Lexington, KY - As Charles Dickens wrote, "It was the best of times, it was the worst of times." The same seems to be true of Lexington. Forbes recently named Lexington as the best city in the nation to find a new job this spring. In addition to having the lowest unemployment in Kentucky, Lexington's business sector appears ready again to hire new employees. According to Forbes, Lexington has the highest "net employment outlook" in the nation. This means that of the 18,000 employers in 100 cities surveyed, Lexington businesses were the most optimistic about hiring new employees this spring.
This is good news for folks who have been looking for jobs, and also for the Lexington-Fayette Urban County Government (LFUCG), which is facing difficult budget shortfalls. The combination of high unemployment, reduced tax revenues, rising employee healthcare costs, a downgraded municipal bond rating, aging infrastructure, and a runaway police and fire pension, adds up to serious financial challenges ahead for city government.
Despite a modest 1.9 percent increase in revenues this year over last, significant cuts in expenditures must be made to eliminate our current $9.2 million budget shortfall by June 30, the end of our fiscal year. The hole in the budget comes mostly from employee healthcare costs, the uncompleted sale of LFUCG surplus real estate, and the $6 million line item reserved in the FY2011 budget for use of Lexington's rainy day fund. Lexington has saved up about $14 million since around 2005 to use in an emergency, but we must resist using these funds to solve the current year's budget shortfall. Spending our rainy day fund could further jeopardize Lexington's municipal bond rating and make us less prepared to face a future financial crisis.
Our deteriorating roads, sewers and maintenance obligations also create long-term financial pressures. While Lexington is aggressively renovating our sanitary and storm sewers, the Urban County Council doesn't allocate enough funds each year to keep up with road repairs. Similarly, Lexington doesn't have a capital improvement plan to set aside money for major repairs, and LFUCG doesn't know how much these items will cost over the next decade. Finally, we must adopt nationwide best practices for repairs and maintenance of public infrastructure and facilities, so that small problems don't turn into big problems.
Fiscal Year 2012 will present its own fiscal challenges. LFUCG is facing a projected $25 million structural budget imbalance, which means that our revenues have not recovered to meet rising expenses or to replace non-recurring revenues used in FY 2011. Shortfalls in Lexington's Police and Fire Pension Fund will also put pressure on future budgets. At current funding levels, based on an assumed 7 percent annual rate of return on assets, our Police and Fire Pension Fund will run out of money in 21 years. According to the fund's investment consultant, LFUCG must make additional annual contributions to save the pension fund, starting at $15.5 million this year and gradually increasing to $33.3 million over the next 20 years.
Despite the economic woes at LFUCG, Lexington's overall economy appears to be poised for a remarkable turnaround. In addition to the ranking by Forbes, Parenting Magazine lists Lexington as the No. 2 best city for education and the No. 5 best city for families. And last year, the Wall Street Journal named Lexington as the No. 5 best city in America for buying a single family home. While city government may be facing serious financial challenges, our citizens and businesses are most certainly heading for better times.