How hard could it be to find $35 million to chop out of a $638 million budget? When it comes to figuring out the trajectory of city spending, it’s a mad, mad, mad, mad world (with apologies to Stanley Kramer.) That makes identifying easy cuts a much harder proposition.
Despite the scope of the information the city provides about its operations — last year’s budget is 312 pages — a lot of the numbers don’t appear to provide the information one thinks they should. The friendly folks at the Louisville Metro Office of Management & Budget tried their best, in repeated phone calls, to help Insider make sense of the city’s Byzantine budgeting process and reports.
Ironically, their office is a prime example of how things aren’t what they appear to be. At first glance, the OMB in Louisville appears to be spending way more than one would expect. The office had expenditures of $63 million for the fiscal year 2016-17, the city’s second-most expensive department after police — but ahead of the fire department and the jails.
In fact, that year the city spent more on its OMB than on parks and recreation, the library system, the health department and the animal department combined.
So what’s going on? Is Louisville paying OMB Chief Daniel Frockt a Fortune 100 CEO type salary? Not at all. When Frockt was promoted in 2015 he made $122,000, less than JCPS paid its former communications chief.
The Louisville OMB’s budget appears inflated in part because it annually pays the city’s $10.8 million cost for the KFC Yum! Center. And it pays $5.7 million annually for the city’s property and liability insurance, $1.8 million annually for the energy conservation contract, $1.4 million annually for delinquent tax advertising and banking fees and nearly $800,000 for lease payments to PARC. Those items combined are more than half the OMB’s 2019 proposed budget.
And while Louisville spends way more on its OMB than much larger cities, comparisons with other municipalities are problematic. For one, many cities don’t have an OMB. They just have an accounting or finance department. And to make a comparison valid, the other city should have a combined city/county government like Louisville. Also not the norm.
Pittsburgh, Pa., could work. It has similar expenditures to Louisville, at $542 million, but spends only $16.7 million on its OMB, or about 3 percent of total expenditures, much less than Louisville. The OMB in San Antonio, Texas, employs just 19 out of the city’s 11,000 employees, or less than 0.2 percent, compared to Louisville’s 200 out of 6,200 employees, or 3.2 percent. That means Louisville employs about 19 times as many people in its OMB than San Antonio, adjusted for total employment.
In fact, Louisville spends more on its OMB than New York City, even though the Big Apple has more than twice as many employees in its OMB, and NYC’s overall city budget is about 100 times bigger than Louisville’s.
But there’s no standard set of duties that an OMB has to fulfill, so one city’s OMB may handle purchasing for the entire city, while another OMB may not do any purchasing at all. Unlike the Louisville OMB, other such offices may charge other city departments for their services, and/or not perform duties related to other services including accounting, treasury and grants.
Shifting responsibilities of the various city departments, too, make longer-term spending comparisons difficult. For example, the Facilities and Fleet Management division previously was called the Fleet & Facilities division. Facilities and Fleet is now a standalone division under the Chief of Public Services, who also oversees fire, corrections, emergency and other services.
But in 2013, Facilities and Fleet, then called by its other name, was part of the Public Works & Assets department, also under the chief of public services. But a footnote for the 2014/15 budget indicates that facilities and fleet was transferred to the Office of Management & Budget, an agency under the Chief Financial Officer. And that footnote is one of six that deal with services from various departments being transferred to other departments.
To make things even more complicated, the approved appropriations for Facilities & Fleet in 2018/19, now a separate division — but back under the Chief of Public Services — are at $39 million, more than double its appropriation from the prior year — because the city chose to centralize its fleet charges, moving $10.5 million in fleet costs from the police department and $5.5 million from Public Works into the Facilities & Fleet division.
That also makes it look as though the police department’s appropriations for the current fiscal year declined by $3.3 million, or 1.8 percent — even though they actually increased when you add in the $10.5 million the city transferred from police to fleets. The moves also skew any comparisons for police department budgeting to prior years, as well as for the OMB, Public Works and Fleet itself. And those four departments combined account for nearly half of the city’s annual appropriations in the General Fund, the city’s main operating fund.
Audited financial statements
Louisville Mayor Greg Fischer and Metro Council have been struggling in the last few weeks to make up a $35 million projected budget shortfall next year, primarily related to higher state pension obligations. The council rejected a $20 million tax increase last month, and Fischer has warned of painful cuts.
The city annually also releases a Comprehensive Annual Financial Report, another 155 pages of light reading, the data of which appear to show on page 20 that the city last year, in the General Fund, generated revenue of $712 million and spent $637 million, for a surplus of $75 million.
Problem solved, right? Take $35 million of that, and you’ve still got a surplus of $40M.
At the bottom of a long list of revenues and expenditures, it becomes clear that the city actually generated a General Fund surplus of just $6.2 million because it lists “Transfers out” of $70.7 million. Most of that money goes toward capital projects, such as deferred maintenance, buildings, roads and replacing aging equipment.
The city could, of course, not spend that money on capital projects, but officials worry that delaying purchases of new roofs, vehicles or road surfaces will cost more in the long run and expose people to more danger, from collapsing buildings to malfunctioning heavy machinery.
The city does say in its financial report that the General Fund has an unassigned balance of $69.4 million, a quasi-reserve that it could spend as it wishes, but at $35 million annually, that balance would be depleted within two years. Doing that also is inadvisable because it would expose the city to cash flow problems — and potential short-term borrowing — as it awaits its property tax and occupational tax draws. The taxes don’t arrive monthly, which means the city needs a balance at the end of its fiscal year in the General Fund to pay for operations as it waits for taxing revenue to arrive.
Officials also have said that they could address some of those expenditures for roofs, vehicles and roads if they could levy a local option sales tax, but that’s prohibited by state law.
So how is Louisville Metro doing financially? Well, the city itself says in the annual financial report that its Statement of Net Position helps answer “whether the year’s activities have left Metro Government better or worse off.”
The city’s net position, the difference between assets and liabilities, has deteriorated. It exceeded $1.3 billion at the end of fiscal 2013 but had shrunk to just $620 million on June 30, 2018. (The data are for primary governmental activities only. They exclude what the city calls component units, consisting of the water company, parking authority, transit authority, Riverport, sewer district, science center and waterfront development.)
While the city’s assets have increased slowly, from just below $2 billion in 2014 to nearly $2.4 billion in 2018, its liabilities have risen sharply, from about $1.2 billion in 2014 to $2.1 billion in 2018.
The primary reason for the higher liabilities: pensions obligations. The city’s pension liability (again excluding the component units) was $549 million on June 30, 2015. Three years later, it was $972 million.