Enterprise Funds also impacted by Recession

Employees have been asking me why all city funding sources are subject to budget cuts, when most of the discussion has centered around the status of the city's General Fund. This is an excellent question. In fact, I am just as worried (if not more so) about our enterprise and redevelopment funds.


As most of you know, our Solid Waste, Wastewater and Water budgets are wholly dependent on user fees and receive no support from the General Fund. The rates charged for these functions must cover all materials, supplies, labor, debt service, maintenance and capital upgrades. All of the revenue to pay for the operation comes from those who benefit from the operation. These revenues come in the form of user fees. As user fees, we don't put these charges on the tax rolls, these are paid by the owners or tenants of the properties that use the service.

Thus, just like any private sector company, we depend on the users to actually pay their bills each month--and the vast majority do. However, as our rates have increased and our economy has tanked, the number of unpaid bills has increased exponentially. While we work very hard to collect on our debts, the bankruptcy code allows many of our debtors to walk from their bill. As the economy continues to falter and bankruptcies increase, we expect our revenue collections to drop even further.

In addition, the downturn in the economy has created a reduction in the demand for many of our services. Developers are no longer demanding large trash bins and many other commercial users have cut back their consumption. Also, with the many foreclosures, fewer homes are actually needing water and trash service.

The bottom line is that our business enterprises are likely at more risk than the General Fund. In these tough times, we need to make sure that our operation is lean enough to endure major cuts in revenue while still having funds available to make capital improvements. Just like with our other revenue sources, it is very difficult to absorb increasing labor costs at a time when revenue is dropping.

In fact, with private sector compensation dropping, we have to make sure that our enterprise employees aren't costing more than the market can bear. Many of our citizens are already demanding that we look at the cost of contracting out services. If the gap between private and public sector pay continues to grow, it will be very difficult for us to justify rate increases if they are due to rising labor costs.