At City Council’s Nov. 28 meeting, agenda item No. 20 drew little apparent interest. After a brief discussion, the item was approved on first reading.
Item No. 20 was the 2007 city budget, a complex document which spells out, in excruciating detail, the city’s anticipated revenue and scheduled expenditures for the next fiscal year.
The vote was the culmination of a months-long process which included several public hearings, as well as multiple staff presentations.
By charter mandate, council is responsible for creating budget policy, for carefully and critically examining the budget, for making judicious changes and for giving the document final approval.
It is, arguably, council’s most important task — yet it might be beyond the members capabilities, or that of any elected body.
“As big as the city has become, it’s impossible for any layperson to understand its operations,” said Dave Nickerson, who served the city as finance director, interim city manager and deputy city manager during his 30-year career. “I worked for the city for 32 years, and for a while I understood the whole budget, everything in there. But now, I don’t think anyone can. City Council just has to trust the competence of their staff.”
Because of the city’s complex structure, the budget, particularly as it relates to the budgets of the enterprises and other associated entities, almost defies analysis.
For 2007, the city anticipates $242 million in general fund revenue, $70 million from “special revenue funds” and $35 million from “enterprise funds.”
General fund revenue is principally derived from the sales and use taxes (55 percent of the total). Property taxes (8 percent), licenses and fines (7 percent), fund transfers (14 percent), charges for services (6 percent) and intergovernmental revenue (9 percent) account for the remainder.
Special revenue funds are legally restricted to expenditures for specific purposes, including, for example, the Public Safety Sales Tax. There are no fewer than 30 such funds, ranging in size from less than $100,000 to more than $15 million.
Enterprise funds include all the city-owned, self-supporting enterprises, except Memorial Health System and Colorado Springs Utilities — which prepare their own budgets, and together total more than $1 billion.
Council, sitting as the Utility Board, approves the utility budget. A council-appointed board is responsible for Memorial’s budget, which council then rubber-stamps.
There are other tax-funded governmental entities which provide city services, such as the Pikes Peak Rural Transportation Authority and the Stormwater Enterprise.
These stand-alone entities have combined budgets of nearly $100 million, multi-jurisdictional responsibilities and appointed, rather than elected, boards.
Like the multiple special improvement districts that have been created to provide services to defined areas (e.g., downtown’s Business Improvement District), they’re quasi-governmental hybrids — part of government, yet removed from direct budgetary oversight.
The city, and its various enterprises/special funds/affiliated entities are tied together in a Byzantine web of payments for services, payments in lieu of taxes and transfers to other entities.
In 2007, utilities will pay the city more than $24 million to compensate it for the franchise tax that an investor-owned utility would presumably pay. Utilities, along with other the city enterprises and departments, also will pay the city for providing certain “internal services,” mostly administrative, which amount to several million dollars.
The actual budget process is like a jigsaw puzzle, where shifting expenditures from one area to another, or taking on a new budgetary responsibility, causes ripples throughout the system.
As Nickerson points out, increasing one budget item means decreasing others.
“It’s a tightly woven piece of cloth — everything is connected to everything else,” he said. “It’s not as if we have a big pot of money sitting around to fund council’s favorite projects.”
This year, for example, council re-assigned the streetlight program from utilities to the general fund. That required the city to find an extra $4.8 million in the general fund budget.
The city moved $2.3 million of anticipated 2006 expenditure savings, took a one-time draw of $1.8 million from the “unreserved, undesignated fund balance,” and scaled back emergency maintenance funding from the Capital Improvements Program by $1 million. The result: a fully funded streetlight program.
Yet more headaches were created for the administration when, during the markup session, council made a substantial change in the budget — awarding city employees a 2.5 percent wage increase, up from 2 percent.
The projected cost: $655,000.
To make the funds available, city staffers cancelled the purchase of a $300,000 Public Works street paver and a $195,000 asphalt truck, removed $100,000 from the streetlight program, and found the final $60,000 by increasing the projected return on the city’s investment portfolio by .015 percent.
Describing the budget process, Nickerson mostly remembers the pain.
“(Former Mayor) Bob Isaac used to say that ‘Budgeting is the equal distribution of dissatisfaction,’” he said. “There were so many decisions, and so many requests, most of them worthy — and we could only fund about a third of them. I would literally get physically ill.”
Nickerson gave the council members high marks for largely declining to micromanage the process.
“We always felt that when council only made a few changes, it meant that we’d done good work — that we’d done a good job of incorporating their priorities and policies in the budget,” he said. “But it’s gotten so complicated.”
John Fishbein, a senior manager at the Government Finance Officers Association, a national association to which more than 1,200 cities belong, acknowledges the complexity of modern municipal budgets.
“The world’s becoming more complex,” he said. “I don’t know that anything isn’t more complex than it was 20 years ago.”
According to Fishbein, it’s up to city staff to create transparent, understandable documents.
“That’s what we do at the GFOA,” he said. “We grade budgets, and give out annual awards. We have an online archive of over 800 budget documents — a real resource for financial officers who seek to improve their budgets.”
According to the GFOA’s Web site, the Colorado Springs City Budget is already among the most transparent, best prepared in the country, having won the “Distinguished Budgeting Award” for 15 straight years.
But considering the increasing complexity, are there any changes to the process that might need to be considered?
“I think Council’s going to have to move to something like the Denver model, where individual members have their specialties, their areas of expertise, and the council sort of divides into committees and subcommittees,” Nickerson said. “But that means that they’ll have trust each other and depend on each other — be more like a corporate board. And when you come down to it, council’s a lot like the board of a big, billion-dollar company these days.”