Holloway: ‘Spending must be brought under control’

The City of Biloxi has spent more money than it has taken in four of the past five years, Mayor A.J. Holloway has warned City Councilmembers, and the city needs to bring spending under control, particularly as revenue from gaming and sales taxes continues to decline.

Holloway and city financial advisers made those points to council members in recent meetings as the city begins work next week on its spending plans for Fiscal Year 2010, which begins Oct. 1.

The city is projected to begin the year with a beginning fund balance of $21 million and expects to take in as much as $56 million through property, gaming and sales taxes. But if current spending trends continue, the city faces the prospect of having an ending fund balance of only $1.6 million this time next year.

“City budgets can be complicated, and you can look at numbers many different ways,” Holloway said, “but the simple fact is this: We’re spending more money than we’re taking in. We’ve been dipping into the reserve funds to carry us through, and you can only do that for so long. In fact, our reserves will be gone this time next year. We’re at the point where things need to change. We must cut expenses and make adjustments to get back on the right track.”

Among the areas Holloway says need attention are pay and benefits, which increased by $10 million over the past three years, to nearly $45 million a year now; and the city water department, where rates are the lowest on the Coast and among the lowest in the Southeast. The water department is expected to have a $5 million deficit in FY 2010 because of debt service payments to the Harrison County Utility Authority. The authority is set to resume debt payments that had been suspended after Hurricane Katrina.

Holloway believes council members should reduce or repeal the longevity pay increases of a year ago, an expense that will nearly triple over three years — from $415,000 in 2008, to $850,000 in 2009, and finally climb to $1.16 million in 2010. Additionally, he said, some of the cost of the city’s health insurance program should be shouldered by employees. The cost of this program, which covers employees and their families, has risen 37 percent, from $5.3 million to $7.3 million over the past three years.

“We have to slow down the spending train,” Holloway said. “We have more employees than we’ve ever had and they’re being paid more money and getting more benefits than they’ve ever gotten. Everybody in the free world is cutting back on pay and benefits because of the economic conditions, yet five of our council members voted to triple longevity pay last year. At the same time, they’ve refused to adjust water and sewer rates, which means that we’re spending more money to provide water and sewer than we’re charging to deliver it. Something’s got to give.”

Holloway’s warnings were echoed by financial consultant Demery Grubbs, who provides fiscal guidance to cities and counties across the state. Three problems will result from overspending, Grubbs said; personnel could be affected, capital projects will need to be reduced or curtailed, and reduced fund balances will make it difficult for the city to recover from an emergency.

Grubbs also noted the flow of red ink in the water department.

“It is imperative that the city have a rate study of the water and sewer fees, and start implementing rate adjustments to make the water and sewer system self sufficient. If the current trend continues, the water and sewer funds will be in a deficit that will be hard to recover from.”

Grubbs said that city’s ability to borrow money would also be impacted if finances are not brought in line. The city has its credit rating – known as a bond rating – updated by Wall Street agencies anytime the city plans to borrow money, and the current spending and revenue trends “will be a negative in the eyes of the rating agencies.”

Said Grubbs: “Until these trends are addressed, I don’t see higher ratings for the city.”