Developing and monitoring budgets is not the favorite task of most public works professionals. Having the money to operate and develop the infrastructure, though, makes budgeting a necessary evil. For most cities, counties, and states, that evil is a little less onerous for 2006.
State and local tax revenues were up 7.2% in 2005 through September, according to the Bureau of Economic Analysis—the largest increase in revenues in 15 years and a huge change from the tough years of 2002, 2003, and 2004. The Census Bureau reports total 2005 second quarter state and local tax revenues of $273 billion compared to $252 billion in the second quarter of 2004 (an 8% increase) and $229 billion in second quarter 2003.
Where is that money going? USA Today reported that the states are looking to use these surpluses to cut taxes, replenish rainy day funds, and increase spending on education and health care for the poor. They are also hoping to address pension plan problems, which loom larger due to Governmental Accounting Standards Board (GASB) rule changes that require recognition of the long-term obligation states and cities have made to pay for the health care of retirees. According to a recent Wall Street Journal article (Nov. 23, 2005), since many local and state governments are legally bound to provide health care for retirees, this “is likely to be sizable enough to prompt big changes such as cutting retiree benefits, borrowing money, and diverting tax dollars from other spending priorities.”
There may or may not be real surpluses, but what our editors wanted to know was if any of this money is making its way into the general funds used to pay for public works services and capital improvements. Of the services provided by local government, one might think that public works would loom large. However, that doesn't seem to be the case. Police and fire departments suck up a huge chunk of the funding, with most public works services expected to pay for themselves through user fees. When cuts are needed in services paid for by the general fund, things like parks and recreation are often near the top of the list.
State and local budgeting, even in good times, is challenging. The National League of Cities conducted a survey in 2004 that revealed a continuing struggle between local, state, and federal governments over allocation of revenues and service responsibilities (the full report is available at www.nlc.org). This study found that while most city officials approved of the way their own budgeting and tax issues were being handled, most disapproved of the way state and federal budgets were put together. If cuts in services were needed, the survey found, public safety (police, fire, emergency medical) services were least likely to be cut, while parks and recreation and libraries were frequent targets. And if new revenue had to be generated, the survey found, user fees were much more likely to be increased than taxes.
Transportation funding has been a big issue during 2005 with the passage of SAFETEA-LU. “Spurred by a combination of renewed economic growth, emergency repair work following Hurricane Katrina, and a new law that increases federal investment in highways, the U.S. high-way construction market should grow 5.4% in 2006,” said William Buechner, chief economist for the American Road & Transportation Builders Association (ARTBA). “The real question, however, is how much of the growth will be absorbed by rising construction costs.” Buechner goes on to note that the increased tax revenues most state and local governments are seeing should reduce the “pressure to dip into highway funds to balance ... budgets.”
Should we expect rising construction costs? At an audio conference on Dec. 6, 2005, Associated General Contractors chief economist Ken Simonson warned of the cost of diesel fuel, which is “40% to 50% higher (than a year ago) in bulk for off-road use.” This could drive up construction costs significantly. At that same conference, Portland Cement Association economist Ed Sullivan stated that cement shortages should not increase in 2006. According to Sullivan, although rebuilding
New Orleans could consume 650,000 to 1.8 million tons of cement each year of the expected five-year process, additional imports will not be necessary to fill this need. “The slightly more adverse economic environment early in 2006 will act to neutralize the additional cement consumption anticipated from the post-Katrina rebuilding efforts,” said Sullivan.
In an exclusive survey, we asked PUBLIC WORKS readers what they anticipate for funding in 16 key areas. We asked whether spending is expected to increase, decrease, or remain flat for operations and maintenance (O&M) and for capital expenditures. The results are shown in the charts.
With 669 responses from cities of all sizes spread fairly evenly across North America, the results almost might be viewed as boring. In the majority of these areas of responsibility, most readers expect little change in spending in 2006. This is equally true for O&M expenses and for capital improvements. Those who expect increased spending, though, outnumber those who expect decreases in nearly every case, implying that conditions are trending up rather than down. Increases appear to be budgeted most often for water, waste-water, and stormwater services, while equipment (both trucks and technology) and many other services are not anticipating more. Overall, 57% of those responding anticipate increased spending for O&M and 57% expect some increase for capital projects. Only 21% expect O&M decreases—21% also expect capital improvement decreases.
