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Albuquerque expects $24 million deficit in 2017-18

Copyright © 2017 Albuquerque Journal

City Hall faces a potential budget shortfall of $24 million next year – the worst gap in six years – as a result of state tax cuts, legal settlements and the operation of new projects, including otter and penguin exhibits at the BioPark.

The financial forecast was outlined in documents submitted to Albuquerque city councilors Wednesday and sets the stage for how much cutting and other adjustments Mayor Richard Berry and the council must make to craft a balanced budget in time for the fiscal year that

Demolition and construction for the new Penguin Chill exhibit coming next year to the ABQ BioPark Zoo. Wednesday Dec. 28, 2016. (Jim Thompson/Albuquerque Journal)

Demolition and construction for the new Penguin Chill exhibit coming next year to the ABQ BioPark Zoo. Wednesday Dec. 28, 2016. (Jim Thompson/Albuquerque Journal)

begins July 1. Berry will propose his plan by April 1, then councilors have two months to make changes.

The city anticipates about $526 million in revenue in

the new fiscal year, an increase of about 2.8 percent. But it expects to spend roughly $546 million, an increase of 2.9 percent.

The $20 million gap, however, grows to nearly $24 million when technical adjustments are made based on requirements to hold some money in reserve and other factors.

In an interview, Berry said the projected shortfall is a manageable amount that can be addressed without tax increases, layoffs or employee furloughs. The forecast at this point in the budget cycle is always a bit gloomy, he said, because the city is conservative on revenue estimates and aggressive about potential expenses that could come up.

“The numbers always look worse than they end up,” Berry said.

Still, it could be a tight year financially.

City Councilor Don Harris, chairman of the council budget committee, said the city may have to consider a tax increase, though not necessarily for next year.

“It’s going to be difficult,” Harris said of the coming budget debate. “We’re cutting to the bone. Eventually, we’re going to have to take a look at revenue.”

Next year’s $24 million gap is the biggest forecast shortfall since 2011, when a $40 million gap was projected for the following year. Since then, the number has consistently stayed between $7 million to $18 million, until this year.

On the other hand, it pales in comparison to the $64 million and $54 million gaps the city had to close amid the Great Recession at the beginning of Berry’s tenure.

“We’ve had a lot worse years than this,” he said.

When adjusted for inflation, for example, this year’s spending is actually less than the budget seven years ago, according to city documents.

“We’ve grown the budget less than inflation,” Berry said. “That’s why we can manage through this.”

The projection for next year includes:

• About $7.3 million to operate new firefighter and rescue units, penguin and otter exhibits at the BioPark, and maintenance of new streets, parks and software, among others projects due to come online.

Expanded staffing in the fire department – including in the North Valley – is expected to add about $2 million a year in annual costs.

The river otter exhibit is expected to open this summer at the BioPark aquarium and the penguin exhibit in the fall at the BioPark zoo. They’re expected to cost about $359,000 a year to operate, once they get going.

Berry said the city can trim the projected costs by postponing, say, the start of a new fire unit or by scrutinizing whether the cost estimates are realistic.

The operation of Albuquerque Rapid Transit – a new bus system planned for Central Avenue – isn’t expected to add pressure to next year’s budget. Federal funding is expected to pick up the cost next year, but it could cost $1 million a year to operate the system after that, a budget official said.

• $3.1 million for a 1 percent pay increase for city employees.

• $1.6 million to cover increased staffing in the Albuquerque Police Department as new cadet classes graduate.

• $3.3 million for rising health care costs. Berry said negotiations are underway that could reduce the projected increase.

• $3.1 million to bolster the fund that pays for out-of-court settlements. The city is self-insured.

At one point, the city had spent at least $28 million over a six-year period as a result of lawsuits alleging excessive force or other police misconduct. The department is now carrying out a series of reforms required as part of a settlement agreement with the U.S. Department of Justice.

Bolstering the self-insurance fund has been a long-term goal of the Berry administration.

• An extra $2.3 million in lost tax revenue as a result of tax breaks approved by the state government. The loss is part of a phase-out of state funding to cities and counties as part of a 2013 tax-cut package. The city estimates the phase-out will cost about $6.5 million overall next year, or about $2.3 million more than it costs this year.

Berry said the city can withstand the lost revenue, assuming the Legislature doesn’t accelerate the phase-out beyond what was approved in 2013.

The budget forecast focuses on the city’s general fund, which covers most of the city’s basic operations. The airport and other city agencies that operate more like a business aren’t included.

The general fund is supported mostly by gross receipts taxes that are levied on the purchase of goods and services in Albuquerque, similar to a sales tax. But property taxes, fees levied on utility companies that operate in public rights of way and other sources also contribute revenue to the fund.

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