In the face of a budget crisis, the city of Gresham must make sweeping cuts to the General Fund that will most likely reduce staff and services in all departments within City Hall.
Gresham must address a $13.3 million funding gap through the remainder of this fiscal year and Fiscal Year 20/21 — a problem that has loomed over city leadership long before being exasperated by the COVID-19 pandemic.
"We were not in a healthy place, even before COVID, with a general fund budget that didn't cover our needs," said Mayor Karylinn Echols.
Interim City Manager Eric Schmidt, who was brought on partly due to his knowledge around the city budget, has proposed a roadmap to get Gresham out of financial difficulty. It includes utilizing one-time influxes of cash; cuts in expenditures related to the Police, Fire & Parks fund; and cuts to the General Fund.
All of his ideas are merely proposals — Gresham City Council will get the final say during a meeting Tuesday, Sept. 22. But Schmidt has created a path forward for the city that has long been staring down a dire situation.
"The reality is the city had ongoing structural budget issues even before COVID," Schmidt said.
Voters approved a property tax limitation in the 1990's that hamstrung communities statewide. The results led to sweeping cutbacks and the necessity for creative solutions for every funding ask in the city. One example was around public safety.
In 1990, property taxes accounted for 100% of those services. Now, taxes are only able to foot 40% of the bill. That reduction has also allowed services like the parks department to wither, as Gresham's green spaces only get a small sliver of the service fees that prop up public safety.
Last year, the city realized the Fiscal Year 19/20 budget had a projected General Fund ending balance of just over $1 million — well below standards set by city financial policies.
"That was a wake-up call, as it fell well below our minimum financial policies," Schmidt said.
The result was cutting expenses mainly through a series of retirements/departures that were left unfilled as vacant positions. Those cuts eliminated 26.8 positions and more than $3.2 million in expenses.
"The associated work did not go away, and service levels have not been adjusted," Schmidt said. "Other staff had to absorb responsibilities to meet the needs of our city."
That appeared to right the ship, with enough revenue forecasted to get Gresham through the current fiscal year. But then the pandemic threw everything back into chaos.
The city has lost money through business income taxes, transient lodging taxes, gas taxes