Goshen News, Goshen, IN

March 23, 2013

Mayor expects rocky road ahead for Goshen's finances

By JOHN KLINE
THE GOSHEN NEWS

GOSHEN — The financial road ahead for Goshen could get a bit rocky in 2013.

During Thursday’s annual State of the City speech, Mayor Allan Kauffman discussed how the city’s budgets are doing and what financial issues the city government will need to address moving forward.

Kauffman noted that the city came out of 2012 with a slightly larger gain in operating balances than had originally been anticipated — approximately $800,000.

“It was due to a little better than anticipated property tax collection rate and department heads saving more of their budgets,” Kauffman said. “That’s kind of the good news.”

Unfortunately, that was about the only good news he had to relay regarding Goshen’s finances in the coming year.

“Now comes some reality about the road ahead,” Kauffman said. “We can’t hide our heads in the sand and not see what’s coming at us.”

Kauffman said that according to current projections, if the city were to spend 95 percent of what he called the “big three” budgets — General Fund, Street Department (Motor Vehicle Fund) and Parks and Recreation — while receiving at least 97 percent of collectable property taxes, year-end operating balances will still likely see the city spending between $700,000 and $800,000 more than it takes in for 2013.

“That’s partly because we gave raises to employees this year,” Kauffman said. “We’ve kept them flat for the last four years, and given them just enough raises that they can pay 100 percent of the increase in their health insurance cost. So we gave them raises enough that they might be able to net 2 percent at the end of this year.”

Also playing a significant roll in the funding deficit, according to Kauffman, are the increasingly negative effects of property tax caps on the city’s revenue stream.

“The circuit breaker effects for the city of Goshen are increasing this year — the amount of our property taxes that we can’t collect because you’re at your property tax caps,” Kauffman said, referencing Indiana’s circuit breaker law that limits property tax bills to 1 percent of homes’ assessed values, 2 percent for farmland and rental property and 3 percent for business property. “So when we did our budget for this year, just a little less than a year ago, the (funding losses due to) property tax caps were estimated at $2.7 million. And more recently they’ve been updated to say we’ll probably lose closer to $3.7 million this year. That wasn’t built into the budget, so what could have been a surplus this year is not going to be a surplus.”

Looking back at the last 25 years, Kauffman noted that property tax rates in the Goshen area typically remained relatively flat from year to year.

“But in the last six years, when the state Legislature began making changes, they’ve started increasing dramatically,” Kauffman said. “And when the property tax rates increase, it means that the circuit breaker effect increases quite a bit. A few years ago there were no circuit breakers. The first year they were partially implemented we lost $219,000, the second year we lost $1.2 million, and it’s now up to $3.7 million.

What’s more, Kauffman pointed to the fact that property tax rates are dependent on assessed values within the county  — assessed values that have dropped significantly over the past few years and will likely continue to drop for at least a few more.

“It is predicted that assessed values in Elkhart County will continue to decline until at least 2015,” Kauffman said. “As they decline, the property tax rate goes up, and so do the circuit breakers. So there’s more of our property tax levy that we cannot collect.”

Even if those predictions are incorrect, Kauffman said, and assessed values would turn around tomorrow and start increasing at around 2 percent a year, it still would likely be 2026 before the city got back to where it was is 2007.

“So that’s really how bad it is,” Kauffman said, “and we’ve got a lot of digging to do to get out of where we are.”

Tax delinquencies

Kauffman also pointed to what appears to be a growing number of Goshen residents who simply cannot afford to pay their property taxes as a contributing factor to the city’s funding woes.

“By the end of this year, we’ll collect about $10 million in property taxes, where a few years ago we were collecting $13 million,” Kauffman said. “Now we’ve rolled with those punches by doing some things like combining department head positions and leaving positions vacant. But we can’t keep rolling with the punches as they keep coming and circuit breakers keep getting more severe. We have to look at other sources of revenue.”

Using his past work in office supply sales as an analogy, Kauffman noted that running the city is not all that different from running a business.

“What we’re doing in the city of Goshen is not significantly different than what we did in the office supply business, because as things got tougher, we did everything we could to get leaner and meaner and compete,” Kauffman said. “And at some point, when you’ve wrung all the efficiencies you could, you start to look at the cost of the product you’re delivering, and you try to buy better, buy from different sources. So you start to buy paperclips and staples from China, and you can sell them cheaper. But then you find the staples don’t go through 10 sheets of paper, and the copy paper jams the copier, and the Post-It notes don’t stick.

“So, in order to deliver quality service, you’ve got to deliver quality product, and that means sometimes you have to raise the price,” he said. “I maintain that the city of Goshen is at the point where if you want services to continue in the city, we’re going to have to raise the price. And it’s not going to be your property taxes, because we can’t. It’s going to be something else, like a trash fee.”