Budget Talk and Moody’s AAA — Rye City Council Minutes from November 5, 2008

Rye city council minutes, penned by City Clerk Dawn Nodarse, have been published for the November 5th meeting. Here are the highlights. Mayor Otis (who arrived at 8:07pm) and all the council members were in attendance.

• Presentation of 2007 Financial Trends Report. City Comptroller Genito summarized the 2007 Financial Trends Report. The report covers a ten-year period tracking financial indicators and ratios from 1998 through 2007. The report did note certain things that were happening such as the decline in mortgage tax revenue and interest earnings, which are two major sources of revenue. Mr. Genito said all of the financial ratios regarding the City’s financial position are very sound. Current ratios are high, the liquidity ratio is high, the fund balance as a percentage of expenditures is very high and the City is well above the targets that are standard across the Country and considered best practices.
• Enterprise Funds. The City has two Enterprise Funds, the Boat Basin and the Golf Club, that are operated like businesses. The two funds have a priority of making sure that they cover all of their expenditures, including debt service, capital improvements and all operating expenditures. Both funds have done this as well as decreasing the burden on the taxpayer by paying back to the General Fund general administrative overhead charges. The Boat Basin built up a sizable fund balance for the dredging process that is currently underway and will probably cost $2 million. The Boat Basin will be able to pay for the project without issuing any debt or borrowing any money. The Golf Club has also been covering its own costs and paying off the debt issued for the renovation of Whitby Castle in 1998 (over $400,000 a year) as well as other improvements to the Golf Course.
• Moody's AAA. Moody’s, the investor service that rates the City’s bonds, has given the City’s bonds a Aaa rating, the highest rating for a municipal bond. Rye is one of the few municipalities in New York to receive this rating and Moody’s cited the Financial Trends Report as something that goes well beyond what most communities do.
• Otis and Pratt Comment on FY 2009 Budget. It is hoped that the full impact of this economic downturn will not be as bad as in 2001-2002 but the Council has asked the City Manager to cut many things before the budget is presented and eliminate things that can be deferred, in order to keep the tax increase as low as possible. In November 2006, the New York Times rated the City as the third lowest cost government in Westchester County in terms of providing services in an efficient way. Councilman Pratt said there were a couple of important statistics that he wanted to bring to people’s attention: the number of municipal employees as well as the City’s population has remained fairly stagnant in the last ten years. Property taxes make up 63% of the budget and 97.3% of that amount goes for salaries and benefits, which means that 37% of the total budget is variable coming from elastic revenues such as mortgage tax and state aid and that is the percentage of the budget that is in play. He also noted that 2009 salaries and benefits are approximately $19 million, or about the same amount as the tax levy. This means that City taxes pay only for salaries and benefits of City employees and everything else is paid for by other sources of revenue.
• Presentation of the FY 2009 Budget by the City Manager. Mr. Shew began by saying that this budget is 16 cents on the tax dollar down from a high of 19 cents in the past. Mr. Shew said it is more useful to talk about dollars than percentages because as the City becomes a smaller part of the tax dollar, percentages do not tell the entire story. The City is primarily a service organization, providing such services as police and public safety, garbage pickup and recreation. The majority of the money in the budget focuses on people and services. The budget is moving in two directions: one where expenses are increasing (such as the cost of electricity for street lights, which will cost over $100,000 more next year) and the other where revenues are decreasing. Prior to September 15, 2008 a different budget would have been presented but due to the economic changes in the world since then the budget being presented has changed. The Council has directed staff to provide a realistic budget and, therefore, staff has cut over $1 million from the pre-September 15th budget. The changes made will focus on recurring expenses as the City goes forward. Fund balance will not be used to fund recurring costs such as salaries. The City will continue to scrutinize all positions before filling them and several positions have been eliminated in the last several years.
• 16 Cents on the Dollar. Shew gave an overview of some things that the 16 cents on the dollar has provided to the community by various entities:
  • Department of Public Works: The reconstruction of Theall Road and the negotiation of an agreement for additional parking for Rye Manor residents; The completion of the Kirby Lane North sewer project, which will be paid for by the residents but required hundreds of hours of time expended by City staff; The Boston Post Road diet project; Flood-related projects Maintenance of sewer lines, storm drains, pump stations, parking lots, streets and sidewalks.
