The local news media consisting of the Albuquerque Journal and all 3 TV News stations failed to report that on April 13, 2020, on a unanimous vote of 9-0, the Albuquerque City Council enacted R-20-31 which is the city’s operating budget for fiscal year 2020-2021. On April 15, Resolution R-20-31 was sent to the Mayor for signature. The resolution was sponsored by City Councilor Isaac Benton by request of the Keller Administration. The new budget cycle begins July 1, 2020 and ends June 30, 2021.
The approach to enact the 2020-2021 city budget was a dramatic departure from all previous years. The City Budget process is a “performance based” budget where each department prepares an analysis of accomplishments from the previous years. The statistics and accomplishment analysis is submitted to the City Council in the Mayor’s proposed budget. Normally, a massive detailed budget analysis document, called the Mayor’s Proposed Budget, is submitted along with the enabling legislation making the city budgetary appropriations. The council, acting as a committee as a whole, normally schedules and conducts hearings on each of the City Departments, but that did happen this year. The operative word is “normally”.
City finances, not to mention state finances, have been totally upended as a result of the corona virus pandemic and its impact on the city economy and in turn city gross receipts tax returns. On March 16, 2020, the New Mexico Department of Finance, Local Government Division, issued Memorandum authorizing the New Mexico municipalities to submit their last year’s fiscal budget for 2019-2020 budget as their fiscal budget for year 2020-2021 until reliable tax revenue projections can be determined. That is exactly what the City Council did. The City Council’s operating budget, R-20-31, enacted is a “bare bones budget” resolution consisting of only 7 pages of line item appropriations for each of the city departments with no explanation or elaboration on the actual use of the millions appropriated. No public hearings were conducted that would have allowed comment and input from the public.
According to budget Resolution R 20-31, the estimation of future New Mexico Gross Receipts Tax, Lodgers’ Tax and other revenue sources will need to be assessed before a detailed budget can be prepared and enacted by the City Council. The full impact of the Public Health Orders issued by the Governor and the Mayor on local non-essential businesses reducing tax revenues is still unknown.
The single and most critical function of the Albuquerque City Council is the oversight authority it has over city finances, all appropriations and the job performance of the various departments. The oversight authority includes having public hearings on the city’s budget to allow public the opportunity to give input on how the city spends taxpayer money. Further, the budget process is critical to force all city departments to justify their budgets and to adjust department’s budgets as the need mandates it. The 2020-2021 budget year does not begin until July 1, 2020, yet the city council felt it was necessary to enact an operating budget on April 13, without any public hearings, essentially refusing to exercise their budgetary oversight authority and ignoring the general public.
EDITOR’S NOTE: Below in the postscript to this blog article can be found a nutshell summary of how city financing works and a summary of Resolution R-20-31 listing the major department line item budgets along with a link to the enacted budget.
CITY REVENUES DECLINE DRAMATICALLY
During the April 7 City Council meeting Chief Financial Officer (CFO) Sanjay Bhakta told the city council that the city is faced with a gaping budget hole due to the anticipated reduction in tax revenues and said the budget process was “going to be brutal”. According to Bhakta, the City is spending $100,000 per day on its response to the corona virus. The expenses include employee overtime, cleaning supplies and “information technology” programs. The corona virus has yet to peak in Albquerque, and the daily expenses will go up before they go down and there is no way of determining when the health crisis will end.
The biggest problem is not the daily expenses to the city is facing. Its anticipated that the city’s budget will take a major hit in the form of lost tax revenue in gross receipts tax. A whopping 67% of the City’s general fund revenues is from its share of gross receipts tax collected by the state. It is the general fund that is used to finance basic essential services such as police, fire and street maintenance and other basic city services.
Bhakta reported that the lodgers tax revenues are also down and in March came in at 29% lower than the same date last year. A decline in lodger tax revenues can be blamed on the hotel industry’s more recent struggles and decline in room occupancy. Bhakta said he’s concerned that what has happened with the lodger’s tax may also happen with gross receipts tax.
