Birmingham 2010 budget violates city's policy

In 2007, Birmingham Mayor Larry Langford campaigned with the slogan "Let's do something!" At the time, I thought it was vapid and asinine, but nothing speaks like results. Lately I've been thinking about how some of the 10 candidates running for city council or one of the would-be mayors waiting for a special election could tweak that catchphrase, and I'm willing to lend my variation to the right candidate.

"Let's do math!"

Everyone knows Birmingham has an education problem, an economic development problem, a crime problem. But underlying all those is something else — a math problem. And unlike all those other quandaries, this problem has a solution. This problem can be asked with a simple sentence and answered with a few digits.

How much money does the city have?

Unfortunately, the mayor and the city council have never been able to agree upon one answer. During this year's budget process, the mayor's office claimed the city would end the 2009 fiscal year with a $13 million surplus. However, the city council pointed to a report generated from the city's accounting system that showed a $26 million deficit. Finance Director Steve Sayler said those numbers weren't accurate because there was outstanding revenue unaccounted for in the system. In the days and weeks after the fiscal year ended, the city's fund balance would rise and the city would in fact have a $13 million surplus.

Got that? After the end of the year, our money in the bank was supposed to increase.

Except it didn't happen that way.

An even more recent report generated from the accounting system in August shows that the city ran a $28.7 million deficit in the 2009 fiscal year, which ended in June. The city's bank balance is getting smaller, not bigger. The difference between the mayor's office's projections ($13 million surplus) and the actual number ($28.7 million deficit) was a variation of $41.7 million.

So let's go back to our original question. How much money does the city have?

The city's fund balance (the budgeting term for "savings") as of June 30, 2008, was $117 million. That's a hard number supported by the city's audited financial report. During the 2009 fiscal year, the city spent $28.7 million more than it had revenue. So $117 million minus $28.7 million equals $89 million.

So our answer for the time being is $89 million. I say "for the time being" because the city is still spending money faster than it's making it, and this time the deficit spending is not all the mayor's fault.

The compromise budget passed by the city council and signed by the mayor includes $13 million more expenditures than projected revenue. Of course, the city missed its 2009 projections by $41.7 million, or roughly 10 percent, but lets assume this year it hits the target precisely. That means the city will end the coming year with $76 million in the bank.

That might not seem that bad, but it's a major problem.

The City of Birmingham has a policy of keeping the equivalent of three months of operating expenditures in fund balance. When the mayor's office argued that it was not a formal policy, but rather a guideline, the city council went to the trouble of codifying it with a resolution. This policy is meant to protect the city from unforeseen disasters similar to the implosion taking place at Jefferson County.

Not only does this policy protect the city from financial disasters, but it is also a major factor in the city's bond rating. In part because of this policy, ratings agencies have given the city AA credit, meaning its bonds are safe and the interest rates the city must pay on its debt remain low.

But while the city has a policy in place for maintaining a level of fund balance, the city has been in violation of that policy for at least a year, and this year the city council passed a budget that clearly and willfully violated that policy.

This year's budgeted expenditures are $402 million, meaning three months expenditures would be $100.5 million. The city's budgeted fund balance is $76 million. The city is in violation of its own fund balance policy by $24 million.

If the ratings agencies realize this, there's going to be trouble.

The city council knew most of this when it passed the budget this year. While it did cut some of the mayor's spending, the council did not have the political fortitude to cut enough. As a result, the city will have depleted its savings by 35 percent in just two years.

And the bad news just keeps on coming.

Last week the council passed a "stimulus" program proposed by the mayor. The program would rebate to car dealers half the sales tax the city collects on the sale of new cars. This "stimulus" is in fact reversing the affect of the sales tax hike the city passed in 2007 after Mayor Langford was elected.

Regardless, even a supply-side economist could have at least read the agenda item before passing it, but apparently the city council didn't take the time. You see, last Tuesday was election day, and every election day, the council speeds through its meeting so its members can get in a little more last-minute campaigning. Had the councilors taken the time to read the agenda, they would have seen that the mayor's stimulus for car dealers took another $3 million out of fund balance. The mayor's office didn't hide this fact. It says as much right there on the council agenda.

That means the city is now running a $16 million deficit for 2010 and will end the year with $73 million in savings — $27 million short of what its fund balance policy requires.

"Let's do math!"

I'd lend my campaign slogan to one of the 10 remaining council candidates for the runoff, but I'm afraid they're all too busy campaigning to actually do the math.

War on Dumb is a column about political culture. Write to kyle@bhamweekly.com