City of Norfolk VA 2008

City of Norfolk VA 2008 Budget Project

The budget for the City of Norfolk outlines the intended fiscal spending plan for 2008. In many ways, the city budget is like a corporation, but in other ways, accounting and budgeting are very different, as the city is also a government agency. Cities often use a modified accrual basis for accounting. This is largely because funds often come in after the expenditure is realized. The following will explore details of the budget for the City of Norfolk, VA for the 2008 fiscal year.

Budget Format and Approach

Like many cities of similar size, the City of Norfolk uses a modified accrual basis for their budgeting and accounting (p. 9). This method allows expenditures to be recorded when the liability is incurred. For instance, purchase orders and contractual commitments are recorded as expenditures when they are executed (p. 9). However, revenues are recorded similar to a cash basis. They are recorded as soon as they are measurable and available (p. 9). This accounting method is based on known and foreseeable expenses in the future.

The accrual based accounting used in the preparation of Norfolk's budget differs from standard accrual-based methods and represents a hybrid accounting method due to differences in the timing of known expenditures and cash received. Budget appropriations and expenditures must be approved on a yearly basis. The approach used in preparation of the budget is forward-looking and depends on the ability to foresee future expenditures.

Because this budget is based on the future and not on items that are already known, a certain amount of funds are approved to cover any reasonable overages. If expenses exceed the budgeted amount, then a new budget may have to be approved during the course of the year. This approach to capital budgeting is a common approach to capital budgeting and city planning. City planning budgets differ significantly from that of other institutions in that they place more emphasis on projected, rather than actual expenditures.

The budget is divided into departments, with an appropriate amount allotted towards that division. In addition, a certain amount is set aside for risk management and capital improvements to public buildings and resources. The budget is divided into the operating budget and the general fund. The general fund is further subdivided into an undesignated general fund balance, a risk management reserve, and an economic downturn/leveling reserves (p. 4). This structure provided for foreseeable expenditures, as well as provides an allotment for the unexpected.

A majority of the City of Norfolk's budget is allotted towards the general fund. The risk management fund is generous, in proportion to the general fund, largely because the city is self-insured and must have sufficient funds available to cover unanticipated worker's compensation, or in the event of a liability claim (p. 4). This is a generous amount and would not be necessary if the city had another form of insurance coverage. The decision to be self-insured is a risky proposition, but the City of Norfolk feels that long-term expenditures for health insurance outweigh the risks that they assume.

The economic downturn and leveling reserve are intended to protect against a drop in the value of revenues due to general economic decline. The budgeted amount in this fund is small, as compared to the general fund. It is only slightly less than the amount set aside for the risks associated with being self-insured. The budget approach taken by the City of Norfolk is a conservative approach and works on the assumption that unforeseen events will occur from time to time. The amount set aside for self-insurance may seem high, but if a major event occurs, this amount may be small. In order to offset this potential risk and set aside additional funds for emergencies, the general fund has a practice of attempting to accumulate funds to build up a ready reserve, should it be needed (p. 4). This budget takes a conservative approach to risk, providing multiple sources of emergency fundage in the event of a catastrophic event.

Quality of the Budget Presentation

The budget is presented in an organized fashion that clearly delineates sources of revenue from expenditures. It provides an estimation of the forces that are expected to drive the local economy in the future. The report moves from general to specific information about each of the departments.

One of the key criticisms of the budget presentation is that on pages 19-28 it provides estimations and trends in economic growth. It presents the information graphically and presents a narrative of the same information. Within the text, the source of the information is cited. However, there is much ambiguity as to how the projections and figures were derived. For example, statistics point to an estimation that property tax revenue will grow over the next year (p. 20). This information was obtained from the Real Estate Assessor's Office. The estimation was based on past trends and does not consider the drop in income due to a general economic depression in the housing industry. Like many of the numbers and predictions in this section of the report, the analysis does not consider all of the factors that could affect the outcome.

One cannot always base future predictions on past performance. This analysis provides a clear picture of the past and works under the assumption that the future will mirror the past. In today's volatile economy, this could be a vital mistake that could cause future estimations to be inaccurate. One of the key weaknesses of the budget presentation is that it tells what happened and what is expected to happen in the future, but it does not determine causality. This lack of depth could be problematic, especially as they are relied upon as a primary source for budgeting and planning for the future.

