Source: Grosse Pointe News Online

Rainy day stable

by Brad Lindberg Staff Writer

December 05, 2013

CITY OF GROSSE POINTE — Amid a financial tempest the likes of which destined sailors to shipwreck on Prospero’s island, municipal administrators spend much of their energy falling “to’t yarely,” or risk running themselves aground.

Yet, while the City of Grosse Pointe’s budget is significantly less entertaining than the storm scene in Shakespeare’s “The Tempest,” it is more dramatic for being real.

Budgets impact the city’s 5,300 residents and 2.2-square-miles of prime suburban real estate, not fictional characters in a fantasy land.

“The city has battled the storm of declining property values to maintain services and daily operating costs,” said Kimberly Kleinow, finance director.

Legacy costs

A recurring challenge is paying legacy costs.

“Our pension contribution went from not having anything just a couple years ago to now almost $300,000,” Kleinow said. “It’s only expected to go up from there. Retiree health care is almost $500,000.”

The combined annual obligations total $800,000.

“That’s huge,” Kleinow said. “You’re talking about adding an extra $800,000 to a $5 million general fund budget — that’s almost 1/5 of the general fund budget.”

Her assessment added context to a presentation last week of the annual municipal audit for fiscal year 2012-1013.

Reserves

The routine audit by Plante Moran showed, as of June 30, the city maintained a another year of healthy financial reserves despite an overall revenue decline.

“Our fund balance is still good,” Kleinow said.

The unrestricted fund balance, also called the rainy day fund, totaled $1,103,444, or 20 percent of operating costs, which auditors recommend.

“While our fund balance is healthy as of June 30, 2013, it’s the ever-looming legacy costs that we’re facing,” Kleinow said.

Auditors revealed a drop in municipal revenue last year, mainly due to a $149,807 loss in investment values.

“The market took a dip in June,” Kleinow said. “If we hold those investments to maturity, there is no loss. We’re guaranteed face value. The year before, we had a nice little increase at June 30 of our market value.”

Property values increased slightly last year, which presumes a hopeful, but modest, trend.

“It’s starting to turn around a little,” Kleinow said.

Major jumps in property values won’t generate equal percentage increases in property tax receipts due to limits on tax hikes prescribed by the Headlee cap and Proposal A.

“While we might see increases of 10 or 12 percent in market values, we’re locked in at whatever the inflationary amount is, which is generally 2 percent,” Kleinow said. “They’re saying it will be 10 to 20 years before we get back to where we were before the decline.”

Tax base

Unable to expand the property tax base due to the city’s saturated development, municipal officials encourage new construction that generates higher property values and tax receipts.

“We’ve tried to encourage new investment,” said Mayor Dale Scrace.

Prior to the recession, developers were lining up in the Village to construct senior living, a small hotel and multi-story mixed-use structures on municipal parking lots north of Kercheval.

The city council recently modified zoning to encourage development of the defunct Sunrise senior living site on St. Clair below Kercheval.

Zoning changes within the past few months facilitated a health care provider with retail tenants to buy and renovate the former Borders Books building, vacant three years on Kercheval.

“That all has small incremental increases over the years in assessed values,” Scrace said. “We encourage existing property owners to increase the value of their property by making improvements.”

That also applies to housing.

“We strongly encourage, through zoning ordinance enforcement, the upgrading and updating of homes,” Scrace said.

Operations

Auditors showed the cost of operating the public safety department went down $98,788 last year.

The department represents about 55 percent of city expenditures.

General government operations represented 22.6 percent of expenses.

Kleinow compared legacy costs to a black cloud following the city.

“Every time you make it through one storm, you still have that black cloud,” Kleinow said.

Auditors couldn’t forecast the impact of Affordable Care Act on city finances.

“Everybody assumes the cost of health care will go up because Obamacare requires you to cover more things and people,” Kleinow said.