Shortfall

Lansing Mayor Virg Bernero requested the City Council on Monday approve a budget amendment taking $1 million from the city’s $7.93 million in reserves to balance the budget.

That represents a 12.6 percent decrease in reserves, which had already dropped a total of $5 million in the 2010 and 2011 fiscal years.

Some of the reserves — $53,000 — will be used to cover the cost of the special May 3 millage election that failed.

“Sometimes those projections are right on the mark, sometimes they come in above or below (what we anticipated),” Bernero said to the Council. “The FY11 budget will come up short by as much as $1 million. To remedy this shortfall, I am required to use the Budget Stabilization Fund. We never plan to use them.”

Following the Council meeting, Deputy Chief of Staff Randy Hannan said reserves are lower than they’d like to see and this year’s use signals the continuation of a downward trend. 

“Things change,” he said about anticipated revenues and expenditures, which were last analyzed in March 2010 as the current fiscal year budget was crafted. “There are significantly higher costs in a number of areas (than predicted).”

Using the reserves is a trend the administration would rather not see, Hannan said.

“We’re always concerned about it,” he said, referring to the reserve fund levels. He said bond rating agencies “like to see” them at about 10 percent of the General Fund budget. With the new decrease, they will be below 7 percent.

With a budget around $100 million, Hannan said reserves should be at $10 million to $11 million.

“Absolutely it’s a concern,” he said. “Piece by piece it’s been whittled away.”

The city’s reserves are split into two funds: General Fund reserves and the Budget Stabilization Fund. Together, those reserves have dropped $5 million over the past two fiscal years. 

Reserves were at $12.96 million in fiscal year 2009. In the adopted 2010 budget, reserves were at $10.8 million. In this year’s adopted budget, reserves were at $7.93 million. Reserves over that time were taken from the General Fund. The Budget Stabilization Fund remained unchanged at $5,728,059 over the period, and this proposal takes $1 million from there. 

The shortfall is due to “vacancy factors,” $550,000 in Fire Department overtime, the special election costs and increased insurance, health care and pension costs. Also, revenues from charges for services and fines and forfeitures were lower than expected.

The administration can also recommend restructuring certain departments mid-year if it looks like revenue and expenditures aren’t going to match up, but since it needs to be balanced by June 30, “There’s no way to make up $1 million in two weeks,” Hannan said.

Hannan said the city hopes its reserves can be beefed up with increased state revenue sharing. When asked if there are specific plans in the upcoming budget to increase revenues, Hannan said “minimally.”

“It hasn’t been a practical possibility. In this fiscal environment, it’s difficult to argue (to build it up),” he said.