March 13, 2010

City doesn't expect a repeat of budget surplus produced by 'flukes'

ELBERT AULL

— By

Staff Writer

A number of uncommon events and belt-tightening measures combined to create the $4.7 million surplus in Portland's $184 million budget for the fiscal year that ended June 30.

But city officials, who outlined the surplus earlier this week, said that they do not expect to find as many positive surprises at the end of this fiscal year.

''You can't budget on flukes,'' said Nicole Clegg, the city's spokeswoman.

Interviews and public documents show that a mid-year hiring freeze helped Portland finish the year $2.8 million under budget.

Unscheduled payments to the city, including a Federal Emergency Management Agency payment, helped drive revenue $1.9 million higher than expected, despite downturns in several key areas.

The city collected less than expected in both property taxes and automobile excise taxes. Portland also saw a downturn of more than $800,000 in revenue from city trash bag sales and fees at the Riverside Recycling center.

The city, however, took in nearly $1.5 million more than expected in Medicare reimbursements at the Barron Center. And it got about $1 million more from state revenue sharing for sales taxes than it had planned.

The city's ''other'' non-departmental revenue category took in more than $1 million over what was expected. Contributing to that was money that was held in escrow pending the beginning of the Riverwalk Project in the East End, as well as interest from delinquent tax payments, plus the FEMA payout for the storm on April 16, 2007, that caused millions of dollars worth of damage.

The city spent less than it budgeted in several departments, with more than $2 million in savings coming from mid-year departmental cost cutting, such as delayed hiring for some positions and reductions in travel.

The large surplus raised questions about whether the city undershot projections when it drew up a $185 million budget for the 2008-09 fiscal year, which both raised taxes and eliminated dozens of positions -- based on projections of greatly decreased revenue.

Scott Dunham, president of the Portland patrol officers union, questioned the latest cuts in light of the surplus for the previous year.

''The numbers are never even close, they're either way under or way over,'' said Dunham.

The police department did not have to lay off anyone, since its 16 cuts came through attrition, but the changes had real consequences, Dunham said.

One example, he said, is that the department lost a process server, so detectives are now serving subpoenas.

Cutting positions, Dunham said, gives the appearance of job instability that could harm the department's efforts to attract qualified candidates.

City officials said Portland is better served by relying on conservative revenue estimates in shaky financial times, with state and local tax revenue expected to plummet.

They noted that, to date, revenue and expenditures for the current fiscal year are in line with expectations.

''Frankly, the economy has turned out to be even worse than any of us thought back in the spring,'' said James Cohen, head of the City Council's finance committee.

Cohen and other councilors have also made it a priority to rebuild Portland's reserve fund since the school budget finished the 2006-07 fiscal year with a $1.7 million deficit.

The city borrowed from its reserves to cover the overrun, and within months its credit rating took a hit. Moody's Investors Service downgraded the city's credit rating in May, from the second- to third-highest among the 20 ratings it lists for municipalities. A higher rating means better interest rates when the city borrows money.

Moody's cited the ''reduction in fund balance from the previous year,'' along with a perceived ''uncertainty of legislative direction to correct it'' in lowering the city's rating, according to a memo to city officials from Finance Director Ellen Sanborn.

The city's reserve fund is not going to get the full benefit of the past year's surplus.

The school department ended its fiscal year June 30 with a $237,000 deficit in its $85.7 million budget.

Also, the city and the school department had obligations during the period that were paid with cash reserves:

n The city paid Scotia Prince $1.2 million to settle a lawsuit the ferry operator filed after it left the city-run International Marine Terminal in 2004, citing mold, water leaks and ventilation problems.

n The school system has for several years covered summer salary adjustments with reserve funds, a practice abandoned in the budget for this fiscal year. The so-called ''summer salary accrual'' was more than $378,000 in fiscal year 2007-08.

n Other accounting adjustments and costs took a smaller chunk out of the reserve fund.

The changes whittled the amount the city contributed to its reserve fund to nearly $2.6 million.

The school district still owes the city $1.8 million to replenish what it has borrowed in the past two fiscal years. It budgeted a $600,000 payment to the reserve fund this year.

The city budgeted $1.2 million toward its reserves this year, and Cohen said the finance committee wants to add more money to the $23.9 million account over the next few years to gain a higher credit rating.

''To not do it also means we're risking spending excess money on interest,'' he said.

Staff Writer Elbert Aull can be contacted at 791-6325 or at:

eaull@pressherald.com

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