Lexington, KY - It's hard to pick up the paper without reading something about the national economy or Lexington's budget woes. The Urban County Council has been spending a lot of time in budget meetings, and I wanted to share with you what we know about the state of Lexington's finances.
In general, revenue collected by the Urban County Government rises and falls with the overall economy, particularly the occupational license tax. The problem is that payroll taxes have declined in 2009 because fewer people have jobs. So why are we facing a revenue deficit?
The short answer is that Lexington has lost jobs in a very serious national economic downturn. This past October, overall unemployment in Fayette County stood at 7.8 percent, a full 3.1 percent higher than just a year ago in 2008, and overall employment in Fayette County was down more than 4,000 jobs from the same period a year ago. The loss of these jobs is one of the main reasons why Lexington has budget troubles. When unemployment rises, city revenues fall.
One source of concern is that a significant portion of LFUCG's revenues are collected in April of each year, which falls near the end of our fiscal year running from July 1 to June 30. Early in the fiscal year, our budget analysts have to make educated projections about how much revenue LFUCG will collect in April. We have to be careful of what we spend in July through March just in case the revenue surge we expect in April falls short.
Because so much revenue comes in late in the fiscal year, LFUCG budget analysts pay close attention to a number of financial indicators each month in order to estimate how tax revenues will play out for the remainder of the fiscal year. One of these indicators is the payroll withholding tax. In July of 2009, employers reported a 3.74 percent payroll withholdings increase over the same month in 2008. However, in August, September and October of 2009, employers reported payroll withholdings decreases of 9.54 percent, 3.55 percent and 2.87 percent respectively over the same periods in 2008. The latest numbers suggest that payroll withholdings might be slowly recovering to their 2008 levels.
As things currently stand, LFUCG is facing about a $13 million revenue shortfall for fiscal year 2009-2010 based on current budget spending. While Mayor Newberry has reduced LFUCG discretionary spending in each of the past several years, these are especially difficult economic times, and LFUCG must once again tighten its belt and do more with less. Mayor Newberry has asked his commissioners and division directors once again to cut their budgets for the remainder of the fiscal year. According to the mayor's recent press release, other difficult options for cutting expenses might include "lay-offs, a pay reduction, furloughs, elimination of city programs or other cost-cutting measures."
The cost of LFUCG's personnel is the city's greatest expense by far. I support voluntary furloughs or pay reductions for LFUCG employees - myself included. The burden of reducing our expenses should be shared and spread out among as many employees as possible. Some LFUCG employees living on the most modest of means won't be able to make this sacrifice. Nonetheless, if the rest of us work together to reduce our personnel costs and cut expenses, the Urban County Government can safely navigate these difficult economic times and save as many jobs as possible. Saving jobs means food on the table and a roof overhead for our employees and their families.