  • Police Department: Renovation of the Police Department building; Relocation of a generator to power building during emergency conditions; Studied options for Police/Court facility; Responded to 12,182 calls for service, issued 2,700 moving violation summonses, 6,500 parking tickets, made 285 arrests on 625 charges; There are 39 sworn officers in this budget, a reduction of one from 2008; The Reverse 911 has been upgraded; The Department successfully continued its accreditation, one of few departments to be accredited; The respect manual was updated; Members of the Department were trained in the use of defibrillators and advanced first aid and are now Certified First Responders Class D.
  • Fire Department: The Department, in conjunction with the Building Department, improved the Insurance Services Office (ISO) rating (from 5 to 4), which gives residents a better rate on fire insurance rates; The Department is evaluating the best way to purchase equipment relative to the needs of the community and public safety; The Department is attracting more and more diverse volunteers.
  • Recreation: Sally Rogol has succeeded Bill Rodriguez as Recreation Superintendent; Many programs are offered for both children and seniors; The Department returns 47% of its costs through program fees or donations lessening its dependency on tax dollars.
  • Nature Center: Now operated without municipal employees.
  • Rye Free Reading Room: A not-for-profit operated by an independent Board of Directors; More dependent on tax dollars in recent years.
• 2008 a year of completion of projects. Shew highlighted such projects and the completion of negotiating a contract for dredging of Milton Harbor after seven years of work; an  Intermunicipal Agreement (IMA) with Mamaroneck; the extension of the Triathlon Protocol to other events using City streets; a mentoring program for interns during the summer months; the Boston Post Road Diet; the Peck Avenue pump station; the Highland/Onondaga drain and a coordinated strategy with utility companies was reached so work can be done on the Theodore Fremd Avenue wall.
• 2009 Projects. Shew said many projects were already in the works for 2009. They include determining the best options for Police/Court facilities; developing a new model for the operation of the Boat Basin that contemplates routine dredging; dealing with new Federal, State and County mandates that increase the cost of operations. He said it is expected that legal costs will rise because two collective bargaining agreements (Police and Fire) will be negotiated; defensive actions have been taken against adjacent communities in connection with Beaver Swamp and Bowman Avenue Dam and, the City must defend itself against all lawsuits brought against it, including frivolous ones.
• City Comptroller Genito - Hardest Budget in 12 Years. Genito said the 2009 budget is the most challenging he has had to prepare in his 12 years as City Comptroller. In the past year the federal funds rate has dropped from 4½% to 1%, which will have a significant impact on interest earnings. The collapse of major banks and lending institutions will affect mortgage tax receipts and building permit revenues. The Finance Department must remain vigilant to ensure that an unexpected change in bank ownership does not place City deposits in any jeopardy. State aid may also be cut as the State seeks to close its 2009-2010 budget deficit of $12.5 billion. 2008 has been an unusually active year for budget adjustments due to unanticipated appropriations of $644,000 ($280,000 to fund capital projects; $221,500 for legal services and $143,000 for the City’s share of the Rye Town Park, although the actual amount of that deficit has yet to be determined). If these amounts had been know at the time the 2008 budget was adopted the tax rate would have been 5.4% rather than 3.3%. As revenues decrease, expenses increase for such items as wage and benefit obligations related to collective bargaining agreements; rising costs of fuel for vehicles or the impact of oil costs on the price of commodities, and the City’s electricity rates will rise 42% in 2009. Long-term impacts will be caused by the disruption of municipal lending markets, which has caused a lack of confidence in municipal bonds and the companies that insure them resulting in Aaa 20-year municipal bond rates rising from 4% to 5%. This could affect the ability of the City to borrow, and the cost of borrowing would influence projects that would otherwise be funded by debt.
• Tax Increase. The City Manager’s recommended 2009 budget provides for a tax increase of 5.95% over the 2008 tax rate. In dollar terms this means an increase of $177 a year or less than $15 per month on a median taxable assessed value home having a market value of $1.3 million. In another context, the City’s 16 cents of the property tax dollar remains the smallest piece of the pie.
