Presentation on theme: "City of Allentown Financial Recovery Plan July 24, 2009."— Presentation transcript:
City of Allentown Financial Recovery Plan July 24, 2009
Blue Ribbon Advisory Committee Focus of the committee was to look at ways to increase non-tax revenue and reduce expenditures. Review of former cost cutting and revenue enhancement initiatives. Develop a priority list of non-tax revenue enhancements. Look at further ways to reduce the costs of operation. Provide a report compiling recommendations to the mayor and city council.
Active Blue Ribbon Committee Members Mayor Ed Pawlowski- Chair Council President Michael D’Amore- Co-Chair Bill Hansel- Retired Executive Director of ICMA and former Business Manager for the City of Allentown Deana Zosky- CPA, Business Management Consultant (Former Manager - Financial Planning and Reporting, Mack Trucks, Former Supervising Senior Auditor, KMPG Peat Marwick LLP Alvardo Diaz- Executive Dirctor, Hispanic Chamber of Commerce of the Lehigh Valley Tim Fallon- Former CFO, Holiday Hair Inc. John Ingram- President, Ingram Real Estate Group (AICP, SCGREA) Jim Steffy- Retired VP Planning and Administrations, Interim President Muhlenberg College (Two Honorary Doctorates) Bruce Loch- CPA and Managing Partner, Loch, Elsenbaumer, Newton & Co. David Olson- President, Walton Consulting Inc. (Business Strategy) Paul Marin- Managing Director, Stifel- Nicholaus Investment Brokerage Sandra O’Neill- CFP, Lincoln Investments Ibi Balog- CPA, Assistant Professor, Cedar Crest College in Dept. Business, Management and Economics Gary Strathearn- Independent Municipal Financial Advisory, Formerly with Oppenheimer & Company Kent Dyer- CFO, Muhlenberg College Dennis Capozzolo- CEO, Alliance for Building Communities, (Former Finance Director Visiting Nurses Association of Bethlehem/St. Luke’s) Joel Gilley- President, Promus Financial Oscar Squire- Independent Management Consultant (Former Financial Specialist PPL Corporation) David Woglom- Assoc. Director for Public Service (Lafayette College: Meyner Center for the Study of State and Local Government)
3 Revenue Generation Options
4 Delinquent Tax Collection FY2009 impact: $100,000FY2010 impact: $200,000 The Solicitor’s Office has identified approximately $100,000 in delinquent taxes that the City conservatively could collect from specific targets in FY2009 through litigation or other means. There is the potential of additional significant cost recovery collection in 2009 that is not included in this report. Given the City’s significant revenue from the earned income, local service, business privilege and deed transfer tax, it is possible that the City could generate significantly more in revenue over the next 18 months from more aggressive tax collection and fee recovery, inclusive of the targets identified by the Solicitor’s Office.
5 Payments in Lieu of Taxes (PILOTs) Cities that are also county seats and are home to regional medical and education centers can have significant portions of their real property declared tax exempt. 20% of Allentown’s property tax base is estimated to be made up of exempt properties, whether government or non- profit. In the northeast, it is common to approach non-profit institutions for voluntary payments-in-lieu of taxes. Contributors can include hospitals, colleges and universities, and other organizations. The City projects $150,000 in 2009 PILOT payments, an amount that is reasonable and well below the comparable amount generated in other Pennsylvania jurisdictions, such as Wilkes-Barre and Pittsburgh. Jurisdiction/Contributor Fiscal Period % of Government Operating Budget from PILOTs City of Providence/UniversitiesFY2006-071.31 City of Cambridge/UniversitiesFY2006-071.62 City of Boston/Non-Profits, Other Govts FY20071.94 City of New Haven/Non-ProfitsFY2006-071.7 City of Wilkes- Barre/Miscellaneous FY20061.46 City of Erie/Health CareFY20081.57 City of Pittsburgh/Non-ProfitsFY20071.15 PILOT Programs in Select Cities
6 Americus Center Hotel & Corporate Plaza Sale The Americus Center hotel has been sold and the City will receive $580,000 in one-time revenue in 2009. The City also purchased the former Corporate Plaza lot for a $1 above the city’s lien amount. The property has been appraised at $1,050,000 and the city has received numerous offers from interested buyers. The administration has included a conservative sale price of $825,000 in its financial recovery plan. Photo by April Bartholomew; The Morning Call; June 26, 2009.
