Narrative

City Manager’s Introduction

It is with great pleasure that I submit for your review and consideration The City of Benton Harbor’s proposed fiscal year 2008/09 budget, beginning July 1, 2008 and ending June 30, 2009. This document will examine aspects of community transformation, revenue generators, budget reduction initiatives (both short and long term), budgetary historical overview, summary of various budgetary funds and the budget timetable.

The City of Benton Harbor is a community that has experienced great prosperity and positive regional, national and international recognition. In addition, we are all aware of the pervasive amount of community pride and fortitude that abides in the citizens and business owners that choose to live, work and play in our great community. Throughout history, cities have gone through seasons of growth and some degrees of decline.

However, a transformation has occurred in the market place towards creating innovative ways for producing economic growth. It is important for us to examine where we have been, where we are now, and establish a vision for where we want to go in the future. Some progress towards positioning ourselves for greatness, has taken place.

The recent election of new city commissioners, the development of a strategic plan, as well as, partnering with key stakeholders in the region, are critical developments that will propel us forward as we embark on and chart our course for reinvigorating and transforming the City of Benton Harbor.

As you know, having the right leadership in place is catalyst for beginning any type of change or community transformation. One of the first things that local leadership must recognize is the importance of establishing a good foundation of teamwork, for which all great ideas will derive from and be built upon. Obviously, financial planning is another critical layer of the foundational elements that must exist in order to begin our exploration of transforming The City of Benton Harbor towards further greatness.

Due to a loss in tax base, increasing cost of doing business and lack of sound fiscal decision making, we currently find ourselves in an extremely financially challenging position. However, our hurdles are not insurmountable; nevertheless, if we are to establish the right foundation which will assist us in the journey of cultivating creative and liberating thoughts, we must make some tough and calculated choices to place us on the right path.

Some of the proposed “Budget Highlights” in the forthcoming pages target revenue generator and budget reduction initiatives. These initiatives will have an impact on how we do business relative to: salaries, health care, consultants, contracts, land sales, bidding practices, property evaluations, millage rate, grants, delivery of city services, financial planning, as well as event fees.

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The Proposed Revenue Generator Initiatives

Property Re-evaluation: During the fiscal year 2008/09 the City of Benton Harbor will begin coordination of the re-evaluations of properties. This has not occurred since 1995.

Millage Rate: In order to encourage economic development every effort will be made to lower the millage rate and make the City competitive in this arena.

Land Sales: Future land sales will be sold for appraised values. Projects that demonstrate viability to the cities short and long term goals will be considered for a reduced amount and evaluated on a case by case basis.   Revenues from land sales will only be allocated for debt obligations oppose to operating revenue.

Business Attraction and Retention: The City of Benton Harbor will develop an economic development plan aimed at business attraction and retention. Efforts will be made to partner with local and regional economic development agencies to ensure that all resources are available for prospective business customers in a strategic manner.

Grants: The new Management team has written or obtained nearly one million ($1,000,000,000) dollars in grants aimed at commercial, residential, recreational and master planning/zoning activities. In fact, the new Management team participated in the formation of a non-profit corporation named The Benton Harbor Neighborhood Revitalization Corporation, which will be able to obtain additional resources that are targeted for local non-profits. The new Management team will continue to aggressively pursue all available grant sources relative to the city’s strategic plan.

Billing and Collections: Strengthen our collection efforts in the water department and disconnect services to those who have by-passed our billing and/or collection procedure. The City will establish severe fines and penalties for those who violate our procedure. Make necessary repairs to eliminate waste. The new administration has been able to collect over $50,000 due to enhanced collection efforts.

Special Event Fees: Jean Klock Park is an underutilized asset in our community. Promotional activities related to concerts, arts, musicals, comedians and other venues of entertainment will take place. A Special Events committee, lead by Commissioner Bryan Joseph, is already underway and making plans for activities for the park that will bring in artist with national and international acclaim. In fact, discussions are underway for establishing a concert style amphitheater for Jean Klock Park.  It is projected that an additional $30,000 will be raised in fees during next fiscal year.

Customer Service: Provide all city residents and stakeholders with the best municipal service in the most cost efficient manner.

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Proposed Budget Reduction Initiatives

Wage freeze: Employee wage freeze will be imposed. This will save the city $120,000 during the next fiscal year.

Healthcare: An employee contribution to medical premiums will be required in this budget. The will result in an estimated cost savings of nearly $330,000 per year.

Contract employees: The Assessor and Fire Department Administration will be contracted for employment reducing salary and eliminating health insurance cost. Total savings is estimated to be $75,000.

In house vs. contractual services: The City of Benton Harbor’s lawn mowing services was previously contracted out. The Department of Public Works will provide this service saving the city $650,000 over a ten (10) year period and $65,000 annually.

Joint Purchasing Program: The City of Benton Harbor and Benton Harbor Area School District will establish a joint purchasing program. This program will involve the purchasing of gas, equipment and supplies. It is projected that the City will save twenty-five percent (25%) during the next fiscal year.

The Fire Department Lay-Off: There will be two (2) Firefighter positions eliminated. This change will reduce the city’s budget by $100,000 while still meeting the minimum manning requirements.

The Benton Harbor Police Department:  Grant Coordinator position eliminated. This will result in budget reduction of $55,000 during next fiscal year.

Fleet Maintenance: The Department of Public Work’s mechanic will provide repair and maintenance services for the city’s fleet at a cost savings of $60,000 during next fiscal year.

Competitive Bids: The City will obtain bids for local services. This will include all professional and contractual services provided to The City of Benton Harbor.

