The City of Colorado Springs’ spending levels and unfunded liabilities are leading it into a “downward spiral” and potentially toward a “financial crisis,” according to a report by the City Committee of Colorado Springs.
The volunteer, independent City Committee was formed by Chuck Fowler, president of Fowler Communications Co., and Steve Bartolin, CEO of The Broadmoor, to “promote the efficient and transparent expenditure of scarce public funds by government, and other publicly funded organizations.”
The committee analyzed the city’s budget, policy documents, financial reports and general ledger, and conducted briefings and work sessions with city staff. However its analysis has not been independently verified.
Below is a summary of the report. The full text can be found here.
According to the report, the city’s biggest challenges are the 9.5-percent unemployment rate, a heavy reliance on defense and military related employment, uncontrollable escalation in pension costs, falling property tax collections, and a state budget shortfall that will impact reimbursement to municipalities.
While the committee recognized efforts by City Council and staff to reduce costs, the report says the city’s finances “remain vulnerable and unable to meet the obligations and needs of the community,” and that “urgent action is required to address escalating costs and liabilities to provide for a sustainable future.”
In 2011, the city budgeted for 2019 employees and is currently staffed with only 1,750. The reduced staffing drove significant un-budgeted savings but is not enough to cover the rising costs associated worker’s compensation and benefits, according to the report.
The city maintained a100-percent salary continuation for worker’s compensation claims, while the state mandated payout level is only 66-percent. The city is considering reducing the salary continuation to 80-percent, but the committee believes this is still too high.
The worker’s compensation fund is projected to rise to $4 million in 2011, and the report asks, “are all injuries on the job, and were the employees fit for the job” in the first place? Typical large, local employers fund for worker’s compensation in the hundreds of thousands, not in the millions, according to the report.
From 2003 to 2009, general fund revenues only rose 1.7-percent, while expenses rose 18.8-percent. The major drivers were health care costs, which rose 46.3-percent, and pension costs, which rose 94-percent in that same time period. The mean city employee salary in 2010 was $66,295, while the mean for civilian employees was only $51,543. The mean compensation for a full-time employee, including benefits, was $88,410.
The committee recommends reducing and controlling expenditures to maintain a healthy general fund by closely managing the restoration of services, controlling headcount, and shifting healthcare and benefit expenses to employees. The committee also recommends aligning city benefits policies with that of the private sector, capping pension contributions, and moving to a defined contribution 401(k) savings plan with no liability. City staff are too “expensive” for many functions, according to the report.
The city’s operating liabilities grew to $29.6 million in 2009 from compensation for absences, worker’s compensation, claims and judgments and developer reimbursements. Pension funds consumed 8 percent of the city’s annual returns last year, with retirement obligations spiking to $166 million from $18.9 million just two years earlier. The bulk of this was for new police hires, and post-employment benefits for the police and fire departments.
The committee recommends using external insurance providers for healthcare and worker’s compensation, removing liability for current pension plans, re-balancing employee and employer contributions to PERA, removing subsidies for retirees remaining on the health plan, and using temporary staff for “add-backs.”
The committee does not expect the local economy to make up the required revenue to solve these problems, as the economy will be flat or slow for several years. Failure to act will result in further cuts in service and staff, continued waste of taxpayer money, people costs outpacing the local economy, and unfunded liabilities resulting in a financial crisis, according to the report.