City of Fernandina Beach FY 2012-2013 Budget - A Fiscal Crisis?

Submitted by

Douglas M Newton, co – editor

John Campbell Elwell, contributing associate

My associate, John Campbell Elwell and I, were fortunate to have an audience with the very astute and knowledgeable City Finance Director, Patti Clifford, regarding the proposed 2012-2013 budget. We reviewed the copious document with her and were able to extract the information needed to present a concise summarized version.

According to the current proposed budget, the City faces a deficit of $ 3.4 million if no action is taken to increase revenues or reduce expenditures. Property appraisals are completed prior to the budget projections, so that the City has some basis for estimating tax revenue. A factor of 95% of the projected tax revenues based on the appraised values was used, but that may be overly optimistic due to appraisal appeals and defaults by property owners.

Initial ideas to decrease City expenditures include deferring animal rescue funding for a year, not funding the storm water fund, retaining lower commissioner pay rates, eliminating five full time and two part time employee positions, eliminating exempt employee merit increases, and reducing the general fund reserve level, all of which will save 1.1 million.

Initial ideas to increase City revenue include raising the property tax .34 mils ABOVE the rollback rate, (A rollback rate is the rate at which the current tax base would produce the same taxes levied as the previous year) increasing the property tax an additional .16 mils above the already increased millage rate, and increasing the electric franchise fee to 5.5 percent, all of which will add 1.4 million. The first proposal, increasing the millage rate by .34, requires a majority of the commissioners vote for approval, while the second proposal, increasing the millage rate an additional .16, requires a super majority vote (4 of 5) for approval

The City, as with most municipalities, has an unfunded pension plan, which really means that if all pension participants retired at the same time, the pension fund only covers 60% of the amount owed to its retirees. The City’s plan is a defined benefit plan which, according to the State of Florida, at the 60% level is actuarially unsound.  The pension earnings' projection is 8% yearly, so in this low interest rate and earnings environment, the city is struggling to keep up with the shortfall. The pension funding level is based on a four year smoothing.  During the first year of that four year period (2008), the Dow Jones Industrial average fell to 7500.  When the market increases, as it has done in 2012, the funding level will rise, thus making the City contribution to the plan less. However, the Government Accounting Standards Board recently proposed and probably will adopt  Statements 67 and 68 which requires that the unfunded portion of the plan be shown as a liability on the Balance Sheet.  That will certainly be revealing.

Balancing the FY 2012-2013 budget will require great finesse and sacrifice in many areas of City Government and its constituency. We plan to follow the development of the City  Budget as it is being prepared by the City Manager.

July 9, 2012

2:41 p.m.