Henderson budget fails on 5-4 vote

The Henderson City Council rejected the budget ordinance presented Monday night by City Manager Eric Williams on a 5-4 vote, with Mayor Clem Seifert casting the decisive vote.

The action after more than an hour of debate and confusion ultimately forced the council to suspend its meeting until Wednesday evening, when it will try again to meet its statutory responsibility to enact a balanced budget before Friday’s start of the fiscal year.

The decision came down to the wire as the roll call moved counterclockwise around the council table in the chambers at the Municipal Building. Mary Emma Evans voted no. Bernard Alston voted yes. Mike Rainey voted no. Harriette Butler voted yes. Elissa Yount voted no. John Wester voted yes. Lonnie Davis voted yes, making the count 4-3 in favor of the budget. But Ranger Wilkerson voted no, creating a 4-4 tie, with one yes and one no from each of the four wards. Seifert warned the council in a letter last week that in case of a council tie, he would vote against the budget if it included a property tax increase, and he quickly did so Monday night.

The failure to pass the $25 million 2005-06 budget came after more than three months of work by Williams and his staff and by the council, which broke precedent this year by involving itself in the process as soon as department heads submitted spending requests in mid-March. But council members’ frustrations turned to rancor at times during dozens of hours of Finance and Intergovernmental Relations Committee meetings before and after Williams presented his formal budget proposal May 26, and a consensus on spending priorities and revenues eluded the board.

Williams’ initial plan last month called for a 5-cent increase in the property tax rate, to 69 cents per $100 valuation, a 10 percent rise in water rates, a 15 percent boost in sewer rates and a $1 decrease in the monthly sanitation fee. The cut in the sanitation fee was tied to a proposal to eliminate curbside recycling, an idea the council consensus had rejected in preliminary discussions and blocked during meetings in the past month.

By chance, each $1 increase in the monthly household sanitation fee and each penny on the property tax bring in about the same amount of annual revenue — roughly $64,000 for the sanitation fee and a projected $68,355 for a penny of property tax. That coincidence led to a series of proposals and counterproposals in the past month to mix increases in the sanitation fee and the property tax to spread the budget burden in a city where most residents are renters.

The ordinance Williams delivered Monday night — council members didn’t see it until the meeting — called for a monthly sanitation fee of $27, up $2, and a property tax rate of 67 cents per $100 valuation, up 3 cents. That revenue mix required roughly $130,000 in 11th-hour spending cuts to offset increases for such measures as maintaining backdoor garbage collection; those cuts were in addition to savings of roughly that amount from a shift in the city’s group health insurance to a higher deductible.

Williams said May 26 that the only part of his initial budget that made him proud was the lack of layoffs; he did not seem any more excited about the final plan, which had enough in it for lots of people to find things to dislike.

The plan up for vote Monday was referred to as the “Yount budget” because council member Yount first proposed the mix of spending cuts, $2 sanitation fee increase and 3-cent property tax increase. But Yount cast one of the four no votes.

“If this were the Yount budget, it would be very different,” she said during the hour of debate Monday night. “There are things in here that gravely concern me.”

She said she could support the budget as proposed, but first she needs questions answered. She couldn’t ask those questions in advance because the council didn’t have the budget ordinance in advance, and Williams, Assistant City Manager Mark Warren and acting Finance Director Peggy McFarland couldn’t answer the questions without some time.

“When I first presented the budget, I presented upfront that there was hardly a part of the budget that I liked, but by and large it’s not a document any of us are particularly happy with,” Williams said later in the discussion.

“The way it’s presented as far as the gathering of revenue, that I have not much trouble with,” Yount said. “It’s particular questions that I need answers to. Some of which occurred to me tonight, so …”

“The question is whether those can be answered,” Seifert said.

“Well, why can’t they be?” Yount said. “I think they can. If they can’t be, we do have a problem.”

Her questions include:

* The budget for contracted services for the Code Compliance Department. That department would likely be able to tear down 10 or fewer houses in the coming fiscal year with the $25,000 allotted.

* The lack of a long-range plan for city capital spending on such projects as the $21 million expansion of the water plant to a capacity of 20 million gallons per day, which the council endorsed three weeks ago, and the looming necessity to spend at least that much money on the sewer plant.

* The need to address the anticipated jump in library costs in fiscal 2006-07, when the H. Leslie Perry Memorial Library should be in its Embassy Square location all year. The city and county budgeted for the move from Rose Avenue to Breckenridge Street to be delayed until May 1, 2006. That allowed the county to appropriate $300,000, a $50,000 increase from this year, and Williams proposes that the city spend $277,000, up from $250,000 this year. While that discrepancy and the $23,000 hole in the library budget must be addressed soon, Yount looked ahead to a year from now, when the library anticipates needing about $500,000 each from the city and county,

* The possibility of bidding out more contracts. The process worked for the city on the group health insurance policy, which Blue Cross and Blue Shield initially suggested would cost Henderson an additional 21 percent in the new fiscal year. The combination of bidding, negotiating and lowering benefits resulted in essentially no increase in the city’s costs.

* The general fund balance, which fell far short of the state Local Government Commission’s recommended minimum of 8 percent at the end of the last fiscal year, June 30, 2004. Williams said the fund balance is projected to be 7.42 percent of annual spending at the end of this fiscal year Thursday and to rise to 8.93 percent a year from now with the addition of $164,461 budgeted to go to the fund balance, which is the city’s savings account. Yount wants to know how much of the fund balance will be restricted funds, such as Powell Bill money, which must be spent on streets, and drug-seizure money, which must be spent on additional law enforcement projects. The LGC allows the use of restricted money in calculating the fund balance, which gave Henderson a balance of better than 5 percent a year ago; counting only unrestricted funds, as Henderson typically has, the fund balance was below 3.5 percent.

