"Rochester’s Budget Challenge: Taking Charge of Our Destiny "
2011-12 Budget Address
Delivered by Mayor Thomas S. Richards
City Council Chambers
May 20, 2011
View Accompanying Budget Presentation
View Proposed Budget Document
View Budget Message
Good morning. Thank you all for being here and to all watching this on City 12 TV. I would also like to thank and welcome our City Council. Today, I am presenting the City of Rochester’s budget proposal for the upcoming fiscal year to the City Council for approval. It has been 35 days since being sworn in as Mayor of Rochester and I thought getting into office was tough - this budget submission makes me look back on the election process as the good old days.
I can tell you first-hand what a difficult task this budget submission is. Our expenses far exceed our revenues and they have for some time. And like any budget that is short of cash, this unbalance is a challenge. But it is our response to that challenge that will define our city and our path forward.
This budget crisis really has been an opportunity for all of us in government and all of our customers and citizens to have an honest and frank talk about what is truly important and fundamental for a city to provide for its residents and businesses. I have said there is nothing like running out of money to focus one’s priorities. And that is exactly what this budget proposal is – a statement of priorities and philosophies.
Before we can talk about that, we need to understand how we got here. Rochester has seen its population decrease by 30 percent since 1970. We have experienced a severe decline in our manufacturing sector. Kodak’s workforce alone has declined 87 percent in the last 30 years. The households in our city earn a median income of only about 30,000 dollars a year. City Hall has trimmed its full-time workforce by 30 percent since the 1970s, including 14 percent in the last decade. Employee salaries, health care and retirement benefits account for sixty-five percent of our total budget. Public safety positions account for 70 percent of those personnel expenses. State aid has gone down $2.2 million dollars and our costs for retirement benefits, salaries and wages, and health care benefits are rising sharply and will continue to rise sharply.
Going into this budget process, our planned expenditures outpaced our income by $50 million dollars. Through midyear cuts and hiring freezes, and by deferring on some capital spending and reorganizing our project timelines, we reduced that gap by $20 million dollars. The remaining $30 million dollar shortfall is real and mostly is the result of having others making decisions for us that, like it or not, cities must live by.
For example, Rochester has three challenges from the state – a high Maintenance of Effort, or MOE – low Aid to Municipalities, or AIM and an explosion is pension costs. Under the MOE law, the state mandates that before all other expenses, the City must give $119 million dollars to the Rochester City School District - $50 million dollars more than Buffalo is required to give it’s district. The City has absolutely no say in how this money is spent. That amount is 71 percent of our total tax levy, leaving us with only 29 percent of our tax levy to fund everything else, from police to fire, road maintenance, libraries, recreation centers and every other City program, event or service.
Our AIM revenue per capita is $40 million dollars lower than Buffalo’s and far below what Syracuse receives per resident. The high MOE and low AIM together puts Rochester at a $90 million dollar imbalance with Buffalo. Also, state mandated pension costs will total $33.5 million dollars in the new fiscal year, an increase of 29 percent. Medical costs and mandates, along with state arbitration-backed contract awards to union employees that do not take fairly into consideration a community’s ability to pay, also drive our funding gap. All these decisions are not local, but made by lawmakers who do not have to live with the consequences of their votes. These are the mandates that got us here and they don’t seem to be going away anytime soon.
And, while 75 percent of our budget is driven by mandates, we must recognize that it cannot be dictated only by mandates. These mandated costs are expected to further increase for the next several years. If left on its present course, the pension time-bomb alone may functionally force cities and municipalities to a control board.
While other governments under control boards have seen their deficits erased and even surpluses created – they have paid a steep price for the loss of local control. Investments and growth opportunities are quashed and a city goes in survival mode. Contracts with labor are rescinded, and outside concerns decide layoffs and funding for employees. I do not believe our workers or our citizens believe that we cannot govern ourselves and therefore need the state to do it for us.
To help keep our City financially stable, we all must support the Governor’s efforts to reform the present pension system. Our new Governor is also focused on getting the State’s fiscal house in order and returning New York State to a place that attracts people and businesses. Rochester is fortunate to have its former Mayor, Robert J. Duffy, as the Lieutenant Governor of New York State. I believe that over time, Rochester will benefit greatly from having a friend in Albany who knows our City.
With that, let me present our plan to not only close the remaining $30 million dollar budget gap, but to invest in the things that make urban living attractive to citizens and investors. I’d like to start by thanking everyone who attended our four Voice of the Customer meetings in each of the city’s quadrants. Also, thanks to all who emailed their thoughts and concerns to us or called 3-1-1. We heard you. To see what your neighbors had to say, log onto the City’s website, and read the final report. Our Voice of the Customer sessions were highly attended and we received a lot of input. Let me be clear, we listened and put much of your input to work.
One theme that came from those meetings was that services that are mandated and public safety services are very important – but not the only things that are important.
In recent years, such services threatened to force out other spending that our citizens also want and need. Things like libraries, recreation centers, neighborhood investment and quality of life activities. I can say now that under this proposed budget, we will not be closing any library branches; we will not shut down any fire stations and we will not close any recreation centers. These are programs and services that our community needs and values. They are what make our community vibrant and vital. It is our aim to support the values of the community, as opposed to those who only care about singular interests.
