Sean C. Morgan
The city of Sweet Home will transfer $572,000 to the Sweet Home Police Department and $60,000 to the library from the general fund to offset large property tax revenue losses that materialized this year.
“I think what we’re doing right now is putting a Band-Aid on an artery cut,” said City Councilor Greg Mahler. “We need to stop the bleeding.”
“We’re going to do what we need to do to balance it and keep continuity of service into next year,” said City Manager Craig Martin.
When the county announced its tax revenue levels two weeks ago, the Police Department levy lost about $11,000 to declining property values and $731,000 to compression after anticipating a loss of about $459,000, which was already up from $302,000.
This leaves the general fund $2,406 shorter than anticipated, police services down by $283,000 and the library down by $59,000.
Property tax compression is a reduction to tax levies when they exceed the $10 per $1,000 real market value tax limitation imposed by Measure 5. Temporary local option levies, such as the police levy at about $6.41 per $1,000 of assessed value and library levy at about 83 cents per $1,000 of assessed value, are reduced before permanent tax rates, such as the city’s main rate of approximately $1.42 per $1,000 of assessed value.
Real market values declined by more than 7 percent this year, while assessed values declined by about 4.7 percent, decreasing the gap between the two and creating higher compression.
At the same time, Finance Director Pat Gray said, 460 acres of industrial property owned by Western States Land Reliance Trust, valued at approximately $3.5 million, came off the tax rolls and Comcast property values decreased. Due to the increased usage of cellphones, she said, property values for CenturyLink have “tanked” because of the reduction in land lines.
The city built its budget for this year, 2011-12, assuming no increases to property values during the previous year, Gray said.
While property values have decreased, property tax rates increased with the library levy and Linn County Law Levy, $2.58 per $1,000 of assessed value; and voters approved a new levy to help pay for construction of a new veterans home in Lebanon at 19 cents per $1,000 of assessed value.
Increasing tax rates and the addition of the new districts help increase compression.
With no changes in spending or property values, except an assumption that delinquent property tax revenue will increase slightly each year, the Police Department will have a $975,000 deficit by next fiscal year, 2012-13, which begins on July 1 and grows by more than $1 million per year through 2015-16, Gray said.
The library would have a $16,000 deficit at the end of this fiscal year, June 30, growing to $318,000 in 2015-16.
After the transfers from the general fund this year, the Police Department deficit for 2012-13 drops to $210,000 and $3.26 million in 2015-16.
After the transfer, the library won’t have a deficit until 2013-14, and in 2015-16, the deficit would be $159,000.
The City Council met Wednesday last week and reached a consensus to transfer the money, which will require a public hearing on a supplemental budget on Nov. 8.
The transfers will include $280,000 unanticipated in the additional ending fund balance for 2010-11. Typically, unanticipated ending fund balance money rolls over into the beginning fund balance for the following year.
The transfer also includes $5,000 in funds slated to be used to fund intern grants; $25,000 in funds to study creation of an urban renewal district; $10,000 from Municipal Court professional services; and $312,000 that had been earmarked for future building construction.
“Those are one-time funds,” Martin said. “We cannot necessarily say they’re available in the future.”
Even after transferring the funds, Martin said, the city will still have to look at cutting operational expenses.
“If we don’t, the reductions we have to make later will be even greater,” Martin said.
The council also asked the staff to return to the regular council meeting on Tuesday, Oct. 25, with a list of proposed staff reductions.
“We’re going to present what we believe are the most prudent reductions and maintain service and staff levels as best we can,” Martin said. The Police Department was expecting 2.5 full-time equivalents in reductions. The library will not fill an open part-time library assistant position and then cut hours.
Capital expenditures had already been trimmed close to nothing, Martin said, and the police and library services have frozen discretionary spending except where it’s necessary to maintain safe and secure operations. The general fund departments are doing the same thing to keep them as healthy as they can be while weathering this storm.
Complicating the situation is the fact that the police employees union and the city are scheduled for an arbitration hearing on Nov. 15 over their failure to agree on a new contract for Police Department employees.
The arbitration hearing was originally scheduled for Oct. 19 but was postponed after the county issued its tax figures, leaving the city in a financial bind much greater than anyone anticipated. City officials have said that if the arbitrator finds for the union, it will mean the loss of one or two positions in the department.
The city has already held off filling General Fund positions in the past three years, leaving 2.5 FTE in reductions in code enforcement and the building division.
The problem is “we’re saving a lot of pennies when we need to be saving dollars,” Martin said.
Once through this particular crisis, Martin said, the city will need to find long-term sustainable solutions to the revenue problem.
“We’re projecting no increases in property taxes,” he said. “This year, we projected no increases, and it went backward. Hopefully, it can’t get any worse, but I said that last year.”