‘A sense of optimism’: Compared to the 2020 ‘COVID year,’ crafting a city budget was easier in 2021, officials say

Crafting a budget for a municipality is challenging, even in normal times.

In 2020, as America struggled with the COVID-19 pandemic, it was very difficult for city leaders in Mountain Brook and elsewhere to project how much revenue they might lose from the economic fallout that came with the virus.

In the summer of 2020, Mountain Brook city officials initially saw the city showing a deficit for fiscal 2021.

However, the city was eventually able to adopt a fiscal 2021 budget with a surplus.

While the pandemic continues this year, the city’s economic numbers and financial confidence have continued to improve.

This is reflected in the fiscal 2022 budget, which the Mountain Brook City Council adopted Sept. 27. The new budget began Oct. 1 and ends Sept. 30, 2022.

In the general fund,  the city is projecting  a total revenue of $44,029,246 with a surplus is $209,165, said Steve Boone, the city’s finance director and assistant city manager.

Overall, the budget process was a little easier this year than in 2020, said Mayor Stewart H. Welch III.

“Most of the problems and uncertainty brought on by COVID are behind us and we are focused forward with a great sense of optimism,” he said.

Not only that, but the city is taking advantage of low interest rates by selling $4 million in bonds. It is proceeding with some badly needed capital improvements and all of the city’s employees will receive a pay raise.

Looking back at 2020

The COVID-19 pandemic had a negative impact on businesses, with some closing permanently and with all non-essential businesses being forced to close their doors during a nearly 3-month lockdown ordered by public health officials in March 2020.

“In 2020, the city experienced a sharp downturn in sales tax due to the business closures,” Boone said.

Sales tax revenue was down about 4% in the city for the fiscal year ending Sept. 30, 2020, he said.

When Boone, City Manager Sam Gaston and the city’s department heads began discussing the budget in early summer 2020, there was a projected deficit of $1.4 million.

“You just didn’t know what to expect on the revenue side,” City Councilor and Finance Committee Chairman Lloyd Shelton said recently.

Fortunately for the city, property taxes — a relatively stable funding source — typically make up about 40% of the city’s revenue.

In September 2020, the Mountain Brook City Council unanimously adopted a budget for fiscal 2021 with total revenue of about $40,400,000, expenses of $40,200,000 and a budgeted surplus of about $205,000.

The city was able to arrive at the surplus thanks to a lot of work by Gaston, Boone and the department heads, said City Council President Virginia Smith in October 2020.

They made the fiscal 2021 budget  “an easier budget than we thought it would be,” Smith said.

Moving into 2021

Budget planning this year was “much easier” than in 2020, Boone said.

“I think there was definitely less anxiety,” Shelton said. “I think a year ago we just weren’t sure how everything would recover.”

“This year things were a little more stable and predictable so we were able to get some of the equipment and projects approved that were delayed last year,” said Shanda Williams, Parks and Recreation superintendent.

Economic numbers have been moving in the right direction, Boone said.

“Business operations resumed, resulting in a surge in sales tax collections,” he said.

Those collections were up by about 15% through July 2021, and property values increased 3% in 2020 and 4% 2021, Boone said.

“We made a nice rebound revenue-wise from the COVID year,” Gaston said.

City officials had some key issues in mind this summer as they began planning for fiscal 2022.

For example, “the spike in inflation and its impact on labor and other costs” was a concern, Boone said.

However, “the biggest discussion every year is what we are doing in the capital projects area,” Shelton said.

That was true this year..

“Priorities included completing — and financing — the athletic field projects started in 2020 and 2021,” Boone said.

Those improvements to youth athletic fields, including those at the Athletic Complex, are important, Welch said.

“Because Mountain Brook is landlocked, we do not have the option of building new facilities on new land,” he said. “We believe the improvements we have made and are making will allow us to be competitive in sports versus our peer cities.”

Welch also supports the expenditure of $275,000 to study replacing the Mountain Brook Fire Department Station No. 2 off Overton Road.

“This project is long overdue,” Welch said.