So how do we do it? This is the core dilemma of this budget. We must provide a balanced budget. How do we meet our budget objective without eroding quality of life? How do we reduce our workforce without losing our young and promising workers and the diversity we have worked so hard to develop? Lopping off services such as closing fire houses and libraries looks to our citizens like the City is retreating; pulling out of neighborhoods and circling the wagons.
This administration is not about retreating. We will not give up our hard-earned advances and our mission to grow and improve. We cannot cut our way to greatness. We need a structural solution that starts to address the root of the problem and not just react to the yearly shortfalls by annual retrenchment.
This is an honest budget with no hidden borrowing. It contains reasonable revenue estimates, an accurate picture of our labor costs, and specifically identifies real savings.
So here’s what the plan is:
1) Restructure the workforce and not just reduce it. There will still be fewer workers but perhaps fewer layoffs if done correctly;
2) Use our reserves to reduce costs and not just delay them;
3) Delay and re-prioritize capital projects;
4) Increase revenues;
5) Ask our unions and workforce to participate in solutions that help us prevent future layoffs and service reductions.
6) Invest some of the savings into long term growth areas.
Now to do this, we need some help. We need recognition of the problem and the benefits of a joint solution from our residents, unions, employees and other stakeholders.
Let me explain how strategic right sizing differs from retrenchment. To address dramatic increases in pension and health insurance costs and the reduction in revenue, the City must restructure its workforce. This needs to be a permanent structural change, but to preserve the City’s capacity to function; it needs to be approached strategically. Upwards of 140 positions will be cut and as many as 80 or so people face being laid off.
Unlike in the past, there must be a balanced impact on all departments and positions, both senior and junior, if we are to maintain a balance of services. Even with this balanced approach, simply laying off people under the mandatory last in- first out rule will disproportionately impact the newest employees, many of whom, particularly in our public safety workforce, are minorities.
To address this issue, I am proposing for the first time in the City’s history to offer a retirement incentive to the most senior City employees. We will offer eligible City employees a one-time $15,000 dollar retirement incentive. It is my desire to use the incentive to enable us to reduce layoffs in all Departments, allow us to bring in new police and fire recruit classes and improve workforce diversity. The cost of the incentive is anticipated to be approximately $7.4 million dollars, and will be funded primarily by the City’s retirement reserve. I intend to submit this proposal to Council for approval in early June.
We need to work with our unions and employees to seek their help. We cannot minimize the need for layoffs, avoid closing some of our libraries, recreation centers and firehouses without assistance from our employee unions. We need to work together and they need to moderate their demands in order to address our common financial challenges. This challenge is first presented by our police and firefighter unions that have been without a contract for three years.
I am pleased to report that we have reached agreement with both unions to settle the past years on reasonable terms and agreed to a 1% wage increase in 2011-12 and 2012-13. We have also settled a number of outstanding grievances with the police union and several other outstanding issues with the firefighters union. The payment of the lump sum representing the three past years of the contract, along with the retirement incentive, will help to motivate more senior people to retire and assist in maintaining the balance in our workforce.
At a time when it seems fashionable to attack public employee unions for causing and failing to recognize their role in addressing the financial problems of government, it is gratifying to see the City police and firefighter unions have stepped up to take their share of the responsibility. Their cooperation has not only helped to mitigate the employment impact on their members, but to preserve other services provided across the City. I look forward to this as a new beginning where we all recognize that our individual success depends on the overall success of the City.
The non-union APT employees have also been without a cost-of-living adjustment for 3 years. Now that all of the union contracts have been resolved, I believe fairness requires that some adjustment be made. I am proposing that we grant a single 4% increase effective July, 2010. The performance incentive will be eliminated and there will be no further wage increase in the new year.
This will create a savings of $1.8 million dollars, and along with the impact from the police and firefighter union agreements, will further assist in reducing the need for layoffs and closing facilities. Being proactive and working with our unions and employees is part of managing our own destiny.
We will re-prioritize our investments. Strategically, we are identifying projects that have the most impact on our city, whether downtown or in a neighborhood, and reordering the priority for capital funding. That means putting some projects off for a few years and focusing on finishing our top priority projects. We will increase some revenues and fees and use our reserve funds prudently. We will need a modest tax increase and an increase in some service fees. I will detail those for you later. We will also make investments and not just make cuts. We need to continue to invest in the areas of economic growth and areas that will make us more efficient and provide better service. Everything cannot just be cut, some efforts need more, not less investment.
For example, the David F. Gantt Community Center already has raised some $1.3 million dollars for much-needed renovations. This budget would add another $500,000 to get this project moving. The center is too important to that neighborhood to wait for more investment. This is a strategic investment in our children and our neighborhoods. What I have just mentioned is our plan, now let me put some numbers and detail to it.
Without factoring in any money from the retirement incentive, this budget proposal will cost $467 million dollars, essentially the same as last year despite absorbing the increased costs that we have identified. On the revenue side, we propose increasing the tax levy by 2 percent. This increase is within Governor Cuomo’s proposed tax cap. There is a 4 percent increase in water rates and a $10.64 cent raise in local works fees for the typical homeowner. On the screen, you will see the dollar impact of these revenues – less than $60 dollars per year for the average homeowner.