The budget presentation is uses many graphs and illustrations to illustrate key trends. The information is presented in a form that is easy to understand and that allows the reader to quickly access the information that they wish to obtain. However, the presentation could be much stronger if the reasons for the trends were examined in greater detail. The reader needs to understand how these figures were derived in order to be able to take appropriate actions in the future.

Executive Proposals and Goals

The City Manager, Regina Williams, addresses key proposals and goals for the FY 2008 budget, stating that this year's budget has been challenging to balance (i - xvi). The first key goal of the City Manager is to regain control of previously uncontrollable elements of the budget, such as non-personnel staff of Police and Fire units (p. iv). The Mayor held several Town Hall Meetings to determine which issues played most heavily on the minds of the citizens. Based on these meetings, the Mayor decided to place several key issues at the forefront of the agenda.

The first priority on the agenda was to provide the stimulus for much needed economic development in the Norfolk area. Transportation improvements were also high on the priority list. The third item on the agenda was infrastructure repair and replacement. Code enforcement also made the list top citizen priorities. Surprisingly, programs to enhance the quality of life for children were last on the list (p. iv). These was the list obtained from the citizens during Town Hall Meetings and will form the driving force in the budgetary concerns for the 2008 fiscal year. The City Manager has promised to make these items a priority in the new fiscal year.

City Departments were asked to keep these goals in mind as they prepared their budget requests for the 200 FY. As the department managers submitted their budget, these concerns were addressed by way of requests for additional police presence, additional fire and rescue assistance, and extended hours for the library, and parks and recreation facilities (p. iv). Additional street sweeping was also included in the budget items (p. iv). These requests for new programs and services totaled almost $90 million (p. iv). However, regretfully, many of these items could not be approved due to tight budgetary constraints, including cuts of Federal funding.

Revenues and Expenditures

Total revenues for 2008 have increased when compared to the past two years. Total revenues for the approved 2008 budget were $795,835,700 (p. 2-7). By comparison, total expenditures for the FY 2008 budget were $795,835,700 (p. 3-2). One must keep in mind that cities are not the same as a for-profit organization. They are expected to spend everything that comes in for the benefit of their citizens. Therefore, budgets tend to reflect a balanced approach to revenues vs. expenditures.

The three largest revenue-producing categories are as follows.

Amount

Categorical Aid

Real Property Taxes

Other Local Taxes

Source: pp 2-1 through 2-7

The three biggest expenditures that the city has are as follows.;

Amount

Education funds

Public Safety (Police and Fire combined)

Debt Service

Source: pp. 3-1 to 3-2

Intergovernmental transfer payments totaled $4,361,400, which was up 30.4% from FY 2007 (p. 1-15). One may note that this amount is offset by a reduction in Federal Aid of $-2,596,200, a 29.4% drop (p. 1-15_. Educational expenses and operating the cities' public schools is by far the costliest budgetary item. This is followed by provision of police and fire services.

Costliest Line Item per Department

Department

Amount

Legislative

Personnel Services

Executive

Personnel Services

Constitutional

Personnel Services

Personnel Services

Judicial

Personnel Services

Office of Elections

Personnel Services

General Management

Personnel Services

Non-Departmental Appropriations

Employee Compensation Increases

Community Development

Personnel Services

Parks, Recreation, and Cultural

Personnel Services

Public Health and Assistance

Personnel Services

Public Safety

Personnel Services

Public Works

Personnel Services

Debt Service

Debt Principal

Source: All data was obtained from the Expenditure Summary of the appropriate department section of the budget report.

The biggest expense in every department listed in the report was personnel and/or personnel related expenditures. Personnel services are the largest portion of the city budget and represent the area that can be trimmed in order to return the city to a healthy fiscal position. In term of the entire budget, personnel costs were $279,763,871 (p. 1-17). This represents a dollar change of 14,677,100 and a percentage change of 5.5% (p. 1-17).

Public Services Costs

Police, Fire, and 911 services fall under the judicial department. Total budgetary expenditures for the judicial department were $35,378,200. Corrections operations represent the biggest line item on the budget. Personnel represents the biggest line item in both the law enforcement branch and the public assistance branch of the government. Approved public assistance costs for FY 2008 were $21,195,994 (p. 1-17). This amount did not change from the previous year.

