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Major problems looming for the city’s budget (cont.)

Problem #2 is the city’s unfunded retiree medical benefits. Until this past
year, a city employee of just five years was guaranteed health benefits for life.
We’ve successfully negotiated with the union to reduce this daunting
obligation by increasing eligibility requirements for new employees.
Nonetheless, we have an unfunded obligation to pay out more than $200
million in cash over the next 30-40 years to cover health benefits for our
current employees and retirees. New government accounting standards
require us to “true-up” this obligation by taking an additional $5 million
annually out of our budget for the next 30 years, half from the general fund and
half from utilities funds. This $5 million a year plus $18 million that we’ve
already set aside will fund a Trust to cover this liability.

Problem #3 is the prospective revenue loss of $2 million a year from our cell
phone tax. In the past few weeks, the federal government, on whose tax ours
is based, has deemed its cell phone excise tax obsolete and will no longer try
to enforce it in a rapidly changing technology. The old-fashioned land-lines
and long-distance charges on which the taxes were originally based are
fading away.

These three budget problems will take $7 million or more from our 2007-08
general fund budget. Our “surplus” for the current year is $1.7 million. To
balance next year’s budget, we can cut staff and services again – this time
more severely that in the past -- or we can increase our revenue base.

Last November, based on recommendations from task forces on retail
retention and enhancement, we proposed a three-year multi-element plan to
enhance city revenues. We need this plan now more than ever to avoid
further, deeper budget cuts.