“The only thing that’s changed is that the fund balance looks a little bit better than we thought it was going to look,” Williams said Monday night after passing out some figures.

While Yount showed a willingness to change her vote if her questions are answered, the other no votes seem firm against the current budget.

Evans told everyone to “read my lips”: She will not vote for a budget with a property tax increase because people can’t afford it during tough employment times.

“I am voting against it because of the tax increases,” Evans announced.

“The budget you were going to vote for was a heavier increase,” Wester responded. The two have clashed several times this year over whether Evans does her homework and is consistent in her opinions.

Rainey joined Evans in staunch opposition to any property tax increase. His alternative, a $30-a-month sanitation fee with no property tax change, came to be known as the “Rainey budget.”

“I’m against a tax increase because I feel that all citizens are receiving services from the city and they need to pay their fair share,“ he said. “I know people say that if you increase service fees that’s like a tax increase. If you don’t increase fees, but raise property taxes, then their landlord will raise their rent. I never knew it was known as the Rainey budget, but if that’s what it was, then I stand behind it.”

Wilkerson also preferred the Rainey funding formula to the Yount formula, but his criticism of the budget focused on the pay plan for city employees. A proposal to pay all employees a 3 percent cost-of-living raise in July at a cost of almost $300,000 became a merit increase in January that would average 3 percent per employee and wound up being the merit plan implemented next June at a cost of $86,000.

“This hasn’t been like the other budgets,” Wilkerson said. “I don’t know of nothing we’ve cut out of the budget. We haven’t had talks about nothing. I don’t even know what’s in there about the salaries.”

After Williams explained the pay plan, which he acknowledged involves “smoke and mirrors,” Wilkerson said: “It’s in June? I ain’t got nothing else to say.”

Alston and Wester spoke in favor of the budget, which Alston moved as FAIR chairman and Butler seconded.

“I don’t think it’s an ideal situation. This is in essence a compromise,” Alston said. “There are theoretical and practical advantages to the tax increases. There are some disadvantages to them. All in all, it takes into account where we need to be. It takes into account the fund balance and that we are in hot water there. It gives us the opportunity to address some issues as we go.”

Wester spoke when it was evident that the budget was in trouble. “It’s aggravating to get to this point and not adopt. It’s a complicated process, and I think we hit all these issues throughout the year. It’s not the one I would have proposed, but it’s the compromise.”

After the council voted down the budget ordinance, Seifert tried in vain to get a council consensus behind an alternative proposal, or at least to give Williams some guidance on what to change to win passage.

“It’s important for the city staff to know from all of us that this budget not being adopted as presented, that it is in no way a reflection of their performance,” the mayor said. “There are items in this budget that nobody necessarily likes. And there are some items we need to look at. I am confident that we can find the resources that are necessary to move this city forward.”

Seifert wanted to revise the plan and pass it Monday night.

“If we couldn’t do anything the last two years with the budget, why do you think we’re going to do something more now?” Rainey said.

“You’ve almost got to do something tonight, even if it’s just to try to pull out another compromise tonight,” Williams said moments later. “If you just adjourn the meeting and walk away, we don’t have a budget. I would strongly recommend you not do that, especially as the LGC is watching.”

The only alternative that arose was the Rainey budget. Wilkerson moved that proposal, and Rainey seconded it. But they were the only votes the plan received on a 6-2 negative roll call.

Evans asked about the possibility of an interim budget, and Rainey suggested passing the 2004-05 budget for 2005-06 as a stopgap. Williams advised against those ideas.

Seifert urged an attitude toward the budget ordinance as a beginning, with work starting in July to make structural changes. But the budget is a necessary first step.

“You know you’ve got to pass a budget,” he said. “What would cause you to vote in favor of a budget, understanding the restrictions? I think you guys are down to two items: tax rate and sanitation rate. You’ll never solve all the other things (before Friday). I’m confident that this budget will be more fluid than it has ever been before.”

Instead of making suggestions to break the impasse, Davis took the opportunity to accuse Yount of “holding the council hostage” with her questions. Yount and Seifert pointed out that three other council members voted against the budget.

And Yount appears to be the best hope to break the stalemate. She said she’s willing to approve the budget as proposed if she gets some answers. No one else showed flexibility Monday night.

Despite City Charter language indicating that a two-thirds majority is required to pass an ordinance on first reading, a 5-3 vote might be all that’s needed t approve the budget. City Attorney John Zollicoffer said a state statute can overrule the charter if the council wants it to.

So the council will take up the same budget proposal Wednesday at 6 p.m. at the Municipal Building.

The night did bring some progress toward a 2005-06 budget.

The council voted 7-1 Monday, with Evans opposed, to adopt the water and sewer rate increases that Williams proposed. Even that measure, which produced far less discussion than taxes and sanitation in recent months, sparked some debate.

Wilkerson wanted to know why water and sewer prices had to go up, and Alston explained that revenues have fallen since the demise of the city’s biggest industrial customers, including Harriet & Henderson Yarns, J.P. Taylor and Americal’s manufacturing operations. The same issue came up earlier when the council had to amend this year’s sewer budget to account for a $500,000 revenue shortfall.

“I’ve never seen this happen before,” Seifert said during the sewer discussion.

“The revenue just isn’t there,” Williams said.

Wester, however, said there’s more to the rate increase than an effort to cover the cost of water and sewer operations. “If you want to put me on the soapbox, I’ll get on it. Our utility rates are too high because we are contributing back to the general fund.”

Evans said people in the city can’t afford the increased utility costs, so she voted no.