The city has built a structural deficit into its budgets for three years, independent auditors said Monday when they presented the 2011 audit to the City Council.
In 2010, the city used a budget that was intended to spend more than it received in revenues. City officials planned to cover the shortfall with savings, but auditor Jim Cusack said it was still a deficit. City officials did not make the audit available publicly last year.
The 2010 deficit set up a chain reaction: in 2011, the city had to either continue to use savings, or cut spending by $7.6 million. City officials chose to keep spending down the savings, but also cut costs over the course of the year. They ended up spending $4.8 million of savings.
This year is no different, Cusack said. The city is following a spending plan that will lead to a third consecutive year of deficit.
He urged the council to cut its budget to match revenues and stop spending its savings. “If you operate a deficit for too long, you’ll go out of business,” he said.
The audit made it clear that city officials knew they’d have to rely on savings to get through 2011. The planned the budget that way, Cusack said. He pointed to increased costs in pension payments and debt spending as the major obstacles to creating a balanced budget. He also warned the city can only afford to continue using its savings for “another couple of years — at best.”
Mayor Gary McCarthy has said the city can transfer money from much of its $20 million in various savings accounts, all of which are set aside for specific purposes.
But Cusack said that many of those accounts — such as the $5 million savings in the water fund — cannot be used to balance out the city’s deficit.
“Generally, no,” he said.
The water fund, for example, was collected for water infrastructure only, and couldn’t be used to buy fire trucks or pay police salaries.
The city has instead been spending down its employee benefits savings account and other similar accounts, which can be used to pay off specific budget items. When that runs out the city has nowhere to turn.
McCarthy plans to eventually balance the budget by foreclosing on 700 tax-delinquent properties, which he said would bring in $3.5 million if each sells for $5,000. If the new owners then pay the same amount of taxes that are now assessed on the average single-family home, the city will get a significant boost in tax revenue.
“We are in no means a good set of circumstances,” McCarthy said. “It’s a slow, methodical process.”
The 2011 budget was also badly hurt when the city collected $3.6 million less in taxes than budgeted. But the city would have wound up in deficit even if it had collected all of those taxes, Cusack said.
City officials are now using a collection company to persuade delinquent property owners to pay up, and have collected an extra $2 million so far this year, Finance Commissioner Ismat Alam said.