About $6 million of increased revenues in fiscal year 2007 will be wiped out by the rising costs of fuel, education and employee retirement benefits, the city's budget analyst reported Wednesday.
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The biggest culprit is the public employees' retirement system, or PERS, and the teachers' retirement system, Bonnie Chaney said. The retirement plans are made up of contributions from employers and employees, based on annual evaluations of how much is needed to fund benefits.
"The city contributes about 21 percent of individual wages," Bonnie Chaney said. "At some point in the future the current system may become like a standard 401(k) plan."
The unfunded liability in PERS and TRS is largely attributed to a poor run on the stock market for the program's funds and skyrocketing costs for the medical benefits. The city now pays more than 21 percent into the PERS system. That means for every $100 an employee earns, the employer must pay about $21 toward that employee's retirement.
That rate will cost the city more than $2 million in fiscal year 2007, which runs from July 2006 through June 2007.
"We estimate it may peak at about 28 percent in 2007 or 2008," Assembly member Randy Wanamaker said. "It is the main reason why the number of city employees is not changing, but the budget is growing."
projected additional city revenue for fiscal year 2007
property tax: $3,085,000
sales tax: $2,720,000
investment income: $437,000
total: $6.8 million
projected 2007 major cost increases
benefits (health and retirement): $2,852,000
support to education: $1,396,000
eduction in state and federal support: $375,000
all other costs: $1,066,000
total: $6.48 million
The city actually owes $70 million to the PERS fund, but has not planned on how it will be paid yet, Wanamaker said.
"These investments were doing well and then the market took a hit a few years ago so the city has to pay more of the contribution," Chaney said. "The challenge is keeping a balanced level of public service while balancing community needs."
This year the city anticipates an average increase in property value of approximately 12.6 percent and an increase in sales tax revenues. Property tax collections totaled $39 million this year, up from fiscal year 2006's total of $34.8 million, Chaney said. Voter-approved bond debt also increased $300,000 to $4.2 million, she said.
"Revenues should be increasing for some time," City Manager Rod Swope said. "But we also have some skyrocketing costs."
There was an average increase in property values of about 12.6 percent, increasing sales tax revenues and a higher interest rate on investments, Swope said. The amount of increased revenues in fiscal year 2007 will be offset by a 34 percent increase in health insurance costs and mandatory contributions to PERS; a 30 percent increase in workers compensation insurance; and both a 66 percent increase in heating oil and 60 percent increase in gas and diesel fuel.
The city's residential properties have gone up by as much as 25 percent. Swope proposes a 0.33-mill decrease for the 2007 fiscal year budget. The total current mill rate is 11.17. That amounts to $1,117 of tax per $100,000 of assessed value.
Swope said the construction of the Kensington Mine and Home Depot and other big box-store expansion will result in future property and sales tax revenue boosts. Numerous housing developments and subdivisions are planned or currently under construction, including at Lena Point, he said.
"This expanded area requires more of a police presence," Swope said. "I have recommended two more police officers be added to the force."
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