• 2009 Revenue Challenges. It is anticipated that interest earnings will drop from $750,000 budgeted in 2008 to $300,000, down $450,000 or a 60% decrease. It is estimated that 2009 mortgage taxes will be $1.1 million, down $475,000 or 30% from what was budgeted in 2008. The next year’s budget assumes that our $1.3 million in State aid will remain in tact but that may change as the States wrestles with its projected budget deficit. The hotel occupancy tax will remain flat budget to budget at $170,000 and the utility gross receipts tax will increase 11% from $360,000 budgeted in 2008 to $400,000 in 2009. A 1.5% decrease in sales and use tax is anticipated from $1,980,000 to $1,950,000 and the City is budgeting the same $900,000 for building permits in 2009 as in 2008.
• 2009 Cost Challenges. On the expenditure side, salaries and wages will increase 2% reflecting contracted salary increases that are off-set by a reduction through attrition of full-time positions in the Finance, Information Technology function, a full-time support position in Engineering and one police officer position. Benefits will decrease $192,000 (3% from 2008), which is the net result of the aforementioned reductions combined with a $165,000 reduction in workers compensation costs. Equipment purchases are budgeted to be $116,000 less than 2008, materials and supplies increase by $17,000 (less than 7/10%) and contractual costs will to be decreased by $167,000 (2%). In order to make the most use of available fund balance, $1.6 million has been budgeted for infrastructure, buildings and facilities, and vehicles and equipment. By not incurring debt, the City’s ability to deliver essential services is preserved.
  Mr. Genito said that the proposed 2009 budget adheres to the adopted financial policies. Operating expenses are covered by operating revenues. Recreation revenues return 47% of their expenditures, which is above the target levels expected by the City Council. A Contingency of $300,000 represents at least 1% of the expenditures and is included in the appropriations. Available fund balance is used for capital and equipment costs and the fund balance after these purchases, is projected to remain well above the 5% of appropriations mandated by our financial policies. Mr. Genito cautioned that, at this time, there are still many unknowns that could affect the assumptions and estimates made in the development of the proposed budget, including changes in State Aid; actions by the Federal Reserve that could require the City to recalculate projected interest earnings; the volatility of the commodities markets that could change the costs of materials and supplies, and market liquidity, interest rates and consumer confidence that could affect the outlook for sales and use taxes, mortgage taxes and building permit revenues. 2009 is a year that requires deep reflection and responsible planning for 2010 and beyond, with an eye toward maintaining core services and preserving capital for future needs.
• Cottage Fire on Beck and Wainwright. Sean Kennelly, 13 Wainwright Street, and Louise Iannarelli, 30 Wainwright Street, came to update the Council on the situation regarding the cottages on Beck Avenue and Wainwright Street. On October 22nd a fire took place in the center cottage between Beck and Wainwright that required the efforts of 75 firefighters to extinguish. They thanked the Fire Department for putting out the fire and for saving their homes. Mr. Kennelly thanked City Manager Shew for speaking with him about the situation and asked when the Building Department would inspect the remaining cottages. He said that people were still living in houses on Beck Avenue and he was concerned about oil tanks and gas lines that remain on the property. Ms. Iannarelli presented photographs of the cottages taken from her home and said that in the 40 years she has lived there she has watched the property deteriorate, especially under the current owner. City Manager Shew said that the City is currently working in three areas relating to this situation: a Court action in Rye City Court for property violations, an In Rem proceeding for tax foreclosure and working with the owner’s attorney to come to an agreement wherein the Building Department will be allowed to inspect all the buildings and the burned building will be boarded up with demolition to follow after it has been inspected by the owner’s insurance company.
• Hewlett Avenue Sewage Pump Station. Mayor Otis said that $191,000 was coming to the City via a grant from Congresswoman Nita Lowey. City Manager Shew said that the Pump Station has two pieces, a force main, which has broken three times in the last few years and will be replaced and the second, which is the station itself. The City accepted accept a U.S. Environmental Protection Agency Fiscal Year 2008 Appropriations Act Grant in the amount of $191,000 for the Hewlett Avenue Pump Station project.
• Pratt and MyRye.com. Councilman Pratt questioned comments posted by Councilman Sack on the blog Myrye.com relative to the recent work session held with the consultants the City has hired to evaluate the best location for a Police/Court facility. A "spirited" discussion followed regarding the appropriateness of possible locations for the facility that had been mentioned at the work session and referred to in post-meeting blog entries by Councilman Sack and Mayor Otis.