Financial Urgency
May 22, 2011, 12:20 PM
Filed under: Budget, City Commission

May 22, 2011

Like the prophets of old, Commissioner Furr has been warning of Hollywood’s impending budget failure for years, his detailed analyses falling on deaf ears. Instead of addressing the budget’s growing structural imbalance, the City Manager found short-term ways each year to balance the budget, all the while digging a deeper hole down the road. As a result, the City is now facing the need for drastic steps to solve a financial crisis.

At last week’s City Commission meeting, the City Manager called on his Finance Director and his Budget Director to present the bad news. This is what we learned, only some of which was reported in the mainstream media.

The City began the current fiscal year last October with a fund balance of $9.16 million in the General Fund. But midway through the year, this balance had fallen to about $.6 million, a completely untenable level. Accordingly, the City Commission adopted a staff-recommended budget resolution transferring to a special reserve account about $2 million from a wide range of city accounts. By this action, they raised the fund balance to $2.6 million which is about 1.6% of General Fund revenues. This is far from sufficient.

The Finance Director told the Commission that Hollywood has promised to maintain a minimum 5% fund balance in connection with its loans from the First Florida Financing Commission. At l.6%, we are about $5.5 million short of the minimum requirement, he said.

The danger here is that Hollywood’s bond rating will be further downgraded, raising the City’s cost to borrow funds. One downgrade already occurred about three months ago. In explanation, Fitch said it lowered Hollywood’s rating in part because of high and growing annual pension costs. See Fitch Downgrades Hollywood.

The Finance Director explained that this year’s shortfall did not occur over night because the seeds were sown some 15 years ago. While the long-ago cause is true, it is also true, though he didn’t mention it, that steps could have been taken each year thereafter to lessen the problem, as Commissioner Furr’s lone voice has advocated over the last eight years or so. Unfortunately for us all, the City Manager, instead of reinforcing Commissioner Furr’s concerns, has recommended short-term solutions each year that have greatly compounded the City’s current and long-term budget woes.

In short, staff inflated revenue projections beyond reasonable expectations for the current fiscal year, resulting in today’s $7.35 million shortfall. Adding to the problem, expenditures are $1.2 million over budget. The red ink details are clear on a spreadsheet (pdf file) the Finance Director provided last week to the elected officials.

Compounding this mid-year problem is a projected $25 million budget shortfall for the next fiscal year which begins October 1. Given such a dire financial picture, the City Commission unanimously voted last week to invoke Financial Urgency as authorized by FL Stat 447.4095 — not only for next year, but for the balance of this year also. This statute sets up a process for changing union contracts when a financial emergency exists. First, the parties must negotiate for 14 days. If no agreement is reached within that time, a collective bargaining impasse will be deemed to exist, triggering the appointment of a special magistrate, hearings, and more, as unions challenge and the City defends its need for benefit reductions. The impasse process is regulated by State law, FL Stat 447.403.

This is a highly stressful time for City employees and a difficult one for our elected officials as well. In short, our City is in a crisis and we must pay attention to how this has happened, how it could or should have been prevented, and changes that are needed.

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