City ordinance requires adequate reserve for each fiscal year to deal with unexpected contingencies. CFO Bhakta reported to the City Council the city does have a slight cushion of upwards $50 million in operating reserves set aside due to higher-than-expected gross receipts tax revenue over the past 7 months, but it’s not enough to absorb the expected losses in revenues. The challenge is having an adequate reserve for the fiscal year that begins July 1.
SERIOUS DEFICIT ANNOUNCED
On Friday, April 17, Mayor Tim Keller and his Chief Financial Officer (CFO) Sanjay Bhakta announced that the City of Albuquerque has projected a serious budget shortfall that could last through 2021. Bhakta said preliminary estimates indicate the city will bring in $600 million in revenue this fiscal year, down from the $627 million projected. The city currently operates on a $1 billion budget and that is about to change dramatically. At a minimum, the City is facing a $27 million deficit of projected revenues for the fiscal year that starts July 1, 2020, and it will likely be more.
According to Keller and Bhakta, the city is taking immediate steps to lessen the impact of the budget crisis by implementing the following:
The city is limiting all hiring, with the exception of public safety
All travel for the remainder of the year is canceled
All city contracts with vendors are being reviewed and cut if necessary
And the mayor has ordered his department heads to find cost-saving measures
The cost saving measures have reduced spending in the current fiscal year by $10 million, but the cost saving measures are not enough and there is still a $17 million deficit. According to Bhata, the city’s revenue declines will keep mounting in fiscal year 2021, which begins July 1. Bhakta’s projections have revenue falling to $575 million next year and he added:
“It can change, we don’t know the real numbers. … The revenue impact may be much sharper than we think.”
If the reduced revenue projects become reality, furloughs and layoffs of government employees will have to be considered and are likely. The effects of layoffs and furloughs has a ripple effect on city government services such as reduced or cancellation bus services, reduce operating hours or closures of libraries, museums and the zoo and the cancellation of all city social events like Summer Fest.
HOPE SPRINGS ETERNAL FOR FEDERAL BAILOUT; MISUSE OF FEDERAL FUNDS REPORTED
During the April 7 meeting of the Albuquerque City Council, CFO Bhakta, told the council that the City is spending about $100,000 per day on its response to the corona virus. According to Bhakta, the expenses include employee overtime, cleaning supplies and “information technology” programs. The corona virus has yet to peak, and the daily expenses will go up before they go down.
The City’s budget decisions are hinging on federal relief money. The $2 Trillion Corona virus Aid Relief and Economic Security Act (CARES Act) is money Congress approved for local governments to be spent directly on COVID-19 efforts. City is estimating it will qualify for about $150 million in relief, but that amount is not guaranteed. If the city is allowed to use the CARES Act funds for city services, it can avoid furloughs and layoffs within the 6,000 city employee ranks, but that is a big if.
The problem is the CARES Act limits the money’s use to “costs that are necessary expenditures incurred due to the coronavirus public health emergency between March 1 and December 30”. The CARES Act specifically precludes local governments from using it to pay costs already in budgets. Currently the city is spending up to $100,000 a day on corona virus In other words, the federal relief money cannot be used to plug deficit holes in budgets like Mayor Keller wants.
Confidential sources are reporting that federal relief money is being applied to executive salaries in the Mayor’s Office arguing that the Mayor’s office is working on dealing with the corona virus issues. If that is the case, the City just may wind up being audited for misuse of funds on line items already contained in the budget, such as administrative and executive salaries, in violation of federal guidelines as to what uses the financing is appropriate.
Before the pandemic outbreak, the city reported it had a $5 million surplus. City leaders were looking at giving all city employees raises and that is no longer the case.
According to Mayor Keller replacing lost taxes revenues is more important financially than giving the city money for necessary expenditures incurred due to coronavirus. According to Mayor Keller:
“If we don’t receive assistance from … [federal and state government], then we’re going to be in a very difficult place and we are going to have to look at things like layoffs and furloughs.”
Bkakta for his part had this to say:
“If we don’t get the money from the federal government to fill the hole of the revenue decline, we will have to think about furloughs. … We want to avoid that. … It’s going to be brutal.”
