Everything's Coming Up Weeds

While acknowledging he doesn't know how his proposed municipal budget will be received by city councilors when it is presented to them as soon as April 29, Mayor Dewey Bartlett Jr. didn't paint a rosy picture when asked to describe how it might look.

"It will be our job to educate the councilors and their staff about the seriousness of our financial problem," he said. "It still is not good. I won't use the word 'desperate,' because there are more cities, states and other governmental entities that are in much worse shape than ours. We're not desperate. But we're definitely in a tough, tough position."

The mayor's staff has been focused on budget issues since Bartlett took office in December. His chief of staff, Terry Simonson, notes that work on the budget is now a 12-month-a-year process. But the administration has faced some particularly difficult challenges because of an unprecedented decline in sales tax revenue in Tulsa, leading to a major revision to the current fiscal year budget that took place in January.

Bartlett's staff barely had time to draw a deep breath before it had to turn its attention to compiling the Fiscal Year 2010/2011 budget that will begin July 1. The council must approve any proposed budget before it goes into effect.

The mayor pointed out the city staff already has made three significant cuts to the FY 2009/2010 budget that was adopted last spring.

"We're very aware that any further erosion of our city budget will hurt and have a negative impact on the long-term capabilities of this government," he said. "It's really made me and our staff be realistic but also have some very serious out-of-the-box thinking. And we're seeing that, and I think that's a very good result. Hopefully, the council will be accepting of our recommendations and our thought process."

Many, if not all, of the more visible cuts that were made to city government during the course of the past several months -- layoffs, furloughs and reductions in services -- will carry over to the next fiscal year. But Simonson said the good news is that it's unlikely significant additional cuts will be required.

"Is the most painful of the painful behind you? I'd say yes," he said. "Does that mean we have a pain-free future? Not necessarily. We could find that you have to add another furlough day, for instance. Now, that's not as painful as laying someone off or a big salary reduction. I think there, we'll just continue to go back and re-examine what mild and moderate measures that we still have to use to make the budget balance."

Simonson said the budget cuts totaling $10 million that were implemented in January have made the current process somewhat easier.

"I didn't believe at the time we'd have to do another $10 million in April or May for the next year, and that seems to be holding true," he said. "It's not as deep or as large ... That did kind of prep the departments or even scale down the costs of the original size of the departments to more or less what the future was more likely to look like."

City Finance Director Mike Kier said those cuts essentially have become institutionalized, though he did indicate there will be some changes.

"Most of the things we did to reduce expenses, we have to continue those kinds of things, and maybe a little bit more," he said. "But budgets are always changing circumstances."

Kier, a longtime veteran of the Finance Department who is now working on his 35th municipal budget, said the decline in sales tax revenue the city has experienced during the past 13 months has been not just historic but incomparable.

The numbers back that up. Sales tax collections in Tulsa from mid-February to mid-March fell 5.6 percent from the same period a year ago, the thirteenth straight month of declines -- by far the longest such period in the city's history. For the fiscal year to date, the city is down 10.6 percent -- or about $19 million -- from the same period a year ago.

"A 10 percent decline in sales tax ... doesn't show up on the record books anywhere," he said of his career with the city, indicating that the steepest annual decline he had previously witnessed was about 4 percent in 2003. "Running 13 straight months of declines -- we don't come close to that in any of those periods."

Kier said when the city went through a significant economic downturn earlier this decade, it was far more gradual, occurring throughout the space of 30 months. City officials were not forced to react as quickly to that situation, in contrast to the almost-overnight reductions that were implemented this time, he said.

"We managed to do all that in a 12-month period," he said. "It's been a much sharper decline in a shorter period of time."

Kier declined to say what a ballpark figure for the new budget might be, but he did express some optimism that the situation could improve in the coming months.

"The decline in numbers we've seen for this fiscal year, we don't expect it to continue at that rate for the next fiscal year," he said, though he added that in some revenue categories, declines likely will continue before they bottom out.

Kier said the administration of Mayor Kathy Taylor began the last budgeting process with a proposed budget of closer to $255 million. Within weeks, that had been trimmed to $244 million. Eventually, another $16 million would be cut -- a total of $27 million in nine months.

No one is anticipating that kind of reduction will be necessary this time, but Simonson and Kier both expect the proposed budget that is sent to the council to have a retro appearance, closer to the budget totals for the early part of this decade than the larger budgets of the recent past.

Embracing Change

"I think the attitude that everyone is now getting used to is, 'Welcome to the new normal,' " Simonson said. "We're not going back probably to a $250 million sales tax budget for some time, so we have to learn to live in the new normal. This is what it is."

He also said the administration's decision to make those dramatic cuts earlier this year was well founded.

