Sixth in a series on the 2011 budget.

My prior budget posts describe the exceptionally challenging trends and circumstances that have impacted New Rochelle’s fiscal health. In this post, I look more closely at the actions taken by the City in response to (and also in anticipation of) a deteriorating economy. Together, these steps have helped New Rochelle weather the storm better than most communities, but not without consequences … and the storm is not yet over.

Already Lean

By the time the economic crisis began, New Rochelle’s City government was already quite lean. You can see in the charts below a comparison of municipal spending and employment in White Plains and New Rochelle. The figures are taken from late 2008, just about the time the economy really started to tank.

Municipal Operating Expenses (per resident)

Full-time Municipal Employees (per 1000 residents)

There are lots of differences between White Plains and New Rochelle that make this an imperfect comparison. My point is only that New Rochelle’s more recent cuts in programs and personnel have not been an exercise in reducing wasteful spending, of which we had little to none, but instead have involved separating essential spending from merely desirable spending — a considerably harder task.

Controlling Personnel Costs

Reducing the Municipal Workforce
Starting in 2008, the City implemented a selective hiring freeze. By 2011, the cumulative effect of this policy will reduce the municipal workforce by almost sixty positions or about ten percent, bringing our local government to just about the smallest size in New Rochelle’s modern history. Savings from attrition will total approximately $5.1 million next year.

The smaller workforce does not, however, come without significant sacrifice. The Police Department has pulled back from community programming in order to focus on core emergency response services. The Public Works Department is slower to repair potholes and sidewalks or attend to a variety of neighborhood concerns. Minimum manning standards can put certain Fire Department apparatus periodically out of service. As I said, removing desirable services from essential services is not done easily.

Freezing Salaries
As a general objective, the City Council supports an across-the-board salary freeze, encompassing every municipal employee in every department. We have implemented this policy to the degree possible, allowing increases this year and next year only for the segment of our workforce under multi-year contracts, which cannot be unilaterally abrogated by the City’s management. The savings achieved by these actions are difficult to calculate precisely, but $1 to $2 million for 2011 is a reasonable estimate. (One important caveat: for unionized employees whose contracts have expired, freezing salaries outside the context of a labor agreement may ultimately prove to be a raise deferral. This depends upon the nature of the eventual contract settlement, whether achieved consensually or through arbitration.)

Health Insurance Cost Controls
For quite a while now, New Rochelle has required employees to share in health insurance costs (the typical employee match is 18%). The City has also been quite successful in negotiating favorable rates with health insurers. As health insurance costs rise, the value of these long-standing policies and actions has become clearer: compared, for example, to the health insurance cost structure for the Westchester County government, New Rochelle is saving about $6 million annually, according to the best estimate of our personnel staff.

Cutting Other Expenses and Programs

Reducing Capital Expenditures
The City has dramatically reduced its spending on infrastructure and equipment. Such reductions have serious long-term implications and our current low level of investment cannot be sustained forever, but in the current climate there is little choice. The total 2011 capital budget is proposed to be $3.4 million, none of which is paid for with cash from our general fund. To put this number in perspective, our five-year projection of capital investment needs and goals is about $62 million. In better times, the City would make a general fund contribution to the capital budget of roughly $2 million, so think of that amount as the approximate savings for 2011.

Program Cancellation & Deferral
Several worthwhile, but non-essential, programs have been cancelled or deferred. The cancelled initiatives include some that I enthusiastically helped to launch, such as the traffic calming program, monument and memorial restoration, enhanced catch-basin cleaning, and an annual traffic studies allocation. I do not consider any of these programs wasteful, but recognize that they cannot be sustained in the present economic climate. Figure annual savings of about $500,000.

Energy Efficiency
This is still a work in progress, but we are off to a good start. We have already converted City Hall’s heating system from oil to natural gas with an annual savings of about $60,000. In addition, the City recently utilized a portion of federal stimulus funding to conduct detailed energy audits of three large public buildings. While those audits are still being analyzed, we are hopeful that the recommended system upgrades will produce net annual savings for taxpayers (reduced energy expenses minus annualized capital costs.)