Mayor Keller and CFO Bhakta said a major lobbying effort is underway to allow local governments the leeway to use the relief money for government operations and not just expenditures incurred due to coronavirus. Keller went so far as to say the city would be willing to go to court to fight for the flexibility, a bold threat that is more bluster than reality.
City finance has upwards of $50 million in its Reserve Fund which could be used to make up the $27 million deficit. However, dipping into the city’s reserve fund will affect the city’s bond ratings reducing the type of bonds or amounts and interest rates the city can qualify for to fund major construction projects. City council approval is required to dip into the reserve fund.
HOPING THE ECONOMY BOUNCES BACK
The Keller Administration expects the economy will bounce back this summer. If it does, and if the City can use the federal CARES Act allocation to make up for the city deficit, it should be able to avoid drastic cuts, furloughs and layoffs. Local economists are not that optimistic and are saying it could take years for the cities to recover.
UNM Associate Professor Reilly White had this to say:
“It’s a really dire fiscal position for many municipalities in New Mexico for the coming year … The best thing that can happen is that people start spending again.”
The Department of Labor reports that 44,000 New Mexicans now receiving unemployment benefits, and the applications are increasing. According to the Department of Labor, 90,000 people have applied for benefits in the past four weeks.
COMMENTARY AND ANALYSIS
A. HISTORY REPEATING ITSELF
City Hall history is repeating itself. It was 10 years ago in 2010 that the city had to make significant cuts in order to deal with the “great recession”. Then Republican Mayor Richard J. Berry had a $69 million shortfall and he decided unilaterally to cut city employee pay by 3%, disregard negotiated union contract pay increases with the city’s unions, place a freeze on all hiring and reduced and slashed city services not considered essential such as the 311-call center. The number of APD sworn officers went from 1,100 in 2010 all the way down to 875 under Mayor Berry and community based policing was abandoned and existed in name only.
For the full 8 years under the former Republican Mayor Administration, the city was hit hard because of the great recession to the extent that essential services were dramatically cut and city and government was dramatically downsized. The cuts and downsizing were done in order to avoid any all tax increases to maintain Mayor Berry’s Republican philosophy that all tax increases are bad, even when needed for essential services, and that city government was too big and needed to be downsized.
B. DIFFICULT DECISIONS AHEAD
Just as the city was pulling out of the 10-year great recession, the city gets hit and get hit hard in the gut with the corona virus pandemic resulting in business closures, layoffs and a dramatic decrease in gross receipts tax revenues that funds 67% of the city’s operating budget. The city is now facing a major financial crisis.
Mayor Tim Keller and the Albuquerque City Council are about to embark on a very painful but absolutely necessary reduction in government services and expenditures to deal with the major deficit caused by a dramatic reduction in gross receipts tax revenues. The City’s loss of gross receipts tax revenues obviously was brought on by the corona virus shutdown of businesses and resulting loss of gross receipts tax revenues, but the Keller Administration pinning their hopes on a quick rebound or federal funding is being way too optimistic and may not be at all realistic, nor is a threat of a lawsuite to use federal CAREs funding for items in the existing budget.
The City is mandated by law to have a balanced‐budget. When you review in the postscript the General Fund line item expenditures contained in the enacted budget operating budget, you get a sense how difficult of a task the Mayor and City Council are faced with when it comes to cutting or eliminating entire line item appropriations.
The city is now faced with any number of options or a combination thereof including:
1. Slashing department budgets across the board by a mandatory percentage to “spread the pain”. Mayor Keller has already ordered his department heads to find cost-saving measures.
2. Eliminate entire none essential city service departments, city divisions or units.
3. Reduce city services in some form.
4. Closure of city facilities such as libraries, senior citizen centers, golf courses and recreational activities and cancellation of major public events such as Summerfest.
5. Freeze all hiring over the next year.
6. Layoffs or furloughs of government workers and elimination and funding of city positions.
7. Delay for a time all city construction projects that will result in need to hire more city staff. Such projects would include the $32 million homeless shelter, the planned $7 million library for the International District, the new Singing Arrow Community Center in Southeast Albuquerque, the West Side community center at 98th and DeVargas and the new field at the Jennifer Riordan Spark Kindness Sports Complex.
