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Eastpointe

December 18, 2013

Eastpointe cuts expenses, but still losing money overall

By Kevin Bunch
C & G Staff Writer

EASTPOINTE — The city of Eastpointe cut its expenses by $2.2 million between fiscal years 2012 and 2013, but the city is still facing financial challenges wrought from the recession five years ago, according to a financial report approved at the City Council meeting Dec. 3.

The city’s fund balance was reduced by $1.1 million to a total of $9.6 million, which was a sizable amount under what had been initially budgeted — the city expected to go down another $1.5 million. The continued loss in the fund balance is due to systemic loss of taxable value due to the recession, and state statutes prevent the city from making up the loss as values increase once more.

The $1.5 million under the expected budget stems from the delay of filling personnel vacancies, as well as a slight increase in revenues, according to the financial report, though the city will still hit red ink within a matter of years.

“We came in better than projected, but that just means we lost less money,” Eastpointe Financial Director Randy Blum said. “So, what it does for something like the five-year (financial planning) chart is it pushes that out by months, not years.”

“As far as the results go, nothing’s changed there — we’re still constrained by the state limitations, and we still have falling property values. It’s slowing down but still falling,” Blum added.

Eastpointe City Manager Steve Duchane said the city was able to save money by changing refuse collection companies so that it was no longer going over budget on that expenditure, by passing a library millage so the city would not need to dip into other funds to maintain its library services, by changing its employee benefits systems, and by changing its ambulance service system.

The city also has encouraged a redevelopment project at Nine Mile and Kelly roads to help spur new economic activity and worked on shared services with other municipalities to receive state revenue sharing money. The combined Roseville-Eastpointe recreation department has also turned recreation around from something that drew money from the city’s coffers into one that has an effective budget plan.

“It’s a tale of two cities again,” Duchane said. “On the good side, some of our plans have worked well to reduce and economize the city operations, which one could say, arguably, that’s what we need to do today, so that if we do it, we’re doing the right thing. Others would argue we are starting to marginalize the value of city services by just being driven by this state position of virtually running communities into the ground and liquidating them; instead of looking to have the best public services in Michigan, we’re just looking to have the cheapest.”

The city did work on infrastructure projects, as well, Duchane said. About 4.5 miles of water mains were replaced in the past fiscal year, costing the city about $5.3 million. Another 12 miles of sewers were inspected for $357,000, about 20,200 feet of sewers were lined for $1 million, and finally, 4,500 feet of sewer lines were repaired for $2 million.

The city also resurfaced Stephens Road from Flower Street to the city limits for $1.2 million, with approximately $840,000 coming from federal funds. Resurfacing projects on Stephens Road, between Gratiot and Kelly, were also started that fiscal year.

Blum said the biggest savings were found in the Police and Fire departments, as the city had negotiated a new contract with both departments and also let vacant positions from early retirements stay vacant longer than usual. Those were one-off savings, he said.

The numbers are not a cause for celebration or a solution, Duchane said, but they are a step in the right direction. He added that state revenue sharing continues to be less than historic amounts, though revenue sharing increased by $100,000 over the previous fiscal year.

“We have our five-year financial plan, and through our economic efforts, we’ve spent less,” Duchane said. “But now, it’s the question of ‘Where do we go from here?’”

The city is still facing a structural deficit after 2016, and as all nonfederal municipalities are required to keep a balanced budget, City Council has to continue working on the budget going forward, though Duchane said the council has done an excellent job so far.

Blum was not optimistic the city can make any further cuts without drastically reducing the services residents are used to and demand. He said officials have held off on making those cuts, but without additional revenues, the cuts are inevitable.

“You could do an across-the-board, 50 percent pay cut, and we’d still have a deficit,” he said. “There’s just not that many active employees left to make a dent, and our biggest cost is the retirees.”

Blum said, of the city’s $9 million budget, the first $6 million goes entirely to retiree benefits. The remaining $3 million covers all other city services. In contrast, Blum said the city was bringing in about $16 million in revenues prior to 2008, when the recession hit.

“I think one thing most residents still don’t realize is the amount of property tax savings they’ve seen,” he said. “If they were any lower, you could have Barney Fife with his one bullet in the gun standing at Nine Mile Road and call it a police force.”

The city’s specialized operational balances, such as those for water and sewer, local roads and major roads, are all in good shape, Blum said — it is the city’s general operations, including Police, Fire and City Hall, that have been in trouble.

“We can’t just say we’re taking money out of the water and sewer fund to cover a shortfall in general, so you have a lot of areas in fine shape, but then you have the one big one that’s in trouble,” he said. “Right now, we’re not (cutting staff), but honestly, I don’t know what to tell you on that one. It’s a bit of gallows humor, but it’s kind of like you’re waiting for the emergency manager to come in and tell you who you’re going to cut.”

A proposal in the state Legislature would allow all municipalities to levy up to 15 mills in a special assessment for public safety, but Blum notes it has only passed the state Senate, as of press time. If it gets passed into law by the spring, there would be time for the city to move on the assessment to help cover the future shortfall.

“I really think we’re banking on the state coming up with a fix,” he said. “We’ve cut benefits and retirement for current employees; we’ve cut wages — we’ve reduced staffing. We’re down to the point where we’re as far as we can go and still provide the services the residents want. It’s now a question of if they’re willing to pay for it.”

The state requires each municipality to have a basic financial audit report done every year, and Duchane said Eastpointe beefs up its report with a city management analysis and explanations as a way to get further best-practices dollars from the state. The report is vital to planning for the city’s future budgets, he said.

“How we approach it is like an annual report to the stockholders,” Duchane said. “It forms the basis for the next incremental state, and when you look forward into the next five-year plan, you need to have solid base data or it’s not useful. It’s more than just having an auditor come in and say that everything added up — it’s critical that it be accurate and comprehensive.”

You can reach C & G Staff Writer Kevin Bunch at kbunch@candgnews.com or at (586)498-1030.