We will also add revenue to our budget by imposing fees for parking at Durand Beach and for attendance at the Party in the Park downtown concerts. The proposed budget would take a modest amount from our reserves at $3.9 million dollars. We must be prudent with reserves for every dollar used is a dollar added to next year’s shortfall. This year, we faced an automatic $12 million dollar shortfall due to the use of that amount in reserves for the current budget year.
The number of full-time workers funded in this budget proposal is the lowest in the City’s modern history. It includes funding for 2,719 full-time employees and proposes to reduce that workforce by 140. All Departments and many management positions are affected. We anticipate that through the combination of the existing hiring freeze and the retirement incentive, we will substantially reduce the currently estimated 79 layoffs throughout all Departments.
The Police Department will be decreased by 51 officers, including the 36 over-hire positions. Considering the current vacancies, this could result in 26 layoffs. The sworn police force will be 726, which is equal to 2006-07, and is higher than any year prior to that. The Fire Department’s uniformed force will be decreased by 28 positions, for a total of 476. This could result in 12 layoffs. The combination of the wage settlement and retirement incentive is expected to substantially reduce, if not eliminate, the need for layoffs in these Departments by mid-October, when they would become effective.
Allow me now to step through the highlights of the budget proposal by priority area. These are savings and investments.
Under public safety:
• We will save $3.7 million dollars from the elimination of 51 police officer positions.
• We will install 30 new surveillance cameras and the total number of cameras in the city will grow to at least 150 by July of 2012.
• There will be 28 positions eliminated in the fire department, including firefighters, battalion chiefs, and a deputy fire chief, saving $1.9 million dollars.
• We are in the final phase of the fire department’s restructuring.
• Two quint and midi stations will be converted to engine companies. In addition, a new staffed truck will be added at the Hudson Avenue fire station.
In Neighborhood and Business Development:
• The Midtown Rising project will carry on as scheduled and our Focused Investment Strategy program will also continue.
• We will continue our demolition program, spending $3 million dollars.
• To generate revenue, we will market the property where the Southeast and Northeast neighborhood service centers reside and relocate them to property that is City-owned.
• Workforce reductions will take place in our business development, housing, planning and zoning, and code enforcement areas, saving $800,000.
• We will defer major capital projects planned for Bulls Head, a new police station, Manhattan Square Park, the Broad Street Aqueduct and the Seneca Avenue project, saving $15.9 million dollars.
• We are not closing recreation centers or libraries and our infrastructure that supports the school system will remain in place.
• We will work to see that the successful models like the combination of the Thomas P. Ryan Community Center, School 33 and the Sully Branch Library are duplicated. There is no good reason to have our schools, libraries and recreation resources disconnected, or be considered separate entities. They are all paid for with public money and they should all be equally available to our customers.
• Some library positions will be eliminated, saving $94,200 and the hours at Sully branch will be reduced, saving $41,600.
In Customer Service:
• The reduction in our workforce reduces our benefit costs by $1.4 million dollars.
• The Mayor’s office budget is reduced by 20 percent, saving $400,000.
• Personnel and energy efficiencies in the City’s Water Bureau will save the City more than a half million dollars.
• Our water sharing agreement with the Monroe County Water Authority will generate more than $250,000 per year in new revenue beginning in 2013.
• We are restructuring our parks and forestry divisions to save nearly $300,000.
• We will merge management of our 311 One Call to City Hall to the 911 Department, where an automated voice response system will be implemented for even faster service, saving $471,000.
• You will begin to see improvements and efficiencies in our City’s financial and budget systems. Implementing a new financial system will result in a personnel savings of $344,000.
• A copier and printer consolidation project will save us $260,000.
• We will redeploy our sidewalk snowplow services to provide more cost-effective and enhanced services.
• We will invest $250,000 in state funds in the Summer of Opportunity Program to employ our city youth.
• A new energy supplier agreement will save $185,000.
• Thanks to the Greater Rochester Health Foundation, we will add a second “Rec on the Move” vehicle.
As far-reaching as all of these changes are, they are only a beginning in the way we restructure our financial circumstances and the way in which we render services. This task can no longer be only an annual budget exercise, but must be an on-going process throughout the year and I intend to start immediately after this budget is approved.
The changes cannot only be internal, as we must find ways to collaborate with other governments to consolidate and make our services more efficient. And for some issues, such as high mandated payments to the school district, low state aid and high state mandated pension payments, we must look to the State for action.
As I begin my first year in office, I look forward to working together with City Council to develop a multi-year plan for the future that is shaped by a fine balance between our desires and our resources. Despite our fiscal challenges, I envision a growing and successful, albeit different economy emerging for our region and our city. We must continue to make investments that will position the city for future growth while at the same time make structural financial changes.
We are beginning to turn decline into growth and it is more important than ever that we manage our way through these difficult fiscal times in a fashion that positions us for future prosperity. We have only begun our surge to become the best mid-sized city in the nation.