8. Suspend all salary increases or implement salary deductions to the 6,000 city employees.
9. Postpone growing the police and fire department ranks and concentrate on police and fire academy classes for the sole purpose of keeping up with retirements and maintaining the existing number of the ranks before retirements
10. Increase gross receipts tax.
11. Increase property taxes.
12. Increase admission fees to museums, the Zoo and Botanical Gardens and Aquarium, golf fees.
13. A combination of all cost cutting and revenue increase options.
C. BREAKING A CAMPAIGN PROMISE AND SPENDING A WINDFALL
In May, 2018, 5 months after he assumed office, Mayor Tim Keller signed into law a gross receipt sales tax increase enacted by the City Council. Seventy percent of the tax was dedicated to public safety. The tax is suppose to raise $55 million a year in revenue. Keller broke a campaign promise not to raise taxes, even for public safety, without a public vote. The rational for the tax increase was that the city was faced with a $40 million dollar deficit. The deficit never materialized and the tax increase was not repealed, and the Keller Administration has never disclosed where those revenues went or why the tax was not repealed when the deficit never materialized.
The City of Albuquerque has an operating budget of $1.1 billion for the fiscal year that began July 1, 2019 and ends on June 30, 2020. It was the first time in city history that the city operating budget exceed the $1 Billion figure. The 2019-2020 budget represented an overall 11% increase in spending over the previous year.
In April, 2019, a onetime $34.4 million dollar windfall to the city was reported from what was called an “orphan month” in city financing. The $34.3 million “one-time, lifetime” boost in revenues could not be applied by the city toward recurring costs. Instead of placing the $34 million dollars in the city’s reserve fund, the Keller Administration spent $29 million of the $34.3 million on numerous one-time investments the Keller Administration felt were important at the time. Those projects, included $6 million for public safety vehicles such as police cars, normally financed with CIP bonds, for new police cadets, $2.3 million for park security, $2 million for the business recruitment and growth and $2 million for housing vouchers and related programs.
Hindsight has now revealed the use of the $34.4 million dollar windfall was a major mistake and the amount should have been added to the city’s reserve fund of $50 million dollar, a fund Mayor Keller is already saying his administration will want to tap into to get the city through the current crisis.
It is too soon to know how the corona virus has depleted the city’s coffers. If the City in fact plunges into another recession, which is highly likely, it will be much deeper than the 10-year great recession that started in 2008. Many businesses along central already barely making it because of the ART project will probably close permanently because of the Governor and Mayor’s emergency orders. Although the Keller Administration implemented a $500,000 fund to help small business, that money was depleted in a matter of days with 100 businesses given $5,000 loans but another 400 denied financial help.
Mayor Tim Keller will start to look and sound more and more like his former Republican predecessor when he starts to say “cut city services and reduce the size of government” to get through the financial crisis. One thing is for certain is that if Mayor Tim Keller advocates another gross receipt tax increase, or goes along with the city council with it, or supports a property tax increase, Keller will wind up becoming a one term Mayor.
CITY FINANCES IN A NUTSHELL
The Charter of the City of Albuquerque requires the Mayor to formulate the annual operating budget for the City of Albuquerque and all of its departments. It is the City’s Department of Finance under the direction of the City’s Chief Financial Officer (CFO) that formulates the yearly budget which is then submitted to the Albuquerque City Council. The city’s fiscal year’s budget begins every year on July 1 and ends every year on June 30. The annual city budget must be submitted by the Mayor’s Office to the City Council by April 1. The City Council, upon receipt of the proposed budget from the Mayor, schedules budget hearings, takes public input and makes changes as it sees fit before enacting the final budget to be effective July 1.
The current gross receipt tax added to virtually all retail sales of goods and services is 7.7850%. Businesses collect the tax on each sale made and the money is then sent to the New Mexico Taxation and Revenue Department and each month the state the distributes the city’s portion of tax collected to the city. Retail businesses make up about 25% of all the city’s gross receipts tax collected. The gross receipts tax revenue pays for basic municipal operations and essential services such as police protection, fire protection, solid waste collection, street repairs, animal welfare, parks maintenance, social services and the wages and benefits to over 6,000 city employees.
