Rockville’s Fragile Finances: What They Won’t Tell You

General Fund Five-Year Forecast FY2010

General Fund Five-Year Forecast FY2010

If you’ve reading the news or listening to candidates lately, you’ve heard lots of talk about the budget and city finances.  Some argue that the process needs to be more transparent or that it’s too difficult to understand.  The City has a $100 million budget and it’s presented as a report that’s about the size of a phone book.  Although I’ve had classes in bookkeeping and financial management, most people will find it pretty easy to navigate and understand, especially at the high “30,000 foot” level.  With $100 million in both operating funds and capital projects to manage, councilmembers cannot and should not be counting office supplies or monitoring the phone records.  They need to have the big picture in mind to steer the ship–and we’re headed straight for an iceberg (while the Council is rearranging the proverbial deck chairs).

Indeed, to show you how easy it is to understand Rockville’s  fragile finances, take a close look at just one page from the budget:  the General Fund Five-year Forecast in section 4, page 5 (you can click on the image and it will enlarge).  No secrets here.  It’s been part of the budget review process since November 2008 and it’s available on the City web site.  I’ve marked it up in color to point out some issues, but otherwise it’s exactly as presented to the City Council and the public.  While the City Council will brag about three years of property tax cuts, what they won’t tell you is:

  • they’ve caused three years of deficits–last year alone it was over $5 million (in red)
  • they’ve spent our savings to a minimum level (in red)
  • they’ve increased our debt to a record level (not on this chart, but elsewhere in the budget)

The result of three years of short-sightedness has put the City between a rock and a hard place.  And now, the State of Maryland has decided not to transfer $2.4 million as planned (in blue), it will mean really unpopular decisions this month which will have consequences next year.  I’m sure the current Council had hoped to survive this fiscal year unscathed and let the next Council clean up the mess, but unfortunately (or fortunately, depending how you look at it), they will have to sleep in the bed they made (at least for the next month).

And if you think the future looks good because of the chart in the lower right corner where expenses match revenues for years 2010 and beyond, I hate to tell you it’s just a fiction.  Read the lower left box–by law, the General Fund must be balanced, so to present anything otherwise is illegal.  Secondly, look at the percent increase of revenues and compare it to the expenditures–see any trends?  For the last few years, expenses are growing faster than revenues (that’s why there are deficits).  Read the box in the lower left–for the next few years, expenses are expected to grow faster than revenues. Remember, the city has grown–we’re now responsible for a record number of streets, parks, buildings, residents, and businesses than ever before.  So here’s the big picture:  the Council cuts taxes and reduces revenues, but they continue to spend at a faster rate.  Sounds like a college sophomore in Ft. Lauderdale for the summer.  Guess what eventually happens?

And for those of you who are delighted by tax cuts (and who isn’t?), don’t get too excited.  It equaled $10 for every $100,000 of property value.  For my entire household, that’s less than $40 a year–enough for two tanks of gas or a nice dinner.  I’d gladly give that up to ensure that East Rockville’s community center gets renovated with new restrooms, that sidewalks are repaired more quickly so people don’t trip on them, that the streets are cleaned more frequently, and that the historic preservation program is fully staffed (it had more than 3 people a couple years ago, now it’s down to less than one).

So here’s my advice for choosing our next Mayor and Council:

  • if he or she doesn’t understand finances or a budget, don’t elect him or her. We can’t afford to teach someone on the job.
  • if he or she contributed to the financial mess we’re in, don’t elect him or her.  They don’t deserve to be rewarded with re-election and a pat on the back for a job well done.
  • if he or she doesn’t tell you both good and bad news about the city’s finances, don’t elect him or her.  They’re just tickling your ears and won’t tell you the whole story–they’re not trustworthy.
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4 responses

  1. Hey Max…while your argument is convincing, how can Mayor Hoffmann continue to say we have a “balanced budget with no deficit, let me repeat, no deficit”? Are we engaged in semantics..debt versus deficit? How are defining deficit? You are encountering the same issues I face with Redgate…the golf course looks great in terms of operating budget, which you are highlighting, but then you hit it with depreciation, amortization, admin proration, interest, etc, etc.

    Please tell me what your deficit is versus a balanced budget and the Mayor’s mantra there is no deficit.

  2. While waiting for your reply, I want tosay that I think you are wrong on all three counts…the 4-5 sheet you are using is a forecast. The 15% reserve is what is required, and if we don’t need more than that, why tie up funds in the bank? The tax-rate reduction was something done that reflected overvalued housing…

  3. Max…if you are going to ask for comments, you need to do a better job at giving answers…

  4. Deficits occur whenever you spend (expenses) more than you earn (revenues). These deficits were covered by using savings (funds in reserve). We can play a game of words, but let’s say you earned $50,000 and spent $75,000 last year, so you had to dip into your savings to cover the $25,000 difference. Did you have a deficit last year? If not, what would you call this situation? Is it sustainable? And if you want Susan Hoffmann’s explanation, you’ll need to ask her (but I’d also ask all of the other incumbents including Phyllis Marcuccio, Piotr Gajewski, and John Britton).

    As for holding excess funds in savings, that is a bad practice–except if you foresee that you may need it in the short term. The 15% is a MINIMUM reserve and it was pretty clear by the middle 2008 (after the series of tax cuts began) that expenses rose faster than revenues and that the economy was in a rough patch. And yet, the Council approved another tax cut and spent reserves to the minimum. Indeed, last year a group of citizens recommended that Council not cut taxes again because it was obvious it would result in serious shortfalls.

    And yes, the 4-5 sheet is a forecast for years 2011 to 2014, but it ALSO includes historical data for 2005 to 2008 (2009 hasn’t concluded and 2010 is the adopted budget). This allows everyone to see what actually happened as well as the best estimates for the future. We’re not guessing about what happened in the past few years.

    Finally for my blog, the “comments” section allows readers to respond to a variety of topics on Rockville. I serve both as the host tossing out ideas for conversation but also as a moderator/facilitator to encourage other perspectives. I don’t claim to have all the answers and I welcome other perspectives. Indeed, I frequently delay my response because my thoughts have already been posted and I want to encourage a discussion among many people, rather than just between you and me (for an example, see the previous post on Chestnut Lodge with fourteen comments). If you really need an immediate response to an urgent question, send me an email or give me a call. This blog is a conversation, not a monologue or a dialogue.

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