City could face deficit in near future without careful financial planning

By: K. Michelle Moran | Grosse Pointe Times | Published February 20, 2018

GROSSE POINTE CITY — If Grosse Pointe City doesn’t continue its practice of carefully watching every dollar, the community could be facing a revenue shortfall in just a few years.

By the 2022-23 fiscal year, Finance Director/Treasurer Kim Kleinow said, the City could have a deficit of more than $200,000. Kleinow delivered the City’s annual five-year financial projections to the Grosse Pointe City Council during a meeting Feb. 12.

Although the City is projected, at press time, to have a budget surplus of about $130,000 at the end of the current fiscal year June 30, she said it could be looking at a shortfall only a few years from now.

“It’s showing us we need to be cognizant about how expenses are rising,” Kleinow said of the financial data.

The projections feature conservative assumptions about revenues — for example, they anticipate zero percent increases in state-shared revenues in fiscal years 2019-20 to 2022-23, and taxable value increases on residential properties of only 1.5 percent in each of those years. For the 2018-19 fiscal year, which starts July 1, Kleinow said city officials are expecting an actual taxable value increase of 2.1 percent for homes, which seems small, but follows a couple of years in which the actual increases allowed by the state were less than 1 percent.

The projections don’t necessarily spell financial doom and disaster for the City. Kleinow said the projections don’t take into account efforts to save money and reduce costs, something that the City does each year in an effort to get its expenses in line.

Health care costs “we are expecting to go up” over the next five years, said Kleinow, adding that the projections “err on the side of heavy (increases)” at 5 percent each of the next five fiscal years, from 2018-19 to 2022-23.

“This is something we try to do every year,” Kleinow said of the projections, which are based on experience in prior years and assumptions about numbers going forward.

One of the reasons the City could be short on cash in the near future has to do with rising legacy costs.

“In the later years, one of the difficulties is we expect having to pay into the pension fund,” even though it’s more than 100 percent funded now, City Manager Pete Dame said.

Retiree health care is another concern. Dame said retiree health care is expected to cost the City about $300,000 in the coming fiscal year, and it has been rising at an average of 8.5 percent each year. He said defined benefit retiree health care was eliminated for new hires in 2008 and 2009, but there are 44 retirees now receiving this benefit, and “sufficient funds were never put away” for this expense decades ago. Dame said retiree health care increases are rising “much higher than the rate of inflation,” which provides the basis for taxable value increases — the City’s largest source of revenue.