Gross receipts tax is collected and given to the city accounts for 67% of the City’s general fund revenue. The gross receipts tax revenue pays for basic municipal operations and essential services such as police protection, fire protection, solid waste collection, street repairs, animal welfare, parks maintenance, social services and the wages and benefits of over 6,000 city employees. For the current fiscal year that ends on July 31, 202, the city averaged upwards of $41 million in gross receipts tax revenue or $492 million dollars for the year. The remaining 33% of revenues needed to operate the city are generated other fees, other tax revenues and federal funding.
ENACTED BUDGET LINE ITEMS
According to CFO Bhakta, the City will have a better sense of the actual loss of revenue in mid-May when the city gets its March gross receipts tax distribution from the state Taxation and Revenue Department. It will be then the City will consider a final budget. The 2020-2021 enacted City Council operating budget contains the following general fund Operating Budget line item appropriations as they appear for the major departments:
Animal Welfare Department, ANIMAL CARE CENTER: $12,675,000
Management & Professional Support: $5,841,000
Operations, Maintenance and Security: $33,427,000
Transfers to Other Funds:
General Fund: $2,495,000
Airport Capital and Deferred Maintenance Fund $23,000,000
Chief Administrative Office: $3,439,000
CITY SUPPORT FUNCTIONS LINE ITEM BUDGET
Dues and Memberships: $504,000
Early Retirement: $6,000,000 (This fund is used to pay accumulated annual and sick leave to employees who retire.)
GRT Administration Fee: $5,400,000
Joint Committee on Intergovernmental Legislative Relations: $219,000
Open and Ethical Elections: $641,000
Transfer to Other Funds:
Operating Grants Fund: $6,000,000
Sales Tax Refunding D/S Fund: $13,298,000
Vehicle/Equipment Replacement Fund: 1,200,000
Civilian Police Oversight Agency: $1,065,000
City Council Services: $5,337,000
CULTURAL SERVICES DEPARTMENT
Biological Park: $15,277,000
CIP Bio Park: $247,000
Community Events: $3,523,000
Explora Science Museum: $1,448,000
Albuquerque Museum: $3,713,000
Public Arts and Urban Enhancement: $511,000
Public Library: $12,952,000
Strategic Support: $2,795,000
ECONOMIC DEVELOPMENT DEPARTMENT LINE ITEM BUDGET
Convention Center / ASC: $2,234,000
Economic Development: $110,000
Economic Development Investment: $321,000
International Trade: $198,000
Office of MRA: $530,000
Environmental Health Department
Consumer Health: $1,574,000
Environmental Services: $679,000
Strategic Support: $839,000
Urban Biology: $500,000
FFAMILY AND COMMUNITY SERVICES DEPARTMENT LINE ITEM BUDGET
Affordable Housing: $2,665,000
Child and Family Development: $6,447,000
Community Recreation: $11,661,000
Educational Initiatives: $2,948,000
Emergency Shelter: $5,620,000
Health and Human Services: $4,084,000
Homeless Support Services: $3,481,000
Mental Health: $3,754,000
Strategic Support: $2,021,000
Substance Abuse: $3,075,000
Youth Gang Initiative: $1,155,000
FINANCE AND ADMINISTRATIVE DEPARTMENT LINE ITEM BUDGET
Financial Support Services: $1,196,000
Office of Management and Budget: $1,109,000
Strategic Support: $1,121,000
FIRE DEPARTMENT LINE ITEM BUDGET
Emergency Response: $69,149,000
Emergency Services: $3,361,000
Fire Prevention: $5,861,000
Office of Emergency Management: $307,000
HUMAN RESOURCES DEPARTMENT LINE ITEM BUDGET
B/C/J/Q Union Time: $131,000
Personnel Services: $2,994,000
LEGAL DEPARTMENT LINE ITEM BUDGET
Legal Services: $6,237,000
Office of Equity and Inclusion: $409,000
Mayor’s Office $1,068,000
MUNICIPAL DEVELOPMENT DEPARTMENT LINE ITEM BUDGET
City Buildings : $14,766,000
Design Recovered CIP: $2,077,000
Design Recovered Storm: $2,940,000
Real Property: $879,000
Special Events Parking: $19,000
Storm Drainage: $2,946,000
Strategic Support: $2,743,000
Streets: $ 5,227,000 32
Street Services: $15,210,000
OFFICE OF THE CITY CLERK LINE ITEM BUDGET
Administrative Hearing Office: $412,000
Office of the City Clerk: $2,211,000
Office of Inspector General: $504,000
Office of Internal Audit and Investigations: $934,000
Parking Services $4,368,000 (This is money used to operate the city’s parking structures.)
