City of Rockford’s budget requires vigilance

The city of Rockford’s budget is moving in the right direction, in that the city’s reserves increased by $1.4M in 2011. The city must remain vigilant, however, because of the means that are being used to achieve “balanced” budgets or surpluses.

One positive means is in reaching an early budget resolution. Adjusting spending levels at the beginning of the fiscal year has helped prevent overspending of the budget in the first quarter the last two years.

On October 3, 2011, however, the city voted 9-0 to borrow $20.7M dollars from PNC Bank, which is an increase from the $15.0M borrowed for 2011. The city’s portion of $15M, used for cash flow, was only a $10M line of credit the previous year; $1.5M is for the BMO Harris Bank Center’s $2M term loan and $4.2M is to be used for Keith Creek.

The city borrowed an additional $2M from PNC Bank two years ago to help the BMO Center’s cash flow. It was a 10-year term loan, but PNC would only cover it for two years.

The city’s cash flow borrowing is similar to the Tax Anticipation Warrants the school district has used in the past, except that the city only borrows the amount needed with a line of credit.

Still, the borrowing means the city doesn’t have adequate reserves and a line of credit is needed because at some point during the year, the city has a cash flow below what is needed to pay its bills and must use the line of credit to get through that period until its next revenues are received through tax receipts, fees, etc.

In 2011, the city utilized about $12M of its line of credit of $15M. Now the city is borrowing $20.7M, even though it expects to receive money from BMO Center and from state grants for Keith Creek. Regardless, interest is due and city reserves need to be increased by at least $15M to prevent the need for continued borrowing!

The money is paid back before the end of the year when revenues are again received, but that still forces the city to keep the line of credit open to pay the following year’s uncovered expenditures until that year’s revenue stream is collected. It was a downward spiral for the school district and it could be for the city, unless it’s reserves are increased to cover the short term borrowing.

The second means occurred on November 1, 2011, when the council voted 12-0 to underfund the city’s two pension funds by $3.2M to reduce the projected 2012 General Fund deficit from $5.2M to $2M, contributing approximately 25% less than recommended by the actuary.

This vote definitely will affect the budget deficit or surplus in 2012. The city maintains that its funding of the public safety pensions are 75% and 68% and that they have been diligent in their payments. Even so, borrowing money to enhance revenues for needed expenditures is a downward trend from which escape is increasingly more difficult each succeeding year.