As the Newton City Commission and staff goes through the annual budgeting process, all angles are being reviewed as the city works to set its budget for Fiscal Year 2020.
Part of that process, as Director of Finance Donna Pickman pointed out, is looking at the five year forecast to maintain fiscal discipline and provide essential services to city residents.
"It's always been in the budget, but I don't think it's been looked at like we're looking at it now," Pickman said.
Focus on the five-year forecast is crucial at this moment as Newton nears a point of deficit spending, which could hit as early as 2020 based on the projections presented by Pickman at a recent city work session.
Based on projected revenues and expenditures (as well as market increases factored using the Consumer Price Index), the city would be looking at a negative overall balance as early as Fiscal Year 2021 — even considering assessed valuation and related revenue increases. Starting in 2021, the ending balance in all five property tax funds is projected to be at a deficit of $80,351, which could grow to $6 million by 2024 if nothing is done.
Pickman pointed out that is the absolute worst case scenario. The budget for specific funds was also broken out to show where the city commission could start to cut into that potential deficit.
Some funds that have come under the most discussion in regards to raising revenue are the water and wastewater funds — tied back to the sewer upgrade fee project costs. Given that project came in under budget, the city commission has talked about the potential to reduce sewage rates, which were initially projected to increase by 38 percent. Looking at lower increase options (either 19 or 16 percent), along with a $1.90 increase to base water rates, that would push deficit budgets back in those funds for at least one year.
While the city has sought out input on just what citizens want the commission to do in regards to savings tied to the lower-than-projected costs for the sewer upgrade, no clear path forward has emerged. What is clear, though, is that if nothing is done to increase revenue in those funds the city could be looking at an even larger deficit — particularly in the wastewater fund.
"If we do nothing, by 2024 we're $4.1 million dollars in the hole," said vice mayor Leroy Koehn. "We can't do nothing."
More pressingly, and making up a big chunk of the city's expenditures, the bond and interest fund could see a deficit balance by Fiscal Year 2020 if nothing is done in the current budget cycle — given the number of bonded projects that have been approved in the capital improvement plan (e.g. the law enforcement center remodel, street enhancements for a project with Occidental Management, etc.).
Director of Public Works Suzanne Loomis pointed out that there are multiple projects on that list that are subject to change, but as currently scheduled the city will have at least $5 million in bond payments to make over the next five years. If no action is taken, the city would end Fiscal Year 2020 nearly $200,000 in the hole in the bond and interest fund.
Projecting a four-mill increase in the bond and interest fund would cover the city for an additional year, but Pickman said part of the rationale behind the five-year forecast is to help get Newton on solid ground for the foreseeable future — something the commission would need to weigh when considering a larger, eight mill increase to the fund (which would push off the deficit for at least five years).
"We need to find a good base line where we can stay and not go past a certain point," Pickman said. "This gives you lots of food for thought."
"If we went up eight now, we may not have to increase for a while," said commissioner Rod Kreie.
Commissioner Glen Davis noted he has already been alerting residents to a potential eight mill increase while the commission overall noted it had a lot to digest and discuss, thanks to the five-year forecast, before setting the FY 2020 budget.