Hoover City Council ponders how to address projected budget deficits

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The Hoover City Council met tonight to discuss projected budget deficits for the coming years and left the meeting with more questions yet to be answered.

Council members said they, the mayor and city staff must continue looking for ways to trim expenses and examine the reasons for a slowdown in city revenue growth.

Melinda Lopez, the city’s chief financial officer, told the council that — halfway through fiscal 2018 — revenues are $1.5 million higher than projected in the budget and expenses are $3.3 million less than budgeted.

However, the original 2018 budget approved in September had a $3.4 million structural deficit and required shifting money out of the city’s capital projects fund to balance the general fund.

Plus, some departments’ expenditures are higher the second half of the year, and the city just received a request for a $2 million tax refund from a business, Lopez said. The City Council on Monday also will consider a budget amendment of about $842,000 to help cover three workers compensation settlement claims, she said.

There’s a good chance the city will break even for 2018, but there would be no money left to transfer into the capital projects fund for 2019, she said.

The city currently has $4.7 million of unallocated money in its capital projects fund, but the $842,000 for workers compensation claims and $3 million left on a loan for a police radio system would drop that to $1 million or less, Lopez said.

The Porter, White & Co. investment management consulting firm told city officials in recent months that, because of increased spending, increased retail competition and a move toward internet sales, years of deficit budgets are ahead if something is not done to cut costs or boost revenues.

Trimming expenses

John Lyda, president of the council’s Finance Committee, said he appreciates the work the mayor and his staff have done to trim expenses but city leaders need to look harder at expenses that have gone up since the current mayor and council were elected in 2016.

City staff provided the council with a list of new expenses that have been added since the last election. It totaled nearly $11.7 million, but Councilman Casey Middlebrooks and City Administrator Allan Rice said that list can be misleading because it doesn’t account for other budget cuts that were made to accommodate some of the new expenses.

For example, the city hired a city planner but got rid of another employee position and eliminated a $125,000 planning consultant contract, Rice said. The combined moves actually saved the city money, he said. Also, some of the new expenses have since been cut back out of the budget, he said.

About $3.2 million of the new expenses are associated with operating costs for the expanded Hoover Metropolitan Complex approved by the previous mayor and City Council, records show. About $2.4 million is an additional contribution to the Hoover school system, and about $2.5 million covers increases for employee health insurance costs.

City employees have not had a health insurance premium increase since 2009, Rice said.

Middlebrooks, a former employee of the Hoover Public Library, said he likes that Hoover has taken care of its employees to try to be the “employer of choice,” and he doesn’t want city employees to have bear the burden of the city’s financial troubles on their backs.

Robin Schultz, a resident of Bluff Park who was at tonight’s meeting, noted after the meeting that city taxpayers are the ones covering the increase in city employees’ health insurance costs while the rest of the country has seen their personal health insurance premiums rise significantly since 2009.

Councilman Curt Posey said that while city expenses went up 9 percent in 2016 and 8 percent in 2017, budgeted expenses for 2018 decreased 1.5 percent. That shows that city leaders are headed in the right direction, he said.

It’s worth noting that the city’s debt service payments went up 66 percent due to the money borrowed to build the Finley Center, Posey said.

Increased competition

Councilman Mike Shaw said Porter, White & Co. talked a lot about how the rise of internet sales is hurting Hoover’s sales tax revenues. He reviewed numerous other cities’ sales and use tax revenues for 2016 and 2017 and noticed other cities are not struggling in that area as much as Hoover, he said.

While’s Hoover’s sales and use tax revenues grew about 4 percent, cities such as Mountain Brook, Trussville, Dothan, Florence and Birmingham saw an increase between about 5 and 10 percent, and cities such as Madison, Alabaster, Vestavia Hills and Fairhope saw increases between 10 and 20 percent, he said.

“I think this is something we need to dig into a little more,” Shaw said. “We need to understand this. … I think we’re suffering more from the competition around us. I think there’s a lot more to that story.”

Before city leaders start considering raising taxes, they need to do more research and get some actionable intelligence about factors affecting Hoover’s tax revenues, Shaw said.

Rice said Porter, White & Company already is looking further into that, but Shaw said he thinks it would be wise to get someone else to review that issue and to pore over the city’s books, looking for more ways to save money.

Cutting capital projects?

Council members also expressed interest in reconsidering money already allocated for capital projects that have not been done yet. Lopez said there is $29 million set aside for uncompleted projects, some of which are partially done and others which have not been started.

Rice said the city is contractually obligated to complete some of those projects, such as road projects being done in conjunction with the Alabama Department of Transportation. But there may be some projects the city could delay or decide not to do, he said.

He has looked over the list and didn’t find a single one that was not justified, he said. “There’s really not a fat layer in there,” he said.

Posey said city leaders need to evaluate each one and review how many people they affect.

Council President Gene Smith said he has heard from city employees who are concerned about the potential for layoffs. Mayor Frank Brocato said no one is talking about layoffs. Instead, they are evaluating whether positions need to be kept when employees retire or leave for other reasons, he said. Right now, there are 45 positions that are vacant that have not been filled, he said.

Brocato said he will continue talking with council members about city finances and is willing to meet with anyone who wants to discuss it with him. He would like to come back to the council with a recommendation for action by the June 4 council meeting, he said. He would like the council to act on it by June 4, he said. That date is not set in stone, but he and city staff need some direction as they prepare the 2019 budget, he said. “We don’t want to waste a lot of time.”

Sales tax increase?

Riverchase resident Arnold Singer told the council he would like to see the council increase the city’s sales tax by 1 percentage point, which would increase the city’s sales tax from 3 to 4 percent and the overall sales tax to 9 percent in the Hoover portion of Shelby County and 10 percent in the Hoover portion of Jefferson County. He estimated that would raise about $19 million a year.

He also recommended the city go back to giving the Hoover Board of Education 16 percent of the city’s sales tax revenues.

Former Hoover Councilman Jody Patterson spoke against a sales tax increase, saying it would hurt his family.

“When my wife tells me you need to make more money, my response is you need to spend less money,” Patterson said. “It’s plain and simple.”

Throwing more money at Hoover schools also is not the answer, he said.

“Schools have been yelling for more money since I went to Green Valley Elementary in 1965,” Patterson said. “Your job is to run the city, not fully fund every wish that the schools want.”