Ann Arbor
City Budget 2005-2006

Official Policy
May 10, 2005

The Ann Arbor Area Chamber of Commerce supports the City of Ann Arbor’s 2005-2006 Proposed Budget.  We support the Proposed Budget because it makes some progress toward addressing the City’s financial challenges.  The proposed Budget prioritizes core services such as Police and Fire over other services and begins to move the City to a two-year budget cycle—two improvements the Chamber has long supported. 

The Chamber, however, is concerned about how much progress still has to be made to bring projected future expenses in line with projected future revenues.  The City has not yet tackled major escalating costs, such as employee health care and benefits, while it continues to cut into services and raise fees.  Below you will find our analysis regarding the 2005-2006 Proposed City Budget. 

Background

In 1996-97, the City of Ann Arbor considered a city income tax in lieu of a general operating millage.  The Ann Arbor Area Chamber of Commerce opposed an income tax because our members thought it would be detrimental to the community’s economy.  In order to be better prepared to debate similar future tax and budget issues, the Chamber decided it needed more information about the City’s budget history and founded the City Budget Task Force.  In 1998, the Task Force conducted a ten year analysis of the City’s finances from 1988-1998, and has reviewed the Ann Arbor City Budget on an annual basis since 1998.    

Budget – Positive Aspects

• Core services such as Police and Fire services are prioritized over other services.  
• The 2005-2006 Budget includes a 2006-2007 fiscal plan and begins to move the City to a two-year budget cycle.  This is a starting point for better fiscal planning and is an improvement the Chamber strongly supports.
• The Ann Arbor City Budget process improved in 2005.  City staff and City Council prioritized services early in the process, identified a number of possible implications and did a better job engaging the public in a dialogue.
• The City did switch all employees to a Preferred Provider Program (PPO) that saved $1 million last year, and non-union employees now pay $20 per month for singles, $40 per month for a spouse and $80 per month for a family for health care costs.
• The City is implementing a ‘Pay for Performance’ system where pay increases for non-union employees are based on performance.

Budget - Concerns

• The City has not yet fully addressed health care costs.  The City is still well behind private sector employers, and some public sector employers, in terms of the percentage of health care paid by the employee.  In particular, union employees (80% of the City workforce) do not presently contribute to their health care premiums.  There is no indication in the budget or the budget process as to how the City will deal with health care and pension related expenses as a portion of an overall cost reduction strategy.
• It is impossible to compare Revenues and Expenditures in the 2005-2006 Budget to Revenues and Expenditures from previous years.  The proposed Budget does not include any historical information that would make this comparison possible. 
• The State is projecting $11.2-$11.4 million in State Shared Revenue for Ann Arbor.  The City is budgeting for $10.3 million in the 2005-2006 Budget.  We recognize that the State may reduce this funding, but we are still concerned that the City’s estimate is overly conservative.  We encourage the City Council to review this item and make a plan for what the City will do if State Shared Revenue for Ann Arbor exceeds the City’s budgeted amount.

Recommendations

• The City must aggressively address its health care and benefit costs.  The City should increase the percentage of health care paid by the employee and adopt more competitive total compensation policies consistent with approaches undertaken by various community employers
• We support the identification of Public Safety as a core service.  We believe it would be helpful for citizens and businesses if the City expanded on this effort and further articulated a comprehensive list of what it considers core vs. discretionary services.
• Supported with such a list, taxpayers could be even more involved in the prioritization process next year. Ann Arbor taxpayers should have the opportunity to compare, evaluate and rank services. 
• Future financial projections must include multiple scenarios.  The public is being presented with cost projections that assume costs, particularly personnel costs, will continue to grow.  Options must be included that weigh reducing these costs versus keeping services.
• In future Budget documents, the City should format Revenues and Expenditures in a consistent manner historically to create better transparency for the public.  Future budget documents should present this consistent revenue and expenditure details for no less than the past five years.