City under water in five-year budget outlook

BY CHUCK VANDENBERG
PCC EDITOR

FORT MADISON – City officials are looking for ways to bail the city out of what City Manager David Varley is calling a quickly sinking ship.

At a work session Monday at City Hall, Varley painted a bleak picture in the form of a 15-page summary looking at city finances over the next five budget years.

“Without some pretty big changes for the fiscal year 2020-21 budget we are taking on water, and for the 2021-22 budget the ship is pretty much sunk,” he told the council.

Varley said new state laws that require additional hurdles to increase revenue growth, the unknown structure of online sales tax payments and current economic trends make projecting general fund revenues tricky.

“We’re presenting this hopefully in time to give council advanced warning of the condition of the general fund, and some things will have to change a little bit to keep things going as they are,” he said.

VARLEY

REVENUES

Varley is projecting a 2% increase in property taxes over the five years, which is in line with the state’s new law that puts a soft cap on municipal revenue growth at 2%. That cap, however can be lifted by a 2/3 vote of the elected body at an additional public hearing.

With those calculations, Varley shows property tax revenues of $2.66 million in 2024-25. With other smaller tax revenue streams such as agriculture land tax, emergency tax levies and insurance liability tax, he’s projecting total general fund tax revenue in 2024-25 at $2.75 million.

That is also the first budget year where city staff has eliminated any state property tax backfill payments as current thoughts are those contributions will be phased out by Iowa legislators. In the 2019-20 adopted budget, that figure was about $89,000, and Varley phases that out over the next five years.

When combined with other revenues from general fund departments which includes police, fire, airport, library, parks and recreation, cemetery and building rentals, the general fund revenue peaks out at $3.25 million in 2024-25.

The city also gets transfers of revenue for employee benefits and pensions. Varley shows a 1.8% increase in there over the five-year projection as well as a $215,000 total annual transfer from funds such as hotel/motel, solid waste, sewer, storm water, water, and docks and marina.

With the transfers combined with the general fund revenue, Varley shows a total revenue in 2024-25 of just over $6 million, which represents a 1% average growth over the five years. Since 2012, that figure has averaged 2%.

EXPENSES

Varley said salaries and benefits make up about 80% of general fund spending with staff development, maintenance and repairs, contractual obligations and debt making up the rest.

Currently salaries and benefits make up 80.5% of general fund expenses and Varley projects that at 81.2% in 2024-25 at a cost of $5.49 million. When other expenditures are added in, he shows total general fund expenses at $6.76 million for 2024-25. That figure represents a five-year average increase of 2.8%. The past seven years that figure was 2.7% with $5.9 million in expenses in the current budget.

The gap between revenue and expenditures is projected to expand deficit spending over the five-year projections.

“Once the red expenditure line goes above the green revenue line and stays there, something has to change. We cannot deficit spend every year,” Varley said.

“This problem almost always requires additional revenue sources, just to keep the same level of services in the future.”

One of those revenue sources being considered is a franchise tax on gas and electrical services provided in the city.

If the city were to institute a franchise tax it could include up to a 5% tax on both utilities. However, the city would not be able to collect the 1% current sales tax charged by those utilities. Any net gain would have to factor out the current 1%. For example a 3% imposed franchise tax would be a net gain of 2%.

City Finance director Peggy Steffensmeier said she put estimates together at the beginning of the year on what revenues would be generated on a 3% franchise tax.

“We took a look at that in January and the gas tax after taking off the 1% currently in place would generate an additional $220,000 annually,” she said. “A 3% on the electrical service in town would be about about $340,000.”

Varley said he believes the City Council could put the franchise tax in place, but wasn’t sure if it would take a resolution or an ordinance. The move could be appealed by the public, which would force the issue onto a public ballot.

As it stands now expenditures exceed revenues in the current budget and that deficit will increase to $750,000 with the 2024-25 budget, with no changes implemented.

Varley said he also likes to have a minimum working capital, or reserves to cover three months of city operations on hand at all times. In 2017 that fund had a balance of $2.1 million, and it is projected to carry a balance of $356,940 at the end of 2021. His figures show that fund will be depleted in 2022.

The council agreed to have another discussion on the budget outlook again in October, prior to the next general election.



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6 Comments

  1. “Varley said salaries and benefits make up about 80% of general fund spending”
    That says it all right there.our town is too poor to pay these people that much money and still be able to have a functioning town.
    There has to be a better idea instead of raising hard working citizens taxes.too many just in our town get more than enough help.you know what would be the best financial aid for these people? Give them applications for jobs and a short term limited public aid.
    I see “help wanted” signs eveywhere.but people that arnet working will say “i dont want to work at fast food,ect because it dont pay enough”.well i guess not working and depending on those who do to support you pays more.come on people,its time you make yourselves better,then we wouldnt have to worry about our towns “ship sinking”……..

  2. So the city is in foreseeable financial peril yet again. Didn’t the city just hire two new cops and blow how much money with the county to do a job any senior officer in the department could have done? The city leaders need to come to the realization that Ft. Madison is a shadow of its former self. The former tax base doesn’t exist and the existing one has no more money to be squeezed out of it. There need to be serious cuts to the budget. The city government does not exist to employ people and fund pet projects. Cut staff, stop building what you can’t afford to maintain or staff long term.

  3. Bleak financial future, but the city wastes tens of thousands of dollars hiring the sheriff to come in and micromanage the police department that has four highly experienced captains on staff that could have easily done the job.

  4. I believe we have too many city workers.not the police fire rescue but park department.too often at any given time of day you see several just driving around doing really nothing.we only need half the city workers we have now.they are constantly parked at doing nothing but getting paid.
    We need to elimante unneeded workers.we simply cant afford to pay 200 people to do the job 75 can do.

  5. I agree with everyone here. I do not believe anyone needs to be fired except the current city council. I do believe we need a hiring freeze until this situation is resolved. And more taxes wont help the problem this just adds to the problem of making people not want to come to this town. We kill pet projects and stop wasteful spending. I have gotten tired of complaining that is why I am running At Large in this coming election. Help me fix this.

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