A new premise for budget: City’s revenues unlikely to improve

by Amy Kingsley

Greensboro’s rainy day fund is in danger of running dry after more than six and a half years of stagnant economic growth forced city leaders to return over and over again to its diminishing reserves. This year City Manager Mitchell Johnson said he wants to return the city to its saving ways.

Since the economic downturn of 2000, city leaders assumed the city would bounce back, reviving an ailing tax base and filling coffers with needed revenues. But although the economy has made strides, it hasn’t fully rebounded, and what had been a modest nest egg shrunk to a thimbleful.

So in addition to the usual wrangling about tax hikes and service cuts, the discussion this year has turned to the more esoteric subject of budget sustainability.

“The overarching edict is that we have to have a healthy budget,” Johnson said. “We have to have a sustainable budget.”

To achieve that goal, Johnson proposed a combination of tax increases and service cuts. The proposal drew ire from Councilman Mike Barber, who opposed raising property taxes to 65.5 cents per $100 valuation. Barber has pushed city staffers to find more program cuts to obviate the need for a tax increase, which is what he challenged Johnson to do during the council’s annual staff retreat.

The problem is that as Greensboro’s economy has stagnated, finding places to cut has been harder to do, Johnson said.

“We need to get to the point to where we’re not solving problems with one-time money,” Johnson said. “We need to make cuts that mean something.”

Several years ago, former City Manager Bill Carstarphen instituted a Capital Reserve Fund. Department heads deposited surplus money into the fund at the end of the fiscal year, and eventually the fund swelled to $10 million. The interest generated by the account paid for capital projects like building repairs and construction of new firehouses.

“When the economy went into the toilet in 2000 and 2001, we had to dip into it very steeply,” Johnson said.

In the intervening years, department heads have whittled down the budgets so much that they are now spending almost everything, he said.

As the budget shifted, so too did the citywide economy. John Shoffner, the economic development program manager, said before the turn of the century, Greensboro’s manufacturing-heavy economy had experienced several peaks and valleys.

“There had been a tremendous amount of well-paying jobs in manufacturing,” Shoffner said. “With those jobs going to Asia, this area has been hit pretty heavily.”

Recently those involved in economic development have focused on retooling the local economy to be competitive in a globalized economy, he said.

Other North Carolina cities like Charlotte, Raleigh and Durham have recovered – even thrived – in the post-NAFTA climate. Greensboro has not done as well.

“They hit their turning point in the economy a few years before us,” Shoffner said. “Up until just a few years ago you could still get a good job with just a high school education. It took a little while to recognize that things have changed.”

Greensboro has made advances in shifting from a manufacturing economy to a high-tech one. RF Micro expanded from its original garage offices to a sprawling corporate campus, and the Millennium Center will bring cutting edge nanotechnology research to Greensboro.

Unfortunately, that change has also negatively impacted the tax rolls, Shoffner said. High-tech equipment depreciates much more quickly than manufacturing machinery. As older technologies have disappeared, so too has the tax revenue they generated.

“RF Micro might go out and buy high-tech machinery,” Shoffner said. “Five years from now the machinery is obsolete and they go on to the next thing. Now if a textile company buys a loom, it depreciates a lot slower. It is one disadvantage of the high-tech economy.”

Among the cuts Johnson proposed for dealing with the adjustments in the economy and budget were privatizing the dance program and changing recycling pick-up to once every two weeks. The proposal for the dance program caused an uproar; citizens flooded the city council with calls. Johnson defended the plan, saying that the change merely meant shifting the dance program from public to private oversight, not abolishing it.

“Balancing the budget takes real live program cuts,” he said. “In an ideal world, we wouldn’t cut anything, but this isn’t an ideal world.”

It is those public programs that actually make a city attractive to potential companies, said Dan Lynch, director of the Greensboro Economic Development Partnership.

“Quality of life,” he said, “next to having a qualified, well-educated workforce, is probably the most important thing that companies look at.”

Amenities like parks, libraries and cultural attractions appeal to investors and highly trained workers, Lynch said. Safety – police and fire – is among the most important qualities a city can offer, he said.

Police and fire have experienced the greatest budgetary expansions since the 2000 downturn, and they are poised to grow again this year, Johnson said. Most of the four-cent tax hike would go to pay 32 new police officers approved last year and the opening of a new fire station on Painter Boulevard. Another portion would fund the operation of a solid waste transfer station.

Other departments don’t fare as well in Johnson’s proposed budget. The Department of Housing and Community Development may be asked to absorb two homelessness prevention programs that cost $80,000 into their static $600,000 budget.

As for the tax hike, Lynch said that as long as the city stays competitive with its peers, the particulars of its taxation are unlikely to matter.

“Companies don’t mind paying for services as long as they see the benefits,” he said.

At budget discussions on May 22, at-large Councilwoman Sandra Anderson Groat said lower income residents might have to cut back on groceries or medication to afford the increased property taxes.

District 2 Councilwoman Goldie Wells said she had heard no complaints from elderly homeowners, just concerns from residents in her district that their services might be cut. Barber proposed that city staff be given the authority and responsibility to reduce their own budgets, a move that would take the task of making specific cuts off the council’s shoulders. Johnson said it doesn’t matter who makes the cuts, staff or council, because voters will complain if their services aren’t up to snuff.

“There’s no magic in this,” Johnson said. “If you want to cut the budget there are ways to do it, but it will involve cutting services.”

The council is scheduled to discuss the proposed budget again on Tuesday and hold a public meeting the same day. Two weeks later, they plan to adopt a final budget that may include more cuts, more tax increases, or a compromise between the two.

Johnson said he is pleased with this year’s budget process. Last year the council scrambled to make cuts that didn’t save them as much money as they hoped, he said. This year they sought ways to make departments permanently more efficient.

As for the economy as a whole, both Lynch and Shoffner expressed cautious optimism that Greensboro was climbing out of its economic slump. Shoffner said landing the HondaJet headquarters and FedEx hub have been important achievements signaling a reversal of the city’s prospects. But the city’s economic condition is likely to be permanently altered, Shoffner said.

“Globalization is here, it’s real, and it’s not going away any time soon,” he said.

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