Securing Grants for Major Projects

The City has been aggressive — and reasonably successful — in securing grants to pay for local projects without burdening New Rochelle taxpayers. Some present examples include:

  1. the third phase of the North Avenue streetscape, paid for entirely by federal grants;
  2. the Lincoln Avenue reconstruction, 95% of which is funded by the federal and State governments; and
  3. the City Park rehabilitation, paid for almost entirely by federal and County grants.

Total outside funding for just these three projects amounts to roughly $20 million.

Securing Alternative Revenue Sources

All cities would benefit from a more diversified revenue base that is less reliant on property taxes. Municipal authority to raise revenue is, however, defined by and sharply circumscribed by State law, so tapping a new revenue source generally requires State legislative approval. Despite good support from our own State legislative delegation, New Rochelle’s success rate on this priority is mixed. We obtained approval to implement a new hotel occupancy fee that raises about $250,000 per year through modest charges on guests at local hotels. But we were unsuccessful in a state-wide push to give all cities in New York the authority to raise utility gross receipts taxes, a small charge attached to utility bills that is spread among all rate-payers, including those exempt from property taxes.

Another new (or at least rescheduled) revenue source is unique to New Rochelle. The City successfully renegotiated the terms of the sale of land for the Avalon project, front-loading land payments that had been set to occur a generation ahead, so that instead we receive $9 million now, spread over five years. A total of $4.5 million is being used to help balance the 2010 and 2011 budgets.

Financing and Deferring Costs

To be clear, I am not exactly boasting about this category of “savings.” While certain capital investments associated with long-term community benefits or physical improvements should be financed with bonds or notes, municipalities are better served by keeping their borrowing to a minimum and by avoiding borrowing entirely as a means of financing operations.

Even so, some selective borrowing can be justified at present: interest rates are very low, the City’s overall debt burden has declined significantly in the past decade (as shown below,) and some of the factors driving the present budget crunch will prove acute instead of chronic. With these facts in mind, the City has chosen to finance certiorari payments, bond essential equipment purchases, and utilize a State option to defer a portion of the extraordinary 2011 increase in retirement system contributions. While not saving money, these actions will spread some cost pressures over an extended period. For 2011, figure a rough cost reduction of about $2 million from these measures.

Outstanding City Debt (adjusted for inflation)

It All Adds Up To …

Now, of course, the foregoing is not a comprehensive list. For example, I made no mention at all is the interplay between economic development and our tax base, which I will explore more fully in a future post. Nor did I touch on a variety of smaller spending cuts or cost increases. Nonetheless, you can see that the City has been addressing economic challenges in a sustained and pro-active fashion, and that our actions have made a real difference.

But … I can almost hear readers asking: “Hey, Noam, if the City has taken all these steps, then why the heck are my taxes still going up?!”

Good question.

I wrote previously about declining revenues and rising expenditures. The cumulative impact of retirement contributions, declining mortgage and sales tax revenue, property tax grievances, and all the other items mentioned would have created a budget gap for 2010 and 2011 of more than $13 million. Filling that gap would have necessitated a whopping 36.5% tax increase, spread out over two years, just to maintain the status quo with respect to the size and operation of New Rochelle’s government.

Instead, the City’s dramatic cost-cutting measures have reduced expenses by about $9 million, while new revenue sources and some modest financing have further reduced the gap by about $3 million. That’s taken some of the pressure off City property tax payers, but not all: the total tax increase for 2010 and 2011 combined will end up being about 9%.

Cost Pressures and Actions Taken, 2010 – 2011

Property Tax Increase, 2010 – 2011

In other words, the City’s various economizing measures have knocked down the tax rate by close to 30%, but opposing trends over which we have no control have proven even more powerful. That’s not a very pleasing answer, but it’s an honest one.

My next post will look at a few of the red herrings and myths in the budget debate, especially the old and false canard that New Rochelle’s fiscal challenges result from economic development agreements. (Quick preview: downtown development has had a net positive impact on the City and School District’s budgets.) I expect to conclude with a look at the final adopted budget, likely to be voted upon by the Council on December 14th.