Budget 101

With all the talk about the City budget and the City’s need for a tax increase, all of us could probably use a Budget 101 crash course. Here’s a stab at it - some information about how the City budget works and how much money the RDC is requesting.

How it Works

First of all, you need to understand there are two main City budgets: an operating budget and a CIP budget.

The operating budget pays to keep things running and for immediate needs. It pays the salaries for City employees (firemen, policemen, etc) and covers everyday operations like garbage pick-up and park maintenance. The amounts in this budget are paid directly from tax revenues. It’s sort of like paying for things with cash or out of your checking account.

The second budget is the CIP; CIP stands for Capital Improvements Program. It covers long-term projects and pays for the design and construction of big projects like police stations, libraries, boat landings, and “landbridges.” It works sort of like a mortgage on your house. To pay for projects in the CIP, the City borrows money. It looks for federal and state money to cover some of the costs, but most of the money is raised by issuing bonds, which taxes must pay off. Until the full amount is paid off, what’s called debt service (interest on the borrowed money plus part of the principal) winds up in each year’s operating budget, like the monthly payment on your house mortgage.

Each agency, including the RDC, looks at its goals and the expense of meeting those goals. The expenses are then put together by the City Administration in the City’s budgets. A balanced budget, where income pays expenses is what you want, but that’s not what we have this year, or, as a matter of fact, not what we have had for the last couple of years. Rather than cut expenses or raise taxes, the City has been balancing the budget by spending money it had in a “rainy day fund.” Now, that reserve fund has run out of money; so, this year, in order to pay for all the expenses in the operating budget and to fund projects in the CIP budget, the Administration is asking for more money - a tax increase. The Administration submitted its budget to the City Council. The Council’s Budget Committee has been reviewing each agency’s request and will come up with a modified budget to send to the full City Council for approval. The next step - we pay the bills.

Another Budget 101 fact: When the budget says FY2006 that means for the year from July 2005 to July 2006.

RDC Requests in the Operating Budget

The RDC has requested $2,484,830 in the FY2006 Operating Budget to run the riverfront parks.

The City's operating budget proposals, department by department, can be found in this very large (1.4 megabyte) PDF document: http://www.memphistn.gov/pdf_forms/genFundExp2006.pdf
Go to page 287 to find that line item related to the RDC.

On May 5, the City Council’s Budget Committee met to consider the RDC's request. Although Benny Lendermon, Rick Masson, John Conroy, and Jay Fuller were there representing the RDC, they were empty-handed. They had no written figures to submit; the RDC Board had not approved a budget, so the Council Committee got no details. The Committee voted approval and asked that information be sent when it became available.

At the Committee hearing, it was clarified that the RDC is in the 5th year of a 5 year contract with the City to manage riverfront parks, that the Mayor signs and negotiates the contract with the RDC, and that the Council allocates the money.

In response to questions, the RDC comptroller said that the RDC now has a staff of 38 people, 6 of whom are administrative, and that the total expenditure for parks is $3.5million. The RDC said that they have been able to manage the parks without cost increases and that private donations from the RDC Board and the Plough and Hyde Foundations have helped with special projects. The RDC explained that they contract out grass cutting, but do horticulture work with their own staff. The 2006 budget requests $1.8 million to pay park employees and $558,102 for the administrative staff.

In a later session to consider the Convention Center budget request, it was mentioned that the Mayor, in an effort to better utilize equipment and manpower, had asked the group now managing the Convention Center for a proposal to manage the Mud Island River Park, Liberty Bowl, and Convention Center. Councilwoman Chumney and others were interested in seeing this proposal.

RDC Requests in the CIP Budget

But 1st, a few more Budget 101 facts -

Because the projects in this budget stretch out over many years, the CIP includes information by year for five years. It also includes information about money that has been set aside previously for each recipient but has not been spent yet; it’s called reprogram money.

When projects appear in the CIP, the source of the money (whether it’s coming from City bonds, federal grants, or state grants) and the purpose of the spending (on engineering and architecture or on actual construction) is specified.

Right now the RDC has $23 million dollars in reprogram money in the CIP budget waiting to be spent. City General Obligation Bonds, which are backed by City property taxes, finance $13.1 million of this. Over the next 5 years, the RDC is asking for an additional $29.9 million, $26.4 million of which, if approved, will also be funded by City bonds. That’s a request for $39.5 million in City bonds backed by City property taxes for the RDC.

The CIP breaks Agency amounts down into specific project requests. For the RDC, that’s Beale Street Landing, Riverfront Park Improvements, Cobblestone Landing, and Riverfront Planning.

Beale Street Landing has $21.4 million in reprogram money in the CIP budget of which $12.7 million is from City bonds. They have requested an additional $6.2 million from the City in 2006. Most of the design has been completed, so reprogram and future financing goes for actual construction.

At the Council Budget hearing, the committee voted to shift the request for $6.2 million from budget year 2006 to 2007. The RDC says this will not interfere with their plans to begin construction of Beale Street Landing this July. In light of the budget crisis, Councilwoman Chumney made a motion to remove all City funding for Beale Street Landing ($18.9 million) from the CIP, but there was no second for her motion. The RDC expects Beale Street Landing to be finished in 2007. The total amount in the CIP for this project through 2010 is $28.6 million.

The Riverfront Park Improvement Project has $300,000 in reprogram money from City bonds and is requesting an additional $150,000 in 2006. This money is going to Tom Lee Park improvements, including the new Tom Lee Memorial. The total amount in the CIP for this project through 2010 is $15.3 million. This money will come entirely from City bonds.

The Cobblestone Landing Project has $1 million in reprogram money from the federal government. The RDC is requesting an additional $100,000 from City bonds and $1.5 million from federal grants in 2006. Most of this is for construction improvements to the cobblestone area. The total amount in the CIP through 2010 for this project is $6.7 million.

The Riverfront Project currently has $234,000 in reprogram money (half from City bonds and half from federal grants) in the CIP budget to pay for architecture and engineering expenses involved in planning for, among other things, the development of the Promenade, Landbridge, and Wolf River Harbor. The RDC is requesting an additional $400,000 in 2006 (half from the federal grants and half from City bonds. The total amount in the CIP through 2010 for this project is $2.2 million.

So Where Do We Stand?

Except for having $6.2 million, which will pay for part of the construction of Beale Street Landing, shifted from 2006 to 2007 in the CIP budget, the RDC's operating and CIP budgets left the Council Budget Committee without changes. Their request for $41.9 million from the City over the next 5 years, roughly $16.5 million of which they will receive between July 2005 and July 2006, is headed to the full Council for a vote. And to think we can't cut the grass, pick-up dead animals, are laying off employees, and have cut summer jobs for kids.

For more details on the Riverfront Development portion of the CIP budget, download this PDF document(about 191 KB): http://www.memphistn.gov/pdf_forms/riverDev2006.pdf.

If you want to write City Council members about the budget, you will find their addresses at this link.
Just click on their individual pictures to get their mailing addresses.