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You Must Concede This Much…

Mayor Domenic Sarno (WMassP&I)
Springfield Mayor Domenic Sarno held a somber press conference today announcing that he and his staff were close to recommending a balanced budget to the City Council save for one pesky $5.4 million gap.  To plug it, the mayor is seeking concessions  from non-school city employees.

The conference caught some in the media as well as other councilors by surprise.  The release was sent to the media shortly before 2 p.m.  The press conference itself occurred immediately after a meeting among Sarno, his department heads and labor leaders.

Flanked by his finance team and labor relations director, Sarno drew a contrast to the mantra often repeated by Congressional Republicans by announcing that the city has a “revenue problem, not a spending problem.”  Calling the fiscal year 2012 budget “the most difficult in recent history,” the mayor called attention to the city’s tenuous reliance on state aid (which will be cut by 7% from last year’s levels) and minimal discretionary budget.  The mayor can only cut from the city side of the budget as the school’s budget is restricted under the state laws that fund the city’s schools.  Additional obligations such as debt service and contracts are similarly inflexible.

Still Sarno said his budget and finance teams were able to shrink a projected deficit of nearly $50 million through a series of measures, which included extra money from the assessor’s overlay account, departmental reductions, attrition, an increase in the city’s hotel tax and a hefty withdrawal from the city’s reserves.

CAFO Lee Erdmann
The $5.4 million in concessions would come primarily in the form of a 12 day furlough over the next year in addition to a wage freeze.  Most of the affected unions are expecting a pay raise of approximately 2.5% percent next year.  As of the June 30, 2012, the current contracts with unionized city employees expire.  Should unions fail to agree to these concessions, the mayor said as many as 120 layoffs may ensue and city services could be endangered.

While it remains an open question whether every dime was squeezed out of the city’s budget, the mayor was also adamant about limiting the use of stabilization funds to cover the gap.  Sarno stressed that if the city used more than the $10 million dollars from reserves he is proposing, the city could quickly exhaust its stabilization funds and jeopardize its decent credit rating.  Credit rating agencies like Moody’s and S&P consider municipalities savings when issues their grades for municipal bonds.

Sarno also heaped a great deal of blame on Beacon Hill for the city’s fiscal troubles.  Sarno noted that the city has lost almost a third of its unrestricted local aid over the last four fiscal years which amounts to approximately $15.5 million dollars. Legislators have also left the city on the hook for $4 million dollars that used to pay for the Quinn Bill.  While the city would still have a structural deficit absent those reductions, use of reserves might have been otherwise unnecessary.

It remains possible and indeed likely that the City Council will cut more from the budget.  Should they do so ,that body may limit use of reserves further, especially in anticipation of the equally tough fiscal 2013 budget.  Although $10 million is expected to be used from reserves for FY12, about $2.2 million is expected to be deposited in the city savings account at the end of this fiscal year.  Chief Administrative and Financial Office Lee Erdmann, in response to a question, said one may therefore think of the net withdrawal from stabilization as $7.8 million.
Boston City Hall (WMassP&I)
Other options remain limited to the city.  Sarno in response to question said the city could expect no relief from municipal finance bills plying their way through Beacon Hill because the city already uses the state’s health insurance fund pool.  Many cities, most notably Boston have sough more freedom to join that fund or otherwise raise co-pays and premiums for  municipal employees. Such changes are very hard to get, although as the above linked story notes, Boston has recently achieved this via the bargaining process.

Although this proposal would not affect the school department, T.J. Plante, the finance head of both the city and the schools noted that the school department faces its own deficits due to the expiration of several federal grants.  Still, school aid received a slight bump in the governor’s budget from last year and that is expected to be sustained in the final budget still being considered by legislators.

Sarno, though subdued, remained upbeat that he would present a balanced budget in the coming weeks.  Meetings are scheduled for negotiations with union leaders.  The mayor underscored that despite the harsh economic conditions, city services had not been cut and tax relief had been made available to property owners due to last year’s lower rates.  The mayor expressed hope that property tax values would remain steady as the city is already at or just below its levy ceiling.  The city cannot, per Proposition 2 1/2, collect property tax revenue in excess of 2.5% of the fair cash value of all taxable property in the city.

CT Gov. Malloy (Wikipedia)
The mayor’s proposal seems fair and is not unlike the approach taken by Connecticut governor Dannel Malloy who is seeking concessions from state employees while maintaining the possibility of layoffs.  However, unlike Connecticut employees, municipal employees faced steep concessions during the city’s last fiscal crisis.  At the same time, unlike the State of Connecticut, Springfield is a poor city with limited options as far as increasing revenue.

Ward 6 Amaad Rivera attended today’s meeting along  with Ward 7 Councilor Tim Allen and Ward 2 Councilor Mike Fenton, chair of the Finance Committee.  Rivera noted that efforts are underway to reevaluate the state’s cherry sheets, which determine how local aid is distributed.  Sarno also highlighted that there were inequities in those formulas, particularly those used to allocate unrestricted local aid and mentioned a Boston Federal Reserve report to that effect.  The formulas as written are quite generous for the school department, but less so for general government.  However, while forces are on the move to reconsider the formulas, it is unlikely that Beacon Hill will act before next year.