January 5, 2009
The Town of Fairfield and the Budget Crunch
The economy is finally hitting home. Fairfield, as well as most neighboring towns, is faced with a Budget Crunch. Revenues this year could fall as much as $3 Million short of the Budget. There are four main reasons for the shortfall.
- Tax Revenue - The slowing economy has also slowed collections. So rather than collecting the stellar 99% or better as past years, tax revenue is falling short. This estimated shortfall is based on collection performance for the October Quarterly payments. It will be important to follow the January and April collection amounts to see if the reduced collection percentage is stable or continues to decline with the slumping economy.
- Conveyance Tax - The Town collects .25% on the sale of each property. This is similar to a Sales Tax. According to the Greater Fairfield County MLS service, Homes sales are down 35% in units and another 13% in Average Selling Price. This translates into to almost a 50% decline in Conveyance Tax Revenue from last year.
- Building Permits - While it was anticipated that the New Train Station would be slow in progressing, we are still seeing a general decline in revenue from Building Permit Fees. It was next year's budget and revenue that was hoping to get a boost from the Train Station Complex construction. This may not be the case.
- Interest Income - Town investments are suffering from declining interest rates so less revenue is coming in from this source.
It is hoped that the Town and the Board of Education can come up with expense cuts to make up this shortfall. This is a very difficult task. We are down $3 Million from our revenue estimates over 12 months. If we are to make up that amount in expense cuts, we have to make it up from February 1 to June 30 or during a five month period. This translates into a $600,000 expense reduction per month.
There are some categories of expenses that we are running below budget on like Health Care costs. However, this is not really controllable and may not continue for the year.
The Town budget is $245 Million for Fiscal Year 2009. However, $25 Million of this is Debt Service and cannot be cut. Of the remaining $220 Million, $140 Million is in the Education Budget and $80 Million is in the Town Budget.
We are seven months through the year by January 31. This means that most of the budgeted amounts have been spent or committed. It is also important to realize that a town like Fairfield is really a service business and most of its budget is for labor. In Fairfield's case approximately 70% of the expenses are Labor related. So it is very difficult to make any significant expense reductions without cutting jobs.
This is a very challenging problem that will take quite a bit of management creativity to solve. If the budgets were evenly spread by month, then the Board of Education only has five months of budget left or just over $58 Million left unspent as of January 31. For the Town it the five months remaining come in at just over $33 Million.
If we allocate the cuts based on overall budgets, the BOE would have to reduce their $58 Million by $2 Million or by $400,000 per month starting February 1. The Town would be on the hook to reduce their $33 Million by $1 Million or $200,000 per month.
Every month of delay in making the cuts make this a much more difficult task. If the expense reductions are not made, then the Town will finish in Red Ink and the loss will be made up from the Town Surplus from prior years. The funding level for this Surplus is very thin and has already drawn warnings from at least one of the Rating Agencies. And if we finish in the Red, this will have significant implications in the preparation of next year's Fiscal Year 2010 Budget.
Just my attempt to describe the challenges ahead, Mike Tetreau