"The cuts in January seem to be right on the money in terms of what we have to spend in terms of our obligations for the rest of the year," he said. "The cuts were the right thing to do at the right time."

Simonson indicated that, according to the projections he has seen, it will be February or March of 2011 before the city begins to see an increase in its sales tax collections over the previous year's take.

"You fall into it a lot faster than you climb out of it," he noted dryly.

But he said the current situation has provided an opportunity to re-evaluate the specifics of city government operations and make them more efficient.

"When we get out of this a year or so from now, we're a better-running government," he said. "We've learned to do more with less, and so when we start back, we're in the right position at the right time. As much as people think that all you really can expect to do in a recession is stop the bleeding, somehow we're trying to stop the bleeding and surgically make it stronger at the same time."

Simonson thinks those efforts already are beginning to manifest themselves.

"I think the reductions of personnel and spending has really called on the department heads to step up their game and make things run more efficient, and I think in a lot of ways they have," he said. "Somehow, in a great many ways, even with less, they have found a way to move resources to where they belong. They have re-evaluated priorities, which is a little easier to do when you don't have enough money for everything. So I think we are probably starting to see some efficiencies. It does force you to have to have to look at and study and challenge everything."

Simonson and Bartlett are both placing great hopes on the outcome of an ongoing study of city operations by KPMG, an international network of member firms offering audit, tax and advisory services. Simonson said KPMG will "scrub" city operations from the mayor's office through all 20 departments, making recommendations for bringing more efficiency to city government.

"Even without a recession, even if we weren't in a recession, there's probably still a lot of ways to make this place run better," Simonson said. "It's not just about money."

The mayor acknowledged it will be some time before the study is complete.

"It will be able to give us some assistance with this new budget, but I believe that most of its effectiveness will probably begin next year after the budget is passed," he said. "But it in itself will give us very positive news financially."

New Opportunities Wanted

Bartlett's staff is making a priority of exploring new revenue streams and reducing expenses to ease the pain of the reduced sales tax collections. Among the ideas being explored are a plan to have the city begin collecting its own sales tax from merchants, rather than relying on the state Tax Commission to do it; the recent creation of a joint city/county committee that will explore common services the two entities can offer together, rather than separately; the possibility of selling or trading some city services to the county; a proposal to privatize parking meters in the city; and a thorough, third-party audit of how the city purchases and consumes energy.

The mayor is particularly enthusiastic about that last idea.

"I'm absolutely certain we can find a very significant savings in the methods that we purchase our energies, especially electricity and natural gas," he said. "I think in just the purchasing aspect of it, there are just ways to buy it much, much cheaper. We'll be looking at those."

Simonson said the city also has pushed the state Legislature to begin considering other options for funding municipal governments aside from such a heavy reliance on sales tax receipts. That system historically has led to a situation in which cities tend to be flush with cash during boom periods but struggle to make ends meet during recessions.

"The Legislature, I believe, is going to form a nine-member municipal finance task force," Simonson said, adding that the speaker of the House of Representatives will appoint its members. "They will have until the end of next January to convene and study ways to keep municipal governments from being so fragile and from being so subjected to the roller coaster of an economy."

Simonson said his belief is that a bill authorizing that task force will pass.

"We're trying to think down the road how to fundamentally change the infrastructure of municipal finance, and we have asked for that," he said. "That was something we were pushing for. We're dealing with the short term, but we're trying to plan in the long term."

The only other significant revenue stream most city governments in Oklahoma have, he said, is property tax collections. Simonson said Tulsa is also asking the task force to explore some changes in how that money can be used.

"One of the things I think we wanted to study is how can we free up the property tax money we already get -- not a property tax increase, and not asking for more property tax -- but is there any way we can take the property tax we get now and be able to at least create a rainy day fund out of it or something for a safety net in these kind of times," he said. "Maybe that will be one of the questions the task force can work through. Other than that, it's hard to know now until they meet what other options are there besides sales tax and property tax."

As for when Tulsans can anticipate a return to better times, Bartlett said his sense is that a recovery is already underway.

"Actually, it's pretty good," he said. "The economy is beginning to turn. The conversations I've had (in recent days) with different business owners are positive. Just now in the last 60 days, they're seeing a clear change in their revenue stream, increases.

"The commitment that we have to grow jobs takes a lot of time, but with the changes we will be making in our government, the commitment for customer service and being user friendly, that will begin to pay dividends this year."

Bartlett believes the recent opening of ONEOK Field, combined with the ongoing success of the BOK Center, will make a big difference.

"Both of those entities are providing a terrific opportunity for the downtown area to really be successful and become a very big deal," he said.