Summary

In Part I of the project the budget of the City of Norfolk was analyzed. The biggest expenditure in any of the departments was personnel services. The city needs staff to provide the services that the people expect. The city must provide the expected services for its citizens and personnel are necessary for those services. A majority of the revenue stems from taxes in one form or another. Education of the youth was by far the biggest consumer of property taxes. Budget amounts are shrinking, as homes are foreclosed and unemployment continues to rise.

Part II

As director of the Neighborhood and Preservation Department, I have been asked to prepare a budget that reflects a 20% decrease over last year's figures. These cuts have been mandated by the City Manager as a result of reduced tax revenue expectations, reductions in Federal funding, and pressure to reduce taxes. All of these items place a strain on the budget and all departments must make the necessary cuts in order to continue to operate as they have in the past. The following represents my analysis of the situation and recommendations for the required budgetary cuts.

Overview of the Department Budget

The Neighborhood and Preservation Department falls under two different departments. Neighborhoods are under the Non-Departmental Appropriations section of the budget. Funds for these services are used fro blight removal and community revitalization projects. Approximately $150,000 are appropriated annually for this purpose (p. 4-104). Norfolk has a beautiful historic district that creates a community asset. Norfolk has five distinct historic districts, many of which contain homes that are on the local, state, and National historic registries. These districts add character to the city and add to property values around the area.

Those that choose to live or own property in historic districts must abide by certain preservation rules and regulations. The city sees the historic districts as a valuable asset that promotes tourism and provides an asset for the community and the city. Those that choose to renovate property in these districts is eligible to receive tax credits for their efforts from the federal and state governments. These incentives cost the City of Norfolk nothing, but the city is able to reap the benefits of such programs.

Neighborhoods and Preservation fall under two different departments, budgeting can be tricky. I currently manage both programs and must find a way to cut from both areas of the budget. Preservation of City assets is often considered to be a nice extra and is treated as a non-essential item when it comes time to make budgetary cuts. However, as the week progresses, one will realize the vital role that neighborhoods and preservation play in the economic growth of the city.

First, I would like to suggest that neighborhoods and preservation are essential functions that lead to economic growth for all of the citizens of the community. Historic communities and nice neighborhoods attract business and growth opportunities. They provide an excellent resource to exploit for promoting tourism. Their status as an important community asset supports the argument that my department should not have to make cuts at all and that these cuts should be absorbed by other non-essential departments.

No one will argue that certain branches of the city government are essential and considered basic to the citizens of the community. No one will argue that the legislative, executive, law, and judicial departments are not essential to the functioning of the city. However, there are some areas of the city government that could use thinning of non-essential personnel and programs that have become obsolete. The Parks, Recreation, and Culture department represents one area that could be dramatically cut. Parks, recreation, and culture add richness to their communities, but they do not provide the increases in tax revenue that having good communities will provide. Parks and Recreation are responsible for protecting the City of Norfolk's green spaces, including cemeteries. Personnel, planning and administration represent the biggest portions of the budget in this department. I feel that the budget cuts can be shifted to non-essential departments, such as Parks, Recreation and Culture.

The budgetary funds may also come from the reserve fund that is set aside for economic hardship and adjustments to the market. My reasons for this suggestion is that these problems are a result of economic hardships that are a result of the overall economy. Although my department has no problem complying with these budgetary requests, as necessary, but there are more appropriate places for he cuts to be made.

If the cuts must be made in my department, personnel represents the highest expenditures in any department and therefore represents the biggest opportunity for reductions in the budget. In 2008, employee compensation and benefits represented the biggest non-departmental appropriations and the biggest expenditures across the board. The first, and most difficult, decision that must be made is to select positions and staff that needs to be reduced. In some cases, jobs will have to be combined, placing greater strain on existing staff. However, these reductions are necessary in order for the health of the department to be able to meet the mandated goals in cost reduction. The City Planning and Development department is considered to be more essential to the operation of the city. They are already understaffed. Therefore, it is recommended that any reductions in staff stem from a non-essential department, such as Parks, Recreation, and Culture.

Personnel for Parks, Recreation, and Cultural events cost the department $12,138,487.

This means that in order to meet the mandated reduction in pay, $2,427,697 in staff expenses will have to be shaved from the budget. In order to meet the required 20% reduction in budget, the following positions are recommended for reduction, with the following amounts. Many staff positions in this department are considered redundant and could easily be combined in many cases. These figures will take a conservative estimate and assume that all employees are making the minimum salary for the position.

