Letter to the Editor

Your view: What's the plan?

Wednesday, December 17, 2003

Dear Editor,

First of all Michael, let me say I agree with you that the City Council needs to make the case for the 1percent increase they propose to our sales tax rate. That should include not only showing why they need more money, but why they need this much more money.

Perhaps that fuller picture will be provided soon. I thought it might help some of your readers, to have some basic information about the city budget so that they can make an informed decision.

By the way, and for the record, every number I'll be presenting here has been reviewed and verified by the city staff. Some may disagree with my analysis, but there's no need to disagree on the numbers.

To begin, by way of background, it's important to understand that the city's revenues come from a series of taxing sources. Some are restricted in their use as their names imply. These include the transportation sales tax (1/4 percent), the SAHEC sales tax (1/4 percent), the capital improvement sales tax (1/4 percent), the Library Tax and the Parks Tax.

Others, like the general 1percent sales tax, and the property taxes, flow into the General fund and have no restrictions on how they're used. This general fund is the one from which the operations expenses of the government, including salaries for city employees, are paid.

With the sales tax and obviously, the amount that a given rate of tax generates depends on the volume of sales that take place. Over the past nine years, the revenue going to the city from each 1percent of sales tax has risen 30 percent (around 4 percent in each of the nine years) from $2.15 million in FY 1996 to an estimated $2.8 million in the current fiscal year.

What the city proposes is that for the next ten years, we double the rate for the unrestricted sales tax from 1percent to 2 percent. At the same time, they propose rolling back the property taxes (real and personal) by $300,000 a year.

If we were to assume (very conservatively) that the level of sales stays level over the next ten years, these two steps would result in approximately $25 million of additional revenue for the city ($2.5 million a year for ten years).

If current trends continue, add 40 percent for a progressive total of $3.87 million in the tenth year. If Sikeston continues to grow as a regional shopping center, add more.

To justify this measure, city officials so far have listed three primary uses/needs for this new revenue: 1) the addition of eight classrooms to the SAHEC building to accommodate the unexpectedly high enrollment, 2) additional compensation for our police and firemen to remain competitive with other communities, and 3) the funding of the Land Clearance for Redevelopment Authority (LCRA) effort to clear away dilapidated buildings.

It seems to me possible to support all these purposes and still question the measure that's been put on the ballot. Here's why.

As I understand it, the price tag for the SAHEC classrooms has been set at $1.2 million, the number that seems to have the consensus for higher salaries at DPS is $500,000 per year, and the estimated cost of the LCRA looks to be all over the map.

The chairman of LCRA told the assembled faithful that it would be $800,000 a year. The Mayor wrote in last Sunday's paper that it would be $500,000, and that that would only be "initially." It's hard to pin down this moving target because, they don't have a budget.

One other point of background here is that the dedicated 1/4 percent sales tax that has paid off the bonds used to build the SAHEC center is set to expire this coming August. This is the same time the city's proposed tax would take effect. This 1/4 percent generates approximately $700,000.00 a year.

It would take less than two years to pay off the SAHEC construction then if one quarter of the new 1percent were earmarked for that purpose (i.e. if the SAHEC dedication of that 1/4 percent were simply extended).

Current salaries and overtime for all DPS employees is $2.445 million. So, if they were to receive an additional $500,000, that would be a little over a 20 percent pay increase. At the very least, that should make those salaries competitive.

(It should be kept in mind that DPS salaries have been frozen while other city staff members have seen sizeable pay boosts. So, some of this for DPS would be making up for ground lost over the past few years.)

For LCRA, this computation is harder. Based on what we've been told, it's either $500,000.00 for a few years or $800,000.00 for ten.

Going back then to the net increase of $2.5 million to the city's General Fund from this proposed increase, we can easily see what's going to happen (once again this assumes flat sales and flat revenues for ten years).

To fund SAHEC construction, deduct $600,000 for two years. For LCRA, and for our purposes here (i.e. finding out how much has not been planned for), let's be generous. Deduct the higher figure of $800,000 for each of the next ten years. Further subtract $500,000 for DPS pay raises. These expenditures total $1.9 million in the first two years and $1.3 million in each of the following eight.

Starting with $2.5 million, that means there's no known purpose for $600,000 in the first two years and $1.2 million in each of the next eight. Over the ten year life of the tax, that comes to a surplus of $10.8 million, or just over 40 percent of the $25 million the city's requesting.

To repeat, this is with LCRA spending money just as fast as they can. And the $25 million assumes that sales in Sikeston remain flat for the next ten years. The amount unaccounted for here could be much higher.

It's possible then to accept all three of these purposes, which I do, and even accept the funding levels sought for each (which is another matter), and still question the need to double our general sales tax.

One final bit of information might be reassuring for some. The city already has a significant reserve balance in the General Fund. As of the first of July last, there is a total of $6.28 million in carryover funds that are either in, or can be transferred into, the General fund for unrestricted use. The current year's budgeted expenditures from this fund are $6.67 million.

The Missouri Secretary of State recommends that local governments reserve an amount equal to 15 percent of their annual expenditures as carryover. Last year, the City Council passed an ordinance requiring that there be at least a 25 percent carryover. Even though Sikeston's carryover fund balance for the General Fund has come down in recent years, it still stands at 94 percent. There's no need to panic.

There is a year to year operating budget deficit in the General Fund. How we got there is a topic for another time. But, if this measure is not approved, there's plenty of time to work out another solution.

Once again, there may be a plan for how to spend all that extra money, but we haven't heard it yet. Perhaps sometime between now and the vote we will.

Josh Bill