The city of Albuquerque is facing a potential budget shortfall of nearly $40 million next fiscal year due to muted revenue growth, state cuts, operations of new capital projects coming online, additional funding for police and increases in medical costs, among other factors.
The potential $39.9 million shortfall is outlined in a five-year financial forecast that is slated to be formally presented to the City Council on Monday. It’s the worst budget gap since 2011, when a $40 million difference was projected for the following year.
The estimate sets the stage for Mayor Tim Keller and city councilors to either do some serious belt tightening or figure out a way to increase revenues.
Keller’s office on Friday declined a request from the Journal to discuss the estimates. Keller told reporters earlier in the week that his office would discuss the forecast and deficits in more detail Monday.
“We will be talking about it on Monday,” Alicia Manzano, Keller’s interim communications director, said Friday.
Council President Ken Sanchez, a Democrat, said the city’s financial problems have been going on for some time, later adding that the city economist has warned councilors that the city is in for challenging times.
He said the biggest problem the city has faced is gross receipts taxes not coming in at the expected level despite the city’s estimates being very conservative.
“I’ve said for the last two years that we need to look at revenue enhancements and the possibility of an increase in gross receipts taxes,” he said.
Councilor Don Harris, a Republican, said the initial projected deficit tends to be much worse than what actually happens.
“That doesn’t change the fact that the city has been in a tough bind for years,” he said, noting the decrease in so-called hold harmless funding from the state and low GRT revenues.
Harris said the city has been managing its finances prudently, but “I don’t know how much longer we can keep sticking thumbs in the dike.” He said tough decisions are on the horizon.
The financial forecast pegs the current fiscal year budget deficit at $5.9 million. Next fiscal year’s potential $39.9 million shortfall assumes that this year’s deficit won’t be dealt with and will carry forward into next fiscal year.
For the fiscal year that begins July 1, the city expects to take in nearly $531.5 million in revenue, a 2 percent increase over the revenue anticipated for this fiscal year. But it is anticipating that it will need to spend $563.7 million on basic operations, an increase of roughly 4.6 percent over the revised current year budget.
The roughly $32.2 million gap between anticipated revenues and expenditures grows to $39.9 million when this year’s projected deficit and other factors are added in, such as the requirement to hold some money in reserve.
Projections for next year include:
$2.3 million in lost funding due to the phaseout of “hold harmless” payments. These payments were being made to cities and counties to compensate them for funding they lost when the state eliminated the gross receipts tax on food and medicine, but lawmakers and the governor have decided to phase out that funding.
$7.2 million in operating costs for new capital projects that will be coming online, including the Albuquerque Rapid Transit project and the penguin and otter exhibits.
$6.2 million more for medical benefits.
$3.2 million for a 1 percent across-the-board pay increase for city workers.
$3.6 million more for the Albuquerque Police Department, which represents a growth class of 40 cadets.
$600,000 more for APD’s special investigations division.
$1.75 million for debt service on a new police radio system.
$2.8 million to fund the National Senior Games.
$4 million to replace vehicles citywide.
$343,000 for new positions, assuming the creation of an Asset Management Department.
$221,000 for minimum wage adjustments.
“The revenue estimates may change over the next few months depending on the outcome of the next few GRT distributions from the state,” the financial forecast states. “Should the revenue estimates hold or worsen, the assumptions regarding expenditures will have to be revised in order to present a balanced budget for (next fiscal year). Some expenses will have to be fully funded; however, some may be scaled back or deferred to later years if possible.”
The financial forecast lays the backdrop for budget discussions at City Hall. The mayor is required to propose a balanced budget by April 1. City councilors will then have two months to make changes or approve Keller’s budget proposal.