Annapolis’ financial advisory board issued an unfavorable report on the proposed operating budget for fiscal year 2023 and questioned the city’s ability to pay its bills in two years when the federal assistance program that she received during the COVID-19 pandemic will be sold out.
In a letter delivered Tuesday to Mayor Gavin Buckley and Annapolis City Council, the commission warned that the $170 million budget Buckley handed to council last month “risks a financial crisis for the city” because “to the current time [the budget] is inconsistent with prudent financial management or the exercise of fiduciary responsibility over taxpayers’ money,” they wrote.
Among the most vocal critics, Vice Chairman Bob Burdon warned at the committee meeting last Thursday that the city must use ongoing budget deliberations to cut spending and address a growing structural deficit projected for the fiscal year. 2025. A structural deficit occurs when a government spends more than it collects in taxes over a given period, regardless of the state of the economy.
Burdon’s criticisms have focused on future budget projections, which show the city using the remaining $7.6 million in American Rescue Plan Act funds over the next two fiscal years and ending up with spending exceeding revenue for fiscal year 2025, which begins July 1, 2024. After Congress passed the emergency aid bill in March 2021, the city used about $1.17 million for expenses operations in fiscal year 2021. The city is expected to defer more than $1.5 million to fiscal year 2023 and $4.9 million to fiscal year 2024.
“Looking down the road, we don’t have a great picture developing for this town,” Burdon said last week. Former Anne Arundel County Chamber of Commerce President has served on the commission since 2009. [fiscal 2024 and 2025] we’re going to look around and say, “Oh my God, how did we get into this situation,” and that’s a situation we need to avoid.
Council members and the city’s chief financial officer who attended the meeting pushed back on the assessment, arguing that the city is much better off financially than it was four years ago and will find ways to balance the books.
Chief Financial Officer Jodee Dickinson called Burdon’s “disastrous picture” of the city’s finances inaccurate.
“I disagree with this assessment. We have a timeline here where in two years we have to look at other sources of revenue and whether that means raising taxes or finding another source of revenue. That’s what it will take. And the board will make that decision,” Dickinson said. “The city is in much better financial shape than it was a few years ago, much better.”
Officials have acknowledged that city spending exceeds revenue. About 70% of the city’s spending this fiscal year is on salaries and benefits for its approximately 680 employees. This figure is expected to rise to just under 72% in the coming year. On the other side of the ledger, about 60% of the city’s revenue comes from property taxes. However, triennial property assessments are not increasing as rapidly as municipal staff costs.
The city said a combination of conservative budget projections, cautious spending by department heads and an influx of cash from the federal government during the pandemic has helped ease the city’s financial struggles over the past 25 months. With less than two months to the end of the current fiscal year, the City forecasts a budget surplus of $1.3 million.
The proposed operating budget is balanced as required by city code and recommends no tax increases for fiscal year 2023, which begins July 1. The fundraising plan increases police spending, raises several fees, and sets aside money for new positions in the city. A shortfall between projected revenues and expenses will be offset by about $1.5 million in American Rescue Plan Act funding, which was distributed during the pandemic to help municipalities meet operating expenses.
After several weeks of deliberation, the Finance Committee, chaired by Alderman Elly Tierney, submitted a report on the budget to City Council on May 9, including recommendations to fund an additional attorney position in the law firm and one-time funding for substance abuse and crime prevention programs. The report also recommended that the full board propose additional sources of revenue or cost-cutting measures to counter the depletion of federal funds.
The goal is to avoid placing an additional tax burden on residents, said Tierney, a Ward 1 Democrat. a portion of the Maryland sales tax could help increase revenue down the line.
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But for now, the budget is in good stead, Tierney said.
“I cannot stress enough the success we have had with the budget over the past four years. It is balanced and aligned with modern accounting processes,” she said. “We are well positioned with regard to financial controls. Every expense is accounted for. Each source is validated and verified. It’s huge and it took four years.
Other commission members echoed Burdon’s concerns, including James Cardillo, who suggested the city needs to take a hard look at the services it provides to its residents and how it will pay for those services in the future.
“I believe elected officials just need to engage in some sort of rethinking and strategic planning on what city services the city wants to provide to figure out how best to structure city staff to do that, because we’re far too dependent human capital and it’s unsustainable as we continue to see,” Cardillo said at Thursday’s meeting.
The council set aside $50,000 for a community survey to determine which services residents care about most and an additional $5,000 to fund a task force that would look into merging certain public services with Anne Arundel County. Neither initiative took off.
“The city must now face the tough choices to control staffing costs, including eliminating, reducing or modifying city services and program delivery, or facing the prospect of raising taxes and fees to align personnel costs with revenue and cash flow,” the commission wrote. “The city should now begin the process of evaluating the feasibility of such actions.”
The council is due to convene a work session on May 26 to discuss proposed amendments to the budget.