Employee Performance Evaluations: Employee’s effectiveness will be measured by evaluating many factors to include but not limited to; professionalism, good customer service and results. There is always a monetary amount associated with how efficient and effective employees are in the work place.

Budget Monitoring: Monthly financial statements will be distributed and reviewed by Department Heads and the City Manager.  The City Commission will receive monthly statements as well.

Total Estimated Budget Reductions: For fiscal year 2008/09 the estimated budget reduction is $827,000.

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Finally, following is a list of additional action items that will be addressed in fiscal year 2009/10 in an effort to increase revenue and reduce budget cost.

Future Initiatives

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Retirements

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Early Buy-outs

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Potential Layoffs

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Healthcare Contribution

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Streamlining departments and cross training employees

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Personnel Training and Certification

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Longevity Pay

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Mutual Aid agreements with surrounding Fire and Police Departments

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Contracts, i.e. Rubbish Contract

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Water Plant Expansion  (long term planning)

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Background and Historical Overview

The City is located in Berrien County in the southwestern corner of the lower peninsula of Michigan. The City is governed by an elected nine (9) member commission, but operates under a manager form of government.

Because of its economically distressed status, in 1986 Benton Harbor was designated as an Enterprise Zone City by the State under the Michigan Enterprise Zone Act of 1985, and was in fact the only City in the State to receive such a destination.  This designation allowed the City to redirect certain property tax collections, as well as, provide incentives for economic growth.

Under the Act, commercial/industrial businesses located within the City limits were given certain State tax benefits, in return for real and personal property investments that increased taxable value.  Organizations making this investment were then assessed property taxes at one-half (½) the state-wide average millage rate (approximately 26 mills versus total local taxes of approximately 17 mills) for 10 (ten) years.  The entire tax levy (26 mills) for these “certified” properties became revenue to the City’s General Fund.  As the 10-year benefit period expired for these organizations, the General Fund tax revenue reverted back to the 18 operating mills approved by City voters.

The remaining commercial/industrial businesses in the City electing not to become “certified” continued to pay property taxes at voter-approved millage rates.  However, the Enterprise Zone Act allowed the City to recapture all local school district taxes.  These taxes were reported as revenue in the Enterprise Zone Fund and restricted for capital/infrastructure expenditures to promote economic growth.

As “certified” businesses completed their 10-year certification period, General Fund revenue decreased as indicated above.  Enterprise Zone Fund revenue increased due to the additional local school taxes recaptured on these properties.

The last commercial/industrial business certifications were approved in 1996 and the entire Enterprise Act ended with property taxed levied in the City’s June 30, 2005 fiscal year.  Therefore, starting with the year ended June 30, 2006, property tax revenue was generated at normal millage rates established and levied by all local taxing units.

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FUND OVERVIEW

General Fund

I have included in this presentation a millage rate analysis that reflects a city operating millage that is much higher than surrounding municipalities and makes the City of Benton Harbor less competitive for economic development purposes.  In subsequent years there will be added taxable value of the Renaissance Zone Properties, in increments of twenty-five (25%) percent beginning with tax year 2009.  This fiscal years budget does not have a projected significant increase in the tax base; therefore, I have reduced expenditures to the level not to exceed revenue.  As we go forward, in future years it will be paramount upon us to reduce government expenditures and operate as efficient as possible. The City must focus its efforts, not on breaking even, but creating a budget surplus fund at a minimum of ten (10%) percent in subsequent budget cycles.

Revenue

General Operating property taxes (net of Brownfield Redevelopment Recapture) are projected to increase approximately 4% largely as a result of allowable inflationary increases.  The City has both Brownfield Authorities (2) and a Renaissance Zone Authority which has a substantial impact on the amount of revenue produced from the levy of General Operating millages.  The Tax Rate Request is for Charter General Operating Mills: 7.9473, Voted General Operating Mills: 9.7705.

State Shared Revenue is projected to increase by 4% per legislative bulletins to date.  This amount is subject to change and at first notification of a deviation from the expected amount this will be brought before the Council for an adjustment.

The amount of PILOT charged to the Water Plant facility will increase by $100,000 to the amount comparable to what surrounding cities are garnering from their enterprise funding source.

Major Street and Local Street Funds

Approximately $800,000 is received in Act 51 Funds to provide maintenance and upkeep of all streets within the municipality. The amount of funds is based on the State formula for local and major streets. Currently, there are nine (9) Heavy Equipment Operators, two (2) Mechanics and two (2) Administrative Staff. They are responsible for maintenance and cleaning of the roadways, alleys and walkways within our four square miles.

PPI Fund

This is the Permanent Public Improvement Fund. This fund has a revenue source from property taxes with a charter mandated millage of less that two (2) which is affected by the Headlee Amendment and can rollback every year. The funds are allocated for improvement and maintenance of Permanent municipal structures such as streets, sidewalks, etc.

Debt Service

The Debt Service Funds is used for the payment/retirement of long-term debt that the City has incurred. This millage is charter based and is affected by the Headlee Amendment and can rollback every year.

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Budget Timetable

The timeline is as follows:

May 13          1st Budget Workshop

May 14-30     Revision period

June 2            Mayor sets Public Hearing for June 9th

June 11          Final Budget Review with Personnel and Finance 2nd Budget Workshop

June 16          Budget formally submitted with Public Hearing and approval.

In accordance with the requirements of the City Charter, I submit for your consideration the proposed Annual Budget for fiscal year 2008/09, beginning July 1, 2008 and ending June 30, 2009. The amended 2007/08 budget is also included for your review. Beginning with the fiscal year 2009/10 budget staff will provide five (5) year budget projections with a targeted surplus account of ten (10%) percent minimum fund balances per year for your review and consideration.