By John Schaffner
A short-term risk assessment of the city of Atlanta’s financial future, prepared by former Chief Financial Officer Janice Davis after leaving office, suggests the city will fall short of funding its present operations at least during the next two fiscal years.
In a memorandum that the Buckhead Reporter learned has been distributed to Mayor Shirley Franklin, City Council President Lisa Borders and members of the council, Davis wrote, “There are many long-term issues the city will have to face in the future: Deferred maintenance and chronically insufficient funding are two that will most impact you in the next five years.”
In the risk assessment Davis promised the administration she would prepare upon leaving office, she said that as of July 9, the fiscal 2008 revenues “had not reached either the level on which the 2008 budget was set ($604 million) or our January 2008 projections ($597 million).”
Meanwhile, two Buckhead members of the City Council are calling for an emergency committee to tackle the crisis with the city’s pension funds, which reportedly are suffering more than $1 billion in uncovered liabilities.
Howard Shook, the chairman of the city’s Finance and Executive Committee, and Claire Muller, who is given credit for coming up with the idea, jointly submitted a resolution Aug. 18 establishing a select council committee to come up with recommendations by the end of the year. The idea has the support of the council president, but the mayor’s aides are reportedly cool to the task force.
Shook has often said pension reform is the No. 1 priority. The council and the Franklin administration made decisions in recent years to increase pensions for city workers that have put Atlanta in a major budgetary bind that will take years to fix.
Pension funds that are funded 80 percent or more are considered healthy. Atlanta’s largest pension fund is only 52 percent funded. Two others are better off but still well below the 80 percent mark.
At least one-fifth of the $570 million general fund this year is going to employee pensions.
In her Aug. 12 report, Davis cites several complicating factors to raising necessary city revenues:
“Recent news reports indicate that the state’s sales tax collections were significantly (8.3 percent) below the prior year.
“The property tax situation — given the number of commercial appeals and the order of collection decision — could have a very negative impact. The budget cannot handle the reduction to 85 percent of last year’s property tax revenue. The Parks Opportunity bond could fall victim to this situation.
The memo points out that revenues from sales tax, building permits and business licenses have experienced negative growth of 1.73 percent.
Davis pointed out that the adopted 2009 budget has “no excess capacity. Any additional spending without commensurate cuts would result in overspending.” Among the greatest potential risks, she noted:
Problems in the broader economy, particularly instability in the credit markets that could trigger increases in debt service.
Unrecorded invoices from previous years.
A drop in revenues.
Unplanned spending without offsetting budget reductions.
She warned that the first-quarter review should take place as soon as the month of September is closed because it might be necessary to take additional steps at that time to curb spending.
One of Davis’ strongest recommendations deals with the structure of the finance department and the CFO. She said finance often was left out of discussions in which the ultimate impact was financial. “As a result, the city’s ability to properly plan for expenditures has been compromised.”
Davis recommended giving thought to creating a “director of finance” within the administration and a “chief of fiscal review” on the council staff to make finance part of the planning and decision-making processes.