Farmington officials this month received a 5-year budget forecast that shows the city headed for a sea of red ink, despite an expected increase in property tax revenues.
The numbers look grim: a projected $300,000 deficit at the end of this fiscal year, dipping slightly to $270,544 in 2018-2019 and $269,011 in 2019-2020, then rising up to $324,739 in 2020-2021, $335,898 in 2021-2022, and $373,674 in 2022-2023. Five years of deficit spending at that level would wipe out the city’s unrestricted fund balance, a financial cushion that dropped from nearly 27 percent of operating costs in 2015-2016 to 17 percent in 2016-2017.
The cause, city treasurer Chris Weber said, is related to a change in how pension payments are structured and the Headlee Amendment limit on how much the city can capture from increases in its tax base.
“MERS (Municipal Employees’ Retirement System) changed the assumptions they were using to determine our payments,” he explained. “They changed the mortality tables because people are living longer. That made our liability bigger, and they accelerated our payments.”
“Accelerated” may be an understatement; the time the city had to make payments that fund employee pensions has been cut in half, from 30 to 15 years.
“It’s like changing from a 30-year to a 15-year mortgage,” Weber said.
On the revenue side, Michigan’s Headlee Amendment limits the city’s local millage to the amount it was originally designed to collect. According to a Michigan State Extension fact sheet, if the taxing unit’s overall property valuation rises at a higher rate than the cost of living, “the maximum property tax millage must be reduced so that the local unit’s total taxable property yields the same gross revenue, adjusted for inflation.”
With that in place, property tax revenues are expected to rise over the next five years – from $4,624,175 this year to $5,344,604 in 2022-23 – but at a rate that lags behind the increase in expenses.
Weber added that the deficit projections may be affected by factors such as returns on the city’s investments.
“In four to five years, things could change quite a bit, depending on what the market does,” he said.
Officials at a recent goal-setting session and at Monday’s council meeting called for more community awareness and involvement around finances. Council member Bill Galvin on Saturday called for some type of civic engagement project around finances.
“We cannot experience enough economic development to get rid of those red numbers,” he said. “We need to get out in front of this.”
“There are some challenges our city faces,” Mayor Steven Schneemann said Monday. “I think it’s a dialogue we need to start having.”
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