Wednesday, June 2, 2004

Skeptical city trims 3 percent off budget

Dana L. Bowley El Defensor Chieftain Editor

The City of Socorro has submitted a budget for state approval that reflects a 3 percent decrease in expenditures, although there is no specific evidence that revenue will fall.

City officials said the budget cut is a precautionary move because of uncertainty over the elimination of the gross receipts tax on groceries and some medical services.

"We always try to be conservative on the revenue side," Councilor Chuck Zimmerly told his fellow councilors at the May 17 council meeting at which the budget was approved for submission to the state Department of Finance and Administration. "We don't know what the impact (of the food-tax elimination) will be."

The sales tax on groceries disappears Jan. 1, as does the tax on some medical services. But the tax on other goods will increase at the same time.

The gross receipts tax is the main source of revenue for municipalities, but according to the legislation eliminating the tax on food, there should be no impact on cities because of a "hold harmless" clause.

That clause guarantees that the state will make up any revenue a municipality loses because of the elimination of the tax. That is supposed to be done by the state calculating what a city would have received if the tax were in place, compared with what it actually received.

That should mean that cities won't lose revenue in the changeover, but Socorro officials are skeptical it will work that way, at least in the beginning.

As a result, department heads were directed to trim 3 percent from their current-year budget as a precaution.

Despite the overall cut, however, the budget reflects an overall 5 percent pay increase for city employees, calculated at 1 percent anniversary increase plus an additional 4 percent, probably presented in 1 percent overall increase and a 3 percent "one-time pay adjustment" — a lump sum payment like a bonus — as has been done the past two years.

The exact amount and nature of the raise won't be settled until January, however, after the city has a clearer idea of how revenues are doing. If revenues are below projections, the raises could be decreased or deferred.

The budget also includes a 12 percent increase in health insurance premiums and a 10 percent increase in the cost of liability insurance.

As a result of those increases, the budget reflects a decrease in general fund reserves, from about $825,000 anticipated at the end of this fiscal year, June 30, to about $357,000 at the end of next year.

However, City Clerk Pat Salome said the reserve will not fall below the state-mandated amount.

"We have three or four management tools available to us to keep that from happening," he said.

The total general fund budget for 2004-2005 anticipates revenues of just under $4.1 million and expenditures of just over $4.2 million, which is reflected in the decrease in the ending balance.

The overall budget, which includes the general fund, enterprise funds and special appropriations, anticipates revenues of nearly $11.9 million and expenditures of nearly $12.3 million.

editorial@dchieftain.com

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