Position

Savings

Administrative technician

Forestry Crew Leader

Groundskeeper Crew Leader

Division Head

Bureau Manager

Recreation Specialist

Recreation Supervisor II

Total Reductions

The reasons for these reductions are primarily to reduce redundancy in staff positions. For instance, within the department are three administrative assistant/secretary positions. In an analysis of the job that they performed, it was determined that only two were actually needed, therefore, the Administrative technician position was eliminated.

It could not be determined what the Forestry Supervisor did, when there was already a City Forester and a Forestry Crew Leader. It seems unnecessary to have a crew leader to supervise a staff of one. Even if the employee needs to take additional training to take over the position, this is still better in the long run. The same could be said for the groundskeeper and the groundskeeper crew leader. If one only has a single employee, it is difficult to justify the need to a supervisor; therefore the groundskeeper crew leader will be eliminated.

The division head position and the Director of Parks, Recreation and Open Spaces were found to be so similar that they often overlapped in their job responsibilities. Similarly, the business manager and the bureau manager positions were not clearly defined. Many times these two positions overlapped and created conflicts within the department. It is also not believed that there is a need for two tiers of recreation supervisors. None of these positions are clearly defined and could be eliminated completely without consequence. These reductions will result in a reduction in the total budget of $266,836, which is clearly over the 20% required reduction.

Other Recommendations

The above plan outlines measures that can be taken, should the need arise, to reduce the operating budget by reducing staff personnel. However, it is recognized that for some, this may be difficult and cutting personnel is never easy. In order to eliminate the need to cut jobs and reduce staff, several recommendations will be suggested to help general additional funds for the programs and department. Although, the positions that were eliminated as a result of budgetary cuts may appear to be non-essential, it is feared that they may place extra strain on those in other positions. Therefore, some alternative suggestions will be made that may help to eliminate the need to reduce staff positions.

Neighborhoods and Preservation are often viewed as an extra that is non-essential to the functioning of the community. We all like to live in nice communities and it is the job of Neighborhoods and Preservation to make certain that the City of Norfolk is a nice place to live and work. However, these services add more than simply aesthetics to the community. Having nice communities and historic districts helps to promote the economy by bringing in more businesses. In addition, there is a tourism industry that can be developed as well.

By promoting the historic district as a prime destination for tourism, we can generate more income in the future. As property values go up in these districts, so does the revenue generated through property taxes. Revitalizing historic districts and placing money within the communities helps to build the travel and tourism industry in the area as well. Therefore, one could look at the money spent in the communities as more of an investment than an expenditure. One needs to only look at Colonial Williamsburg or Martha's Vineyard to see the potential of what the City of Norfolk already has to offer.

The City of Norfolk already funds a number of museum and tourism attractions in the city, including the Chrysler Museum, Norfolk Botanical Gardens, Norfolk Commission on the Arts and Humanities, and the Virginia Zoo Society to name a few (pp / 4-109,110). In addition, they already host several events throughout the year including the Virginia Arts Festival, and Norfolk's International Azalea Festival (p. 110). These activities could be expanded to include features specifically tailored to the historic district. This concept would highlight the programs and places already being sponsored and would place Neighborhoods and Preservation activities into the revenues category instead of the expenditure category.

Another source of income that has not been fully utilized are federal grants programs designed to help preserve historical assets and buildings. Currently, the grant process is left up to the individual property owner. They must take on the full responsibility of attaining the grant, hiring the contractors who will be willing to stick to community guidelines, and they must fund 100% of the repair and restoration work. The community benefits from their efforts through a better image and increased revenue. The city could assist people in attaining these grants and by funding some of repair work, once it is approved.

Investments such as these help demonstrate to the community that the city is wiling to invest in them. It demonstrates a sense of pride and a willingness to help lift up the city. The public would see this as a goodwill gesture by city government towards individual property owners. In addition to increased tourism and other income, revitalizing the communities in which the citizens live also generates a greater tax base due to rising property values in the area.

Private investors who give back to the community already receive tax credits for their efforts. However, this program could be expanded to offer more incentives and greater opportunities for attracting new businesses. The community would realize increased revenues and at the same time, this would help to eliminate poorer less developed portions of the City. Everyone wins when we have a more attractive neighborhood. In order to be poised for growth, the City of Norfolk needs to invest in their communities like never before.