Tuesday, April 26, 2011

Why it's important to embrace a 38% increase

Supporters of Ferndale's Headlee override proposal this May shouldn't run away from or deny it's an increase of 38%.  Instead they should embrace it, promote it, and use the magnitude of the remedy as a measure of how crippled the city may become without the millage's passing.

One of my favorite lines from "Clear and Present Danger" occurs when the president's advisors are discussing what to say about the discovery one of the president's close friends was laundering money for a drug cartel.

From FilmSite.Org:
The President's advisors suggested that if the news became public, they could defuse it by downplaying the President's association with Hardin. Ryan suggested the opposite - if the President were to be asked if he and Hardin were good friends, he should answer: "We're lifelong friends...There's no sense defusing a bomb after it's already gone off."
The budget bomb has gone off in Ferndale just as it has the rest of the country.  Pretending the collateral damage is a measly 11% is a whitewash of the problem and insulting to voters' intelligence.

Ferndale's operating millage is currently 14.5448 mills.  If approved, the May ballot proposal will allow council to raise that rate to 20 mills by 2013.  To keep all the deniers honest I'll show my work.
20 - 14.5448 = 5.4552 (the increase)
5.4552 / 14.5448 = 0.375061878
0.375061878 * 100 = 37.5061878% (the percentage)
round(37.5061878) = 38%
Another way we can find this number, or one very close to it, is by figuring out how big the deficit is as a percentage of the revenue Ferndale's general fund receives from property taxes.

According to the budget estimates for fiscal year ending 2012, Ferndale anticipates property tax receipts of $7,573,000.  The budget deficit is estimated in the same document to be $2.3 million.
2,300,000 / 7,573,000 = 0.303710551
0.303710551 * 100 = 30.3710551
round(30.3710551) = 30%
So, which property tax increase do you think has a better chance of covering a 30% hole; a 38% increase or an 11% increase?

Some people confuse my supporting FACT's publishing the millage is a 38% increase over the Yes to Ferndale's Future's 11% increase as evidence my support for the millage is superficial.  What it really demonstrates is my commitment to honesty and integrity, especially when lying is too easily proven by doing simple math (which I think should be a prerequisite to running for office).

Saying the increase is anything other than 38% is an attempt to make the tax increase more palatable to voters.  This is also known as spin, and is disrespectful to voters and property tax payers.

11% is wrong not just because it's unsupported by math, but because it trivializes Ferndale's desperate budget situation.  If the budget was only short 11%, then I'd advocate a NO vote and demand city council find 11% to cut.  An 11% deficit is not an emergency.  An 11% deficit does not warrant a Headlee override.

Instead, our budget deficit is an emergency.  The city can not replace over 30% of its revenue with traffic tickets or parking meter fines.  Our city's obligations to its retirees, whatever voters think of its extravagance or past-councils' approval of such rich benefits, can not be addressed with budget resolutions, wishful thinking, or understatement.

No, our city's deficit is real, it's large, and it requires appropriate and proportionate action to remediate.

There are other problems with both the Yes and No camps' literature and public statements I may address in future posts.  In February I recommended to voters what they should do in both May and November, and unless someone proves my numbers wrong I stand by my recommendations.


  1. I have a nasty feeling the deficit is being exaggerated due to a couple of material budgeting issues but I can't get a logical answer to these two points;-

    1. Statutory revenue sharing per the State of Michigan. For 2012 this would appear to be in the range of $0 to $744,000 - the City has picked $0 because it "wouldn't be prudent to use any other number". I smell a rat. Your opinion?

    2. Bad Debts & Contingencies - budgeted at $500,000 in 2012 & 2013. Actual result in 2010 was $83k and $0 in 2011 (revised projections). Why the massive increase? It doesn't make sense.

  2. Regarding #1, statutory revenue sharing has been going down every year, and there's suspicion about how much it will be this year. Last years formula provided $1.2 million, but due to Ferndale's population decline and uncertainty in Lansing, it's still up in the air.

    #2 - Good question. In FYE 2010, the actual 2008 bad debt expense was $150,000, but estimated for $115,000 for 2009. In the FYE2011 budget 2009's actual was $186,000, 2010 estimate was $259,806, and the 2011 budget was $365,000. In the current FYE2012 budget the estimate I see is $620,000. My guess is that number is the expected expense for delinquent/unpaid property taxes. I'll need the city manager to confirm. If it is, then one way to recover that money would be to sell the properties to the county's land trust fund--but I'm unsure if Misner has been able to set it up. Perhaps Commissioner Covey could help me resolve that one.

  3. #1 - someone has to make a reasonable estimate - $0 doesn't seem reasonable to me!
    #2 - the $620,000 you mention is $120,000 of potential property tax refunds due via tax appeals being heard by the Michigan Tax Tribunal plus $500,000 of "bad debts / contingencies". As far as I can ascertain, it is purely a contingency, not for bad debts.

  4. The discussion about what to use assumed a worse-case scenario. You may be right in that assuming $0 for the constitutional portion may not have been reasonable. Previous history with the state's violating Proposals 20j provisions perhaps created a greater sense of pessimism than would be rational.

    However, this may also have influenced the committee's recommendation to only allow up to 3 mills the first year.

    While I doubt council wouldn't raise the millage rate to the limit, they are not required to request the full 20 mills in 2013.

    On the other item, I'm waiting for a response from the interim city manager.

  5. In the comment below, Mr Wollenweber is refering to the draft FYE 2012 budget, but in the PDF version S2p30 is on page 48. Page 47 provides some explanation. Note that the draft hasn't been updated with the numbers below.

    City Manager Wollenweber replies:

    That is the line account that we included an overall budget contingency of $500,000. Council already suggested cutting $200,000 out leaving the budget contingent account at $300,000 and bad debt primarily for tax tribunal cases at $120,000. The detail for the General Fund in Section 2 p.31 shows the items broken down as indicated above in Misc./Contingencies and the last line shows Bad Debt/Uncollectable Taxes.

  6. You are very kind - "a greater sense of pessimism than is rational" - until proven otherwise, it looks like the City Council is trying to fabricate a crisis.

    If you calculated the statutory revenue sharing @ 50% of 2011 levels, and cut the "Contingency" fund to $100,000 those two actions alone reduce the deficit by $772,000 - or put it another way - because they were budgeted that way, it actively increased the budgeted deficit by around 50%!!!!!

    I have no axe to grind on the millage but when I see such nonsense being presented to the public, I have to call it out. Where is the Financial Steering Committee when you need them? I asked Yes Ferndale (on Facebook) to comment on these numbers (as almost all of the Financial Committee are Yes supporters) but not one of them weighed in with a response. Fail.

  7. According to Jaynmarie Hubanks, the contingency was lowered to $300,000 from $500,000 after the contract with the police officers union resolved whether the city would be on the hook for retroactive pay.

    I don't think the question should be whether there should or shouldn't be a contingency fund, but what is the customary formula to arrive at the amount and what is done with the money throughout the year?

    This is something I would like to see delivered in this council--transparency. Like many other governmental bodies, I'd like to see the city's checkbook. If that's too difficult, I'd like to see the spending resolutions approved at council meetings with the dollar amounts and the budget account.