PARKS AND RECREATION DEPARTMENT LINE ITEM BUDGET
Aquatic Services: $5,458,000
CIP Funded Employees: $2,589,000
Open Space Management: $4,408,000
Parks Management: $18,542,000
Strategic Support: $1,404,000
Transfer to Other Funds:
Capital Acquisition Fund: $100,000
Golf Operating Fund: $1,368,000
PLANNING DEPARTMENT LINE ITEM BUDGET
Code Enforcement $3,570,000
One Stop Shop $7,543,000
Strategic Support $2,418,000
Urban Design and Development $1,637,000
POLICE DEPARTMENT LINE ITEM BUDGET
Administrative Support: $18,835,000 (This funding is for case management and reports, clerical staff and the forensic lab.)
Investigative Services: $45,622,000 (This funding is for the various detective units)
Neighborhood Policing: $104,730,000
Off-Duty Police Overtime: $2,225,000 (The funding is to pay for police overtime and for years the actual funding has approached $10 to $14 Million a year.)
Prisoner Transport: $2,423,000 (The funding is used to transport all arrestees to the Westside Jail.)
Professional Accountability: $34,042,000 (This is funding associated with the Department of Justice Consent Decree)
SOLID WASTE MANAGEMENT DEPARTMENT
Administrative Services $7,687,000
Clean City $10,845,000
Collections $23,684,000 (This is the annual cost associated with residential and commercial garbage pick up)
Disposal $9,326,000 (This is funding to operate the land fill)
Maintenance – Support Services $5,641,000 (This fund is essentially fleet maintenance costs)
General Fund $5,933,000
Refuse Disposal Capital Fund $11,619,000
SENIOR AFFAIRS DEPARTMENT
Basic Services $256,000
Strategic Support $2,404,000
Well Being $5,657,000
TECHNOLOGY AND INNOVATION DEPARTMENT
Citizen Services $3,771,000
Data Management for APD $ 825,000
Information Services $11,546,000
TRANSIT DEPARTMENT: $26,578,000
TRANSIT OPERATING FUND
ABQ Rapid Transit: $1,824,000
ABQ Ride: $31,918,000
Facility Maintenance: $2,560,000
Paratransit Services: $6,232,000
Special Events: $237,000
Strategic Support: $3,464,000
Transfer to Other Funds (Transit):
General Fund: $5,590,000
Transit Grants Fund: $986,000
AIRPORT REVENUE BOND DEBT SERVICE FUND: $2,306,000
BASEBALL STADIUM OPERATING FUND
Stadium Operations $1,232,000
Transfer to Other Funds:
General Fund: $25,000
Sports Stadium D/S Fund: $1,023,000
BASEBALL STADIUM DEBT SERVICE FUND: $998,000
RISK MANAGEMENT FUND (This fund deals with litigation costs and settlements paid out when the city is sued)
Risk – Fund Administration: $1,173,000
Risk – Safety Office: $1,926,000
Risk – Tort and Other: $2,410,000
Risk – Workers’ Comp: $2,518,000
Workers Compensation, Tort Claims and Other Claims: $27,829,000
HUMAN RESOURCES DEPARTMENT
Unemployment Compensation: $1,028,000
Employee Equity: $445,000
Group Self Insurance: $84,917,000 (The city is a self insured entity and as such must maintain a percentage of projected liability exposure.)
Below is the link to located final draft of R-30-21. Click on the link then click on R-31 spelled out in blue and marked FINAL:
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