State officials have imposed a nearly $8 million cut in the city of Terre Haute’s general fund budget for this year.
Mayor Duke Bennett said he is working with financial consultants to comply but such a massive reduction cannot be made in one year.
The order from the Indiana Department of Local Government Finance came down in a notice dated Jan. 27 but City Council leaders say they only recently learned of the action.
The council last November passed a $31.8 million general fund budget, but the state reduced the spending side of the ledger to $23.9 million, effectively requiring the city to wipe out its longstanding deficit in a single year.
“It’s all on paper,” Bennett said Thursday. “It’s impossible for us to eliminate an $8 million deficit in one year. You’d have to probably lay off half of our employees or something and then hire them back on Jan. 1. It’s not feasible.”
This year brought a change in state law concerning budget forms and “we really weren’t sure what the outcome would be,” the mayor said.
The reductions reflect the estimated annual impact of state property tax caps. The city will receive the full amount of its property tax levy and other expected revenues, it just won’t be able to spend it all, officials explained.
Bennett said he is not concerned about potential ramifications from the state if the general fund is not balanced by year’s end.
“We’re going to have a good conversation with them; they know we can’t do it in a year,” he said.
A copy of the notice obtained by the Tribune-Star does not indicate to whom it was addressed. Such notices are generally sent to a city’s chief fiscal officer – the city controller, in Terre Haute’s case – according to Jenny Banks, communications director for the state agency.
The mayor said he learned of the action in late spring, though Controller Leslie Ellis and other officials he did not name, were aware earlier. Ellis is on medical leave and was unavailable for comment last week.
Bennett said he is working with Ellis’ office and financial consultants Umbaugh and Associates of Indianapolis and will present the council a financial plan in September, ahead of 2018 budget discussions.
“We will probably do a couple of things: One is we will shift some expenses, which we already were going to do, over to other areas that can support those expenses,” he said. “Then we’re going to be meeting with the Department of Local Government Affairs and the State Board of Accounts to kind of walk through this because we’ve got a plan.”
State officials are fully aware the city cannot cut $8 million in spending in a single year, Bennett said. “It’s just impossible to do that.”
Asked if it would have been better to begin addressing the cut earlier, Bennett said, “No, really not. We just have to do it by the end of the year — unless you were going to have a massive layoff, that would be the only thing you could do and we can’t. I’m not doing that; that’s not an option.”
Because his administration is still finalizing a plan for addressing the budget cut, “we didn’t have anything to share with the council yet about what our strategy was.”
City Council President Karrum Nasser, D-3rd, said this marks at least the second straight year the council has not received “accurate and transparent information” concerning state action on the city’s budget.
Last year, he said, the council was not made aware until late in the year the administration had signed an agreement with the State Revolving Loan Fund concerning sewer rate increases.
“I disagree with the mayor … that we could not have made any changes sooner,” Nasser said. “I find it ironic that he does not give us this information until after we have approved short-term borrowing on three different occasions. I am respectful that he is working with financial advisers on a remedy, but we should work on that plan sooner rather than later.”
Earl Elliott, R-2nd, the council’s finance committee chairman, said he’d like to know “who knew what and when.”
The mayor’s statement that it doesn’t matter when the council is informed “is not exactly being transparent … and we would hope transparency would be a little more important,” Elliott said.
The city’s economic development income tax fund likely has a sufficient balance to absorb much of the cut but “some folks on the council aren’t comfortable using EDIT for anything other than EDIT purposes.”
Bennett, who notified the full council of the state communication Friday, noted the city has a balanced budget and the state’s action comes at a time when city finances are improving.
“I feel good about our plan; I feel good about the deficit reduction, that we’re moving in the right direction,” he said. “If we were going in the other direction, it would be a really serious issue.”
Elliott said he agrees the city’s financial condition is improving.
But “all of a sudden, it has to improve a lot more rapidly than anybody realized,” he said.
While a balanced general fund may not be possible by the end of this year, or even 2018, it can certainly be done in 2019 “based on some help from the county and the local income tax money,” Elliott said, referring to an increase in the local income tax rate of up to 1 percent now being considered by the Vigo County Council.
The state also ordered reductions in the police pension, parks and recreation and transportation funds but Bennett said those cuts are “more manageable.”
Terre Haute city government has been struggling with sizable deficits since the Indiana General Assembly imposed property tax caps in 2008 and Hoosiers overwhelmingly voted to make those caps part of the state constitution two years later. The city began 2008 with a general fund positive balance of about $8 million. By mid-2015, that had become a $8.9 million negative balance.
By the end of 2016 the deficit had been reduced to $8.1 million, and city officials project a further $1 million reduction by the end of this year.