7 Sale of Excess City Property Allentown has numerous excess real property assets that could be sold to create tax ratables. The Blue Ribbon Committee and the Administration have identified multiple properties for potential sale, totaling $1.7 million in potential revenue for the City. All of the parcels except one have previously been authorized to be transferred by city council to the Allentown Industrial Development Authority (ACIDA) who will put them up for sale and return the proceeds to the city. There has been interest in all these parcels and sales are expected to be completed by the end of FY 2009. Per ordinance the city will have 10% of the proceeds from the sale of this land go to pay off existing city debt. The administration conservatively estimates that it will receive $1.7 million from the sale of this excess property and an additional $213,400 in future years as this property is placed back on the tax rolls.
8 Sale of Excess City Property Property FY2009Future Notes Projected Sale PriceProperty Tax Corporate Plaza825,00012,000 Please see initiative V concerning the Americus Center hotel sale for more information. Martin Luther King Drive and 15th Street 500,00050,000 Concannon Miller, a CPA firm in Allentown, has expressed interest in purchasing this property. Allentown State Hospital180,000150,000 The Commonwealth and City have agreed to sell this property and share the proceeds. Property tax revenue will be generated over time as parcels are developed. Pioneer Building75,0001,400 The Allentown Economic Development Corporation will assume the deed and market the property. Incinerator Site350,000N/AThe site is in a Keystone Opportunity Zone. Subtotal1,930,000213,400 10% to Debt Service-193,000N/A Total1,737,000213,400
Sale of Excess Sewage Capacity to LCA The city is currently finalizing an additional sale of sewage capacity to the Lehigh County Authority. This sale will be completed this year and provide an additional $1,152,000 in new revenue to the city.
10 Market Based Revenue Opportunities (MBROs) A Market-Based Revenue Opportunities (MBRO) program offers an opportunity to generate revenue from City assets. This broad term encompasses various entrepreneurial concepts, including advertising, exclusivity arrangements, rental agreements, and corporate sponsorships. The Blue Ribbon Committee has suggested pursuing this option, but given market conditions, expects an initial contract for $150,000 in 2010. In order to achieve this level of revenue in 2010, the City will need to issue an RFP for MBROs this fall.
12 City – School District Cost Sharing Allentown is one of the few cities in the Commonwealth that does not share the cost of school crossing guards with its school districts. Many cities also share the cost of uniformed Police school resource officers with their school districts. The Blue Ribbon Committee suggested working with the School Districts to share these costs. These operating costs are estimated at over $900,000 per year, indicating that the City would generate revenue of $455,000 per year beginning in 2010 if the schools pay one-half of the cost. The critical factor in achieving this revenue will be securing an agreement with ASD. Cost Sharing for School Crossing Guards in Third Class Cities City Which Government funds school crossing guards? Allentown100% City Altoona50% City; 50% School District Erie50% City; 50% School District Harrisburg100% School District LancasterPrimarily City * Reading50% City; 50% School District Scranton50% City; 50% School District Wilkes-Barre100% School District YorkPrimarily School District * Crossing guards in Lancaster are city employees, but the cost of staffing 28 negotiated intersections is billed to the School District
13 II. Cost Reduction Options
14 Reducing Overtime The Administration has directed City departments to reduce their over time spending in 2009 Overtime related to the health and safety of city residents is allowed upon approval. The city has and will receive federal money to offset police overtime.
15 Collective Bargaining Concessions The Administration tried to secure concessions from the collective bargaining units and avoid layoffs. The City proposed that SEIU members defer 4.0 of the 8.9 percent wage increase that took effect in July 2009 until 2012 and 2013. In return the City offered to extend the existing collective bargaining agreement one year to 2013 and provide a no-layoff incentive. The union voted this proposal down. The Administration then made another proposal to provide a 5.9 percent wage increase in July 2009 followed by 3.0, 4.0 and 5.0 percent increases in years 2010 through 2012. The proposal reduced the work week from 40 to 35 hours for the remainder of 2009 and provided a no-layoff incentive for FY2009. The proposal also included an early retirement incentive and the creation of a labor pool. The union refused to bring this proposal to a vote. Since the City and collective bargaining units were not able to reach an agreement on these concessions, the Administration has been forced to implement layoffs.
