Birmingham Looks at Shrinking Fund Balance As Part of Financial Forecast
The city also will need to find more revenue for its local and major street funds, according to the five-year financial forecast presented Saturday during Birmingham's long-range planning session.
In the next five years, Birmingham has a lot of projects in the pipeline. But if the city wants to pay for them, they're going to have to watch their wallet.
That was the message from the accounting firm Plante Moran, which presented its five-year financial forecast for the city of Birmingham Saturday.
Overall, Birmingham's finances aren't in bad shape though the city will have to address a shrinking fund balance, increases in water and sewer rates, as well as a projected deficit in the funds used to pay for road construction projects.
"The financial forecast that has been presented this year is dramatically improved from what has been shown in past years," the report reads. "The city's willingness to conservatively forecast, and then to respond, has enabled the city to weather the sharp decline in property tax revenue since 2007."
The five-year financial forecast is traditionally presented at Birmingham's long-range planning session and includes estimates based on current financial conditions — leaving it up to the city to address potential issues before they become problems.
Not surprisingly, the forecast predicts that Birmingham's expenditures will continue to grow faster than its revenues in coming years, resulting in a projected $1.5 million total budget deficit by FY 2016-17 and a potential $2 million deficit in FY 2014-15.
Taxable values go up, General Fund balance goes down
What's the good news? Taxable values in Birmingham are going up, a Plante Moran representative said Saturday. In FY 2012-13, there was a 0.29 percent increase in taxable values.
"It's miniscule, but it's an increase and it's the first one we've had in five years," the representative said.
In addition, a Plante Moran representative said the forecast shows FY 2011-12 to be the worst year for property tax revenue. Since then, it's all been uphill — even if it is a slow climb.
Building permits were also up 26 percent in 2012 while fees from parking fines increased 28 percent in 2011-12.
"This forecast of revenue increases in future years is certainly a welcome result," the report reads. "However there is still a need for caution."
According to the report, the city's General Fund balance — or, what's left after total revenus and expenditures are taken into account — is expected to decrease during the next five years. In FY 2012-13, the projected final balance for the General Fund is $11.7 million. By FY 2016-17, the fund balance is expected to be $5.4 million.
But that's only if Birmingham does nothing to change its financial fate in the next five years.
"This is what would happen based on what we have right now, if we don't make any further decisions," the Plante Moran representative said.
'We have a problem in the streets fund'
Still, city commissioners couldn't help but return to one subject during Plante Moran's presentation: the major and local street funds.
When the city embarks on a road construction project, they use money from the major and local street funds. Currently, the only source of revenue for the funds are transfers from the General Fund. During the next five years, Birmingham is expected to transfer between $1.5-$2 million to both street funds.
However, with a slate of ambitious construction projects scheduled for the next five years, those funds will grow smaller faster than new money comes in.
By FY 2016-17, the financial forecast predicts a $1.4 million deficit in the major streets fund and a $518,000 deficit in the local streets fund.
"It appears that regardless of how it turns out in reality, it looks like we have a problem in the streets fund," City Commissioner Tom McDaniel said.
City Commissioner Gordon Rinschler suggested taking a more bullish approach to the two funds and transferring more money from the General Fund. Meanwhile McDaniel mentioned the possibility of increasing parking fees and putting some of that money toward road construction instead.
Birmingham's Finance Director Sharon Ostin noted that the transfers to the local and major street funds were purposely kept constant in the financial forecast. Any increase in transfers will only accelerate the shrinking of the General Fund, she said.
Check out our reports from Birmingham's five-year financial forecasts from previous years: