City manager presents first draft of FY22 budget

Plan continues current service levels and meets financial obligations for existing contractual agreements.
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Grand Rapids City Manager Mark Washington recently presented the first of several planned reports on the fiscal year 2022 preliminary fiscal plan to the city commission.

The proposed $546 million spending plan continues current service levels and meets financial obligations for existing contractual agreements, which is something that many municipalities across the country have not been able to do due to the pandemic.

The recommended “continuation” budget also aids in pandemic response and local economic recovery. The general operating fund portion of the proposed budget is just shy of $156 million — 29% of the total budget.

During his remarks, Washington said the pandemic has affected every aspect of the Grand Rapids community and has forced the city to be even more creative to maintain essential services. He said the demand on essential services increased and intensified during the pandemic; therefore, the city focused on continuity of services in the proposed budget — nurturing the momentum of recovery and providing transformational investments where possible.

The city estimates $36 million in lost general fund income tax revenues between FY21 and FY22 and a total of $60 million through December 2024 (halfway through FY25). It is estimated income tax revenues will not recover to their pre-pandemic level until after FY26, since growth projections are slow and steady and do not indicate immediate or rapid recovery.

On average, local income taxes account for 70% of general fund revenues. This anticipated loss accounts for a reduction between 12% and 17% in general fund income tax revenue, Washington said.

This reduction is due to workers who were laid off or furloughed during the shutdowns as well as individuals who typically work in the city, but reside outside the city limits, now having the option of allocating the portion of their wages they earned working from home to be non-taxable by the city of Grand Rapids.

Despite projected income tax shortfalls, funding through the American Rescue Plan Act (ARPA) will enable the city to sustain services in the current fiscal year and support future budgets through FY25. The city expects to receive $94 million in relief through the ARPA over two fiscal years. The first payment of $47 million is expected this month and the remaining payment should arrive one year later.

The city will leverage the majority of ARPA relief money to replace revenue shortfalls, improving the sustainability of the general fund. Specifically, just over $36 million of ARPA funding is allocated to backfill the income tax revenue shortfall for FY21 and FY22, which will sustain current services. And when the city’s full five-year fiscal plan is taken into consideration, Washington recommends that $60 million be used for revenue replacement, which accounts for 64% of all ARPA funding.

Due to the city’s financial position prior to the pandemic and federal relief funding, drastic cost reduction measures — such service reductions, significant increases to fees and staff layoffs — have been avoided to date, he said. In a forward-looking move, the city previously decreased spending by $22 million last year just as the pandemic began with the adoption of the FY21 budget.

Washington said the city’s main financial challenge going forward will be to manage through lagging revenue resulting from the economic challenges that continue during FY21 and will likely extend into the first half of FY22. While all funds will be impacted, he said the general fund has been impacted the most severely due to the loss of income taxes resulting from increased unemployment and decreased non-resident withholding.

In addition to revenue replacement, the following $2.15 million of ARPA investments are recommended for immediate investment in FY22 and are included as part of the FY22 preliminary fiscal plan:

  • Master plan funding — $250,000
  • Housing practice leader contract — $100,000
  • Funding for local special events — $300,000
  • Homeless outreach staffing — $1,500,000

As part of the fiscal plan adoption process, the commission will engage in a separate process to finalize the programming of $10.2 million of the ARPA funding dedicated specifically for FY22 to help encourage economic recovery, address the needs of vulnerable populations or allocate for other non-income tax revenue replacement to maintain services.

This post-budget allocation process will allow more time and discussion regarding this $10.2 million to discuss the proposed major expenditure categories, which are aligned with the commission’s near-term focus areas.

At the conclusion of the process, a budget amendment will be prepared for commission consideration to appropriate the $10.2 million in ARPA funds for FY22. Implementation processes, including requests for proposal, to achieve the outcomes envisioned by the allocations would follow, as necessary. 