16 Budget Reductions The Administration has identified $1.2 million in General Fund expenditure reductions for FY2009. Expenditure reductions in the Golf Fund will generate $188,730 in savings, which will be transferred to the General Fund to help address this year’s revenue shortfall. Eliminating the 3.0 percent increase scheduled for non-represented employees in July 2009 saved an additional $168,000. Anticipated cost recovery related to administering programs funded by the federal stimulus package will provide the final $75,000. The total impact of all these changes is $1.66 million in the General Fund. The administration has also identified an additional $1.3 million in reductions in the enterprise funds (Water, sewer, solid waste, Trexler fund, etc) Total reductions = $2,967,573 for FY2009 If these savings can all be annualized and extended throughout 2010, they would total $3.4 million. ActionImpact Personnel reductions (21 layoffs)268,592 Non-personnel reductions963,024 Golf course reductions (savings transferred to General Fund) 188,730 Non-represented employee wage increase elimination 168,000 ARRA Cost Recovery75,000 Total1,663,346
17 Early Retirement Incentive Program (ERIP) An Early Retirement Incentive Program (ERIP) can save money by replacing higher-paid senior employees with new hires and reducing the overall headcount if those positions are not filled. To be effective, the savings from the replaced employees and eliminated positions must be greater than the cost of the incentive in the short and long-term. The City of Allentown has proposed an ERIP for non-represented employees over the age of 55 effective September 4, 2009. Eligible employees who participate would receive: - A retirement incentive allowance of $10,000; - Reduction from 25% to 15% of the monthly employee contribution for retiree medical coverage; - $20 for each unused sick day at the time of retirement up to a maximum of 100 days or $2,000.
18 Early Retirement Incentive Program (ERIP) The City has 53 non-represented supervisory employees with an average salary of $59,485 who would be eligible for the ERIP. The savings and costs associated with each person who participates are shown below. While the level of participation is unknown, the projected savings associated with 10 participants is $59,485 in FY2009 and $645,043 in FY2010. If more employees participate, the savings could be higher, but the higher number of vacancies would create more pressure to fill the vacancies. Retired employees would pay 15 percent of their medical premiums compared to the $0 currently paid by active employees. Medical insurance costs are assumed to increase 8 percent in FY2010. This assumes the position vacated is not filled. FY2009FY2010 Salary19,144.4558,007.67 Incentive-10,000.000 Sick leave (max)-2,000.000 2 weeks vacation-2,208.970 FICA (7.65%)377.564,437.59 Premium cost share (15% of premium)635.532,059.12 Total Savings5,948.5764,504.38
Cash Management Plan The Blue Ribbon Committee recommended that the city revise its Cash Management strategy: Contract periods have been extended to 45 days (looking at 60 to 90 day option). Plan being implemented to enhance cash management and increase investment income.
20 Health Insurance “opt-out” Incentive Following the lead of the private sector and many public and quasi-government entities, the City could offer employees an incentive to “opt out” of their medical coverage if the employee has access to another plan. Lehigh County offers an opt-out incentive and reportedly has a nine percent participation rate. If the City offered a flat $1,000 opt-out incentive to the 190 employees who are not members of collective bargaining units and receive City funded insurance, the City could save a projected $219,300 assuming a nine percent participation rate and a FY2010 health premium cost of $13,900. 190 non-union employees x 9% participation = 17 employees 17 employees x $13,900 cost each = $236,300 gross savings 17 employees x $1,000 incentive = $17,000 cost $236,300 gross savings - $17,000 cost = $219,300
21 Employee Cost Sharing for Medical Coverage According to the Kaiser Foundation’s 2008 survey, private sector employees contribute $60 per month on average for single coverage and $280 per month on average for family coverage. According to the US Bureau of Labor Statistics, nationally state and local government employees contribute $73.34 per month on average for single coverage and $328.01 per month on average for family coverage. The City could establish employee premium contributions structured any number of ways: Percent of gross salary: Commonwealth employees in the three state employees’ unions pay 1.5 percent of gross salary, rising to 3.0 percent by 2011. Discounts are available for participation in the Commonwealth’s Get Healthy health management program. Percent of premium/cost: In Pittsburgh several groups of non-uniformed, white collar employees (including non-represented employees) pay 15 percent of the plan premium. All City employees make some contribution to the premium costs. Flat dollar amount: Luzerne County employees who are enrolled in the “management plan” and were hired before the most recent round of collective bargaining pay $75 per month for family coverage. A July 2009 arbitration ruling established that active members of the Wilkes- Barre Police Benevolent Association will contribute $25 per pay period to the cost of family or husband-wife coverage effective September 1, 2009. That contribution will increase to $30 per pay period in January 2010. While the City cannot implement further cost sharing for its unionized employees except through collective bargaining, it could establish a contribution for the 190 employees who are not members of collective bargaining units and receive City funded insurance. Assuming that nine percent of these employees participate in the opt-out program, if the remaining 173 employees paid $1,000 per year for coverage (i.e. less than $40 per pay period), the City could save $173,000.
