Lexington, KY - Mayor Gray and the Urban County Council have finished Lexington's budget for fiscal year 2012, which began July 1. Serious financial decisions and budget cuts were made, employees were laid off, and projects were delayed until better economic times.
Back in mid-April, Mayor Gray proposed his $271 million budget for fiscal year 2012. The mayor's proposed budget included laying off 28 employees, closing city pools and Meadowbrook Golf Course, shuttering the Valley View Ferry, eliminating 215 unfilled or vacant positions, outsourcing LFUCG's security staff, terminating supplemental pay for IT employees, and reducing funding for LFUCG partner agencies by 10 percent. The council's 2012 adopted budget restored funding for city pools, Meadowbrook golf course, Valley View Ferry, LFUCG security staff and supplemental pay for IT employees. The council also included funds to hire a new police recruit class for January 2012, delayed contributions to the Police & Fire Pension Fund, and included a $400,000 bond to fund new disc golf courses and lacrosse fields, Charles Young Center improvements, and Berry Hill Pool reclamation. I voted against the FY 2012 Budget.
In late June, Mayor Gray vetoed portions of the council's FY 2012 Budget, including funds for partner agencies, disc golf courses and lacrosse fields. I, along with a majority of council members, voted not to override Mayor Gray's veto of increased funding for partner agencies, and all of the mayor's vetoes stand.
The final FY 2012 Budget assumes a number of future expense reductions that may prove challenging. A savings of $3.5 million is planned through changes to LFUCG's employee health insurance program that would not take effect until January 2012. Additional savings of $5.6 million must come from collective bargaining negotiations currently under way with LFUCG's police and firefighter unions. If these savings don't actually happen, we will be looking at significant additional employee layoffs.
The FY 2012 Budget also includes a $31 million pension bond to help shore up LFUCG's Police & Fire Pension Fund. Despite the payment of tens of millions of dollars by LFUCG each year, Lexington's obligations for public safety pensions and retiree medical benefits are increasing at an alarming rate - currently about $40 million per year. As of July 2010, LFUCG owed about $537 million for public safety pensions and retiree medical benefits, a stagger- ing amount considering the known shortfall was $61 million in 1997.
I voted against the FY 2012 Budget, in part because I do not support funding the Police & Fire Pension Fund with borrowed money. Paying down a pension shortfall with borrowed funds is like charging mortgage payments to your credit card. At the end of the day, LFUCG will still owe $31 million to somebody. Also, borrowing money is a lousy way to fund a pension, because yearly interest payments offset investment gains in the stock market, reducing the overall effective rate of return. And if these borrowed funds do not earn the 8 percent rate of return assumed by the pension fund's actuary - which is likely, given that pension fund investments have only averaged 5.5 percent annual returns over the past 10 years - LFUCG's funding shortfall for public safety pensions and retiree medical benefits will continue to increase at an accelerating rate.
We will keep a watchful eye on LFUCG's revenues and expenses as we progress through fiscal year 2012. But this budget crisis has been caused by increased employee costs, not by decreased revenues. Until we reverse the exploding costs of employee health insurance, public safety pensions and retiree medical benefits, Lexington will face employee layoffs and reduced city services for years to come.