Washington recommended reserving the remaining $21.65 million of the $94 million in ARPA funds for investments in the years beyond FY22. Nearly all those funds are proposed to be reserved in anticipation of additional revenue loss or needed recovery investments. The only other specific investment recommended at this time for those years is an additional $500,000 for the master plan.

“Our city government’s resilience in the face of these challenges is due to the undaunted spirit of our community, commitment and adaptability of the city workforce, robust collaboration with our partners, and to the foresight of our strategy and existing plans,” Washington said. “While pivoting and prioritizing were necessary, the soundness of our strategic plan has been confirmed by the challenge of COVID-19. We are stronger and more capable as a result.”

The preliminary fiscal plan also recommends capital investments of $96 million in FY22 and $428.2 million across all five years (FY22-26). These investments are made possible through a variety of funding sources including the general operating fund, bonds, federal and state allocations, leveraged funds, millages, Vital Streets income tax, rates and grants. 

Capital investments related to health and environment account for 61% of all capital investments ($58.39 million) and include all environmental services department (including the water resource recovery facility and stormwater/green infrastructure investments), water department, and parks and cemeteries projects — as well as all investments in LED lighting. Mobility investments account for 22% of all capital investments ($21.71 million) and include Vital Streets, sidewalks and trail investments.

In addition to capital funding provided for lead service line replacements, beginning in FY22, the city will invest in private lead service line replacements located in the neighborhoods of focus using operating dollars provided through a $5 million U.S. Environmental Protection Agency grant. Through FY25, 86% of this investment, or $4.16 million, will take place in the third ward, and 14% will take place in the first ward.

The FY22 preliminary fiscal plan recommends more than $25.62 million in direct city investment that Washington said will contribute to more equitable policies, practices and outcomes. Some of the significant investments include:

  • Regional Consolidated Housing and Community Development Plan investments including increased supply of affordable housing and increased access to and stability of affordable housing — $6.8 million
  • Neighborhood of Focus/Third Ward Equity Funding — $2 million (potential ARPA)
  • Staff Diversity, Equity and Inclusion Training — $40,800
  • Support for the Michigan Indigent Defense Fund — $700,000
  • GRow1000 2.0 — $1,200,000
  • To College Through College (T2C) Studio — $112,386
  • Grand River Equity initiatives — $284,166
  • Neighborhood Match Fund — $100,000
  • Neighborhood Association support — $562,671
  • Lead service line replacements focused in Third Ward Neighborhoods of Focus — $1.74 million
  • Office of Oversight and Public Accountability — $408,781
  • Thrive Outside — $193,290
  • Bill assistance for water, sewer and refuse — $221,200
  • Housing lead remediation — $2.2 million
  • New housing development/lead hazard position — $146,940
  • DASH Bus operations — $2.4 million
  • Neighborhood of Focus-based transportation solutions like car share — $200,000
  • Cure Violence evidenced-based crime reduction program — $100,000
  • Violence reduction — $1 million (potential ARPA)
  • Additional violence co-response — $1 million (potential ARPA)

Other items of note in the preliminary fiscal plan include:

  • Sworn staffing levels are maintained for police and fire with no change from FY21 levels.
  • Three non-sworn positions have been reassigned from the police department to other community services such as lead home programming, communications and neighborhood engagement. Three radio technicians have been reallocated from the police department to the community dispatch department.
  • Police spending is up approximately $700,000 over last fiscal year, but the expenses represent 35.8% of general fund expenditures in the FY22 proposed budget — down from 38.5% of the adopted FY21 fiscal plan.
  • Property taxes will increase due to the voter-approved parks millage. This millage increased 0.9353 mills to 1.25 mills; however, the overall property tax millage will only increase by 0.2222 mills due to decreases in other components of the millage that include city operations, library and refuse.

The city commission will review the preliminary fiscal plan during an online committee of the whole at 10 a.m., Tuesday, May 18.

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