22 Other Opportunities: Shared Services The Blue Ribbon Committee recommended that the City consider establishing a “Shared Service Center” This center would handle administrative duties, such as accounting and payroll, on behalf of Allentown and other municipalities. Such an organization would be jointly funded by all participating municipalities, reducing the need for each one to maintain its own staff for these functions. There is considerable potential, but savings would only occur where the City can find willing partners.
23 Other Opportunities: State Pension Reform The Commonwealth of Pennsylvania’s Public Employees’ Retirement System (PERC) has developed legislation to assist local government pension funds throughout the state to absorb the tremendous 2008 market downturns that have lowered pension fund valuations and will generate the need for increased municipal contributions in the future. The PERC legislation would allow cities to assume a higher value for pension assets, smooth returns from anomalous market years over a longer period of time, and limit the immediate impact of any particularly poor years of market performance. The City’s actuary, Beyer Barber, has estimated that passage of the PERC legislation could reduce the City’s required pension payment by $4.4 million in each of the next 4 years. The PERC legislation has been introduced in the General Assembly (HB1874), been voted out of committee, read twice and is currently on floor of the State House for final passage. It is on the top of the list of significant priority bills for passage in 2009.
24 III. Projected Impact
Revenue Gap Comparing this year’s revenue collections through June to last year’s through June, the City is on pace to equal last year’s revenue total, which would leave a $9.5 million shortfall. Part of the $9.5 million shortfall is addressed by $2.2 million in revenues that are new to the General Fund in FY2009: $850,000 related to the casino revenue sharing agreement $440,000 in drug forfeiture receipts previously not included in the budget $220,000 in new Community Development Block Grant (CDBG) funds $404,000 in local service tax revenue related to the new remittance cycle state legislation. $286,000 in new police reimbursement grants The Administration, with the approval of City Council, also used $1.8 million from its accumulated surplus to close the projected budget revenue shortfall in FY2009. After accounting for the new revenue and the use of reserves, the Administration anticipates that it will have to close a $5.4 million budgeted revenue shortfall this year. $2.2 $1.8 $9.5 $5.4 $- $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 BaselineCurrent ShortfallReserveNew revenues
Addressing the General Fund Budget Revenue Shortfall In addition to these initiatives, the Administration continues to work on others that could generate additional revenue or savings for FY 2009 including other cost recovery efforts, more federal stimulus and COPS funds and property sales beyond those discussed. For conservatism, the impact of these efforts is not quantified here. InitiativeFY2009FY2010 Delinquent tax collection100,000200,000 Market Based Revenue Opportunities0150,000 Payments in Lieu of Taxes150,000 Cost sharing with School District0455,397 Americus Center Hotel Sale580,000N/A Sale of excess City property1,737,00063,400 Sewer capacity sale1,152,000N/A Revenue generation subtotal3,719,0001,018,797 Employee health premium contribution0173,000 Health insurance opt-out incentive0219,300 Early Retirement Incentive Program59,485645,043 Budget cuts (includes layoffs)1,663,3462,200,000 Cost reduction subtotal1,722,8313,237,343 Total impact5,441,8314,256,140
Moving Mountains Together “A great city is that which has the greatest men and women.”-- Walt Whitman