The Fiscal 2022 budget has a deficit under capital projects of $6,124,351.

However, Boone said the deficit occurs because in fund accounting — the type used by nonprofits and governmental entities — revenues and expenses do not alway occur within the same operating cycle.

“The $4 million debt issued in 2021 is reported as revenue in 2021 but the related capital outlay will occur in 2022,” Boone said.

Boone is referring to the $4 million sale of general obligation warrants approved by the City Council in an ordinance at their regular meeting for Aug. 9.

The money from the bond sale — along with money from the city’s capital projects reserve fund — will pay for several projects.

The city is spending about $3.1 million on Phase 2 of improvements at the athletic complex, including concessions and paving.

There is $2.4 million for improvements to Field No. 1 at Mountain Brook High School.

About $855,000 is budgeted for improvements at Cherokee Bend Elementary.

The Mountain Brook Board of Education will pay about $1 million toward the work at MBHS, and the BOE will pay almost half of the cost of the improvements at CBE, Gaston said..

All of the projects are scheduled for completion by the end of 2021, Boone said.

“I am most excited about the Athletic Complex,” Williams said. “The complex is over 30 years old and was due for some improvements.”

The city is also planning work on some bridge projects, including Caldwell Mill Road.

There is also more sidewalk construction.

“Our sales taxes were up and projected property taxes, and so that helped us a good deal, and we are trying to use those monies wisely and make some of these improvements that will continue to enhance the quality of life here in Mountain Brook,” Gaston said.

‘The best employees’

The City Council voted Sept. 27 to increase the salary schedule for all classified, unclassified and part-time employees by 3.5% effective Oct. 12.

This cost-of-living adjustment (COLA) is well-earned, Welch said. “Mountain Brook simply has the best employees,” he said.

Their efforts to keep the city functioning smoothly during the pandemic were “truly impressive,” he said.

The council also voted to increase compensation for contract security services for the city’s public works facilities, the city prosecutor and municipal judges by 3.5% effective Oct. 1.

“I don’t know what other cities did, but we really wanted to do something a little more this year,” Shelton said.

City employees have adapted and worked hard during the pandemic, he said

Many employees, including those at Park and Recreation and Public Works, “went above and beyond,” he said.

For example, Public Works has been helping with garbage pickup recently due to service problems with private vendor Waste Management.

Even in tight budget years, the city has “always been good” about providing some kind of cost of living raise, Williams said.

“This year the 3.5% increase is really appreciated because the cost of everything is going up and some employee’s family dynamics have been negatively affected over the last year, so it helps current employees maintain the lifestyle they are used to,” she said.

“It allows the city to keep pace with and maintain distance from surrounding municipalities in order to recruit and retain the best and most qualified employees,” Loggins said.

The COLA helps “to offset some of the inflation costs that we are all seeing across the board,” Gaston said.

“Our council down through the years has always been very generous to our employees as far as COLAs,” Gaston said. “The only time in my 28 years we did not give COLAs was the financial meltdown of 2009, 2010 and 2011.”

The city gave employees a 0.5% cost of living adjustment in fiscal 2021.

Taking on debt

This is the first time in more than a decade that the city has borrowed money.

The last debt issue was in 2007, which was retired early in 2016, Boone said.

“There have been several other debt issues over the past 25 years but none since the 2007 Series General Obligation Warrants,” Boone said.

It is an advantageous time for the city to sell bonds, officials said.

“We are still seeing record lows in interest rates,” Shelton said.

This makes “the timing perfect for borrowing funds for our major capital projects at this time,” Welch said. “We were able to secure 20-year bond financing at 1.62%.”

In fiscal 2022, the city will also continue to make a large contribution to the state retirement fund, which officials have done for several years.

“The city started contributing approximately 4% of payroll extra back in 2017 ($600,000),” Boone said.

The extra contribution has increased since as wages have increased and is budgeted to be $700,000 in 2022, he said.

Like virtually every city and state in America, Mountain Brook has a large unfunded pension obligation.

The amount is about $32 million, Shelton said.