As a point of curiosity more than an indicator of economic conditions, we also asked when the fiscal year began for those responding and when their budgeting process was finalized. The responses revealed that most cities' fiscal years start in either January or July (38% and 34%, respectively). The budgeting process, however, seems to be spread across the year, although most are finalized in the latter part of the year.
Looking for trends among the nation's public works departments, we examined budgets for three cities of different sizes and in different parts of the country: Sacramento, Calif.; Bowling Green, Ky.; and Asheville, N.C. City budgets today are nearly always readily available via the Internet and tend to be presented in a clear and open manner, as one would expect. We researched each budget in these cities based on their online presentation, attempting to decipher the budgets as presented. Although we found some significant differences between these city budgets, we also found many interesting similarities.
Sacramento: Most public works functions in Sacramento are budgeted under one of seven self-supporting enterprise funds, which cover both operations and capital improvements. These funds include water, sewer, drainage (stormwater), solid waste, and parking. Each fund is a standalone unit, generating revenue through user fees that cover all of that fund's expenses. According to their Web site, to “address growing demand on water and storm drain infrastructure,” five new positions were added for those departments in 2006— paid for, of course, through the respective enterprise fund. Transportation is included under the general fund and is paid for, at least in part, by a city gas tax. Direct year-to-year budget comparisons are complicated by some organizational changes, including the transfer of solid waste operations from general services to utilities and transfer of the city operator program from utilities to general services. Nonetheless, dropping out solid waste operations, which changed little from 2005 to 2006, the utilities budget increased only about $3 million in 2006 to a total of $73.6 million (a 4% increase, which corresponds closely with the increase in the number of accounts for water, sewer, and storm drains).
Bowling Green, Ky.: Home of the National Corvette Museum, Bowling Green's total 2006 budget is $84 million, up from $71 million in both 2004 and 2005 (an 18% increase). The public works budget, however, appears to have decreased slightly in 2006. This is difficult to determine, though, since there are some mixed definitions for what's included as part of public works. In one place, public works shows up with general fund fiscal year 2006 budget expenditures of $6.1 million, $1.1 million in special revenue expenditures, $406,000 in capital expenses, and $1.2 million in internal services—a total of $8.8 million. In another table, however, public works general fund expenditures are listed as $1.9 million, and in another $2.1 million. Obviously different things are included in these different totals, although the specifics are a little unclear. What services are provided by the public works department is also not readily apparent, although stormwater, wastewater, and solid waste collection are certainly included.
Asheville, N.C.: Asheville has a very clear, well-organized budget. All city services are divided into five service areas, with environment and transportation (E&T) as the largest, which includes water resources, public works, engineering, transit, parking, and stormwater. The overall budget expenditures for this service area for 2006 are $46 million, up 7% from 2005, mostly through the addition of a $2 million line item for stormwater. Of the E&T departments, four are self-supporting funds (water resources, transit, parking, and stormwater). The stormwater fund is new for fiscal 2006, generating $1.9 million through drainage fees. The public works department includes solid waste collection, fleets, and street maintenance. Oddly, in the middle of the E&T budget, a street and sidewalk fund that doesn't seem tied in to the budget summary suddenly appears, and it doesn't appear to be a true fund since it has no revenues. Each of the departments within the E&T service area provides its mission and objectives. The public works department also provides some interesting benchmarking data, showing Asheville's standing in relation to other North Carolina cities for measures such as tons of recyclables per 1000 population or cost per collection point.
Summary: We generally found the budgets we examined to be well-organized. In all three cities, however, we also found some crossover between departments that made direct year-to-year comparisons difficult. Although each of these three cities has a public works department, each defines it differently. In none of these cities does the public works department include all of the classic services. Public works, then, is probably the least understood city department, encompassing whatever a city needs done that hasn't been assigned elsewhere.