate. He said another was $56,000 for a new fire truck. The insurance didn’t cover the full cost of the new truck that tipped into a slough in 2016.
He also said an incentive for Woodland Heights to pay for a water booster cost the city another $226,000. He said that construction will have a three-year tax abatement so the city won’t see any property tax revenue off that. Lee County economic development officials have said the homes fill a certain niche and keep residents living and spending locally.
Last year the city also had to wipe out negative FEMA account balances in excess of $200,000. The accounts were for flood recovery efforts in 2013-14 that were never fully reimbursed by the government. City Finance Director Peggy Steffensmeier said the city couldn’t keep pushing the negative balances year to year.
“We were carrying a negative balance waiting for all the federal dollars to come in to reimburse us and we didn’t get reimbursed for everything.”
The city spent $197,000 razing two dilapidated structures last year including the building east of Casey’s and the building behind the Fort Diner. The tipping fees on the old funeral parlor alone were close to $50,000.
“So, for some reason, most of our revenues are flat or dropping for the past one to two years and then we had all these one-time expenses come up and you combine that. Then if you do the Amtrak project that will be close to $400,000 out of a $1.2 million project. That’s $200,000 out of the general fund and then the rest from Hotel/Motel and you heard about that fund last night.”
Varley said he spoke with Burlington officials who are reporting reduced hotel/motel tax revenues, but only about half of what Fort Madison is experiencing. He said Mt. Pleasant officials told him they are having the best back-to-back years on record.
He also pointed to the state’s reluctance to fulfill obligations to backfill property taxes as additional reasons for tightening.
Steffensmeier said the city can’t increase the property tax levy because the state max is $8.10 and the city is already at that level.
Looking at the numbers, the city had a beginning fund balance of $1.8 million in the 2015-16 budget year. The 2016-17 budget year started with $2 million and then started with $2.2 million in the revised 2017-18 budget year. The budget that was adopted earlier this year for the 2018-19 budget year that started July 1 was $1 million, so the city spent down more than a million last year in the general fund.
In 2017-18 the city transferred out $100,000 for street improvements, $250,000 in the Boulders Inn cash payment incentive, $56,900 for the new fire truck, $226,000 for the Woodland Heights water booster station, $221,000 to zero out the FEMA accounts and $198,000 in building demolitions. Those together total $1.052 million in one-time expenses.
But he said with those one-time items the budget could look better, if you don’t factor in additional demolitions, Amtrak, Viking Cruises, and other unforseen expenses. That’s why Varley said the city should keep about 35% of the budget for working capital. In 2016-17 the city started with that 35% when the budget was adopted in the spring. In the 2017-18 adopted budget that number was reduced to 24% and then the revised budget showed 12.9%. The actual budget showed working capital of 14%, but the adopted budget for 2018-19 is only at 8%, or $535,700.
The current budget started with just over $1 million and the city is projecting $5.9 million in total revenues including taxes and fund transfers. Expenses are projected at $6.3 million which, coupled with the transfers for streets at $100,000 and $200,000 for the Amtrak platform, creates deficit spending of $363,527. The minimum working capital of $535,707 creates an ending balance on June 30, 2019 of $105,611. That number is down from the $1.8 million three years prior.
Varley said the answer to the budget woes lies in frugal decision making and tightening of expenditures.
“I think we’re getting to the point where they’re going to have to start saying no,” Varley said. “If Viking comes along and they want to build stuff for that, that could be two, three, four, five hundred thousand and I don’t know where that comes from. We could borrow for it right now, but I don’t want to borrow. I hate borrowing, I don’t want to go into debt, the city carries enough debt.”
He said he’s hoping things level off and they don’t get to the point where next year they have to look at service or staff cuts.
“I’m thinking if we can keep some of these large expenses down we could be alright. We’re getting to the point where we can’t go much lower in the general fund because you’ll have cash-flow problems and you should never be in that position.”
Varley said street maintenance could be an area where money could be found.
“We’ve been trying to take money from the general fund and push more money into the streets so we can pave more residential streets. We’d like to add a few more blocks every year. Last year we moved over $200,000 and this year we had to drop that to $100,000. That’s one area if we had to we could look at, but we’d really hate to because we’re big believers in maintaining what we have and we’re really behind on some of our maintenance. I’d hate to see that drop any farther, because once you get too far behind it’s hard to dig yourself out of it.”
“If you add up all people’s wants vs. what we have, the wants outstrip the city’s ability to pay. So it’s just a matter of prioritizing what’s necessary and what’s more important.”