Danville budget: No new taxes, but pension pressure mounting

Published 8:18 pm Friday, April 26, 2019

Although Danville City Manager Ron Scott introduced the 2019-20 preliminary budget Thursday evening with the disclaimer that it “is not predicated on the need to increase any taxes,” eventually the discussion came up of increasing property taxes in order to meet increased costs.

Scott made the suggestion in part due to looming pension costs Mayor Mike Perros and the commission are concerned about, a product of money mismanagement at the state level creating a funding crisis for city governments.

Scott opened up the conversation talking about what the cities of Lexington and Louisville are doing to deal with the impact, with recent news reports indicating they will still be in the red even after making cuts and imposing mandatory furlough days for senior management, for example.

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For the upcoming budget year, it’s projected that an additional $250,000 will be required to be paid by Danville to make up for the state’s losses. The new overall totals are divided among general governmental funds, like city, police, fire, etc., and among enterprise funds like water and sewer. The combination of both will result in the total pension payments to be made by the City of Danville for next fiscal year totaling $2,186,794.

“Those total costs for pension contributions are expected to continue to increase significantly in future years,” Scott said. The city’s projected pension cost for 2022, for example, is expected to total more than $2.8 million, equating to an increase of more than 30 percent over two years.

“Had the state funded what they were supposed to, we wouldn’t have this catch-up problem,” Scott said. He said these costs are “difficult to absorb without affecting the city’s ability to provide services — without an increase in taxes.”

He brought up the idea of enlisting the help of an actuary to work with the city on correctly assessing what it should be prepared to pay for pensions.

“Over time, we may have to review what we manage and how we fund it,” Scott said. He said as far as the state has determined, the cost will be 12 percent more each year over the next two years, but that “it might go down, might still go up — we don’t know.”

As Perros questioned where the city will be finding the money to make these future payments, Scott said that taxes in Danville, compared to other cities throughout the Commonwealth, “are very low, and nationally very low. Should we, in our collective wisdom, wish to raise that, we’d still be lower than the great majority of cities in Kentucky.” He said increasing the city’s property tax to bring in 4 percent more revenue — the maximum allowed increase without possibility of a recall — would bring in an additional $75,000 annually.

Scott said based on the last time he researched such an increase, “based on the average cost of our individual homes,” the result would be about $8 or $9 more added to yearly property tax bills. “Unless you have a much more expensive home,” he said. This is one way the city could research, he said, how to meet various needs and necessary improvements planned.

The general fund revenue projections for what the city will end up with in the current year show a 2.45-percent decline from ‘17-’18, partly due to a one-time transfer from the county of 911 reserve funds that year, totalling $804,953.

The proposed ‘19-’20 budget shows an overall revenue growth of $590,675, or 3.27 percent over last year’s revenue, taking it from an estimated $18,073,933 for the current fiscal year to $18,664,608 for ‘19-’20. That includes projections that occupational taxes will increase by $400,000 for the new budget year, a 4.5-percent increase, meaning a total of $9,290,000 compared to $8,890,000 expected by the end of this fiscal year, June 30.

Net profit tax revenues are projected to remain flat, less than in ‘17-’18 and with no growth.

Scott told the commission the city’s debt service cost is increasing faster than its revenue is — it’s due to increase 4.6 percent over the current year, taking it to $1,343,263.

“We’ve talked a variety of times about the fact that the city has limited and inflexible revenue sources,” Scott said.

However, he said “it should be recognized” that some increased debt service — such as the new fleet services program for city vehicles or the energy efficiency update — will result in lower annual operating costs for the city.

The largest single amount in the proposed capital budget for the next year is the $7.5 million for construction of the new central fire station. Total recommended expenditures for all funds — general, utility and others — comes in at $18,245,000.

Overall, the draft budget shows total resources coming in at $67,387,042; appropriations at $50,797,329; and reserves at $16,589,712.

The recommended contributions to area agencies and other organizations include $100,000 for the Economic Development Partnership; $30,000 for the Heart of Danville; $25,000 for the Great American Brass Band Festival; and $15,000 for Shepherd’s House.

After the conclusion of the preliminary budget meeting, Scott offered up his opinion on what may come in the future.

“All cities and counties throughout the commonwealth will struggle to provide local services while making these mandated increased pension contributions,” Scott said. His suggestion to state legislators is to more closely examine the necessity to impose steep pension rate increases, he said, and possibly require “sustainable increases” over a longer period of time.

“At the same time, local governments need greater authority to levy taxes to generate the required payments — all cities should have the same tax-levying authority that another city presently has — and greater authority to levy locally-determined taxes,” Scott said. “Without increased local tax flexibility/authority, the primary choice left locally will be to reduce services.  We will likely see some of that occur in our larger and smaller cities this next fiscal year.”


Further discussion about the City of Danville’s 2019-2020 preliminary budget will be held during its regular meeting on May 13. The proposed budget will be presented Tuesday, May 28, when the regular city commission meeting is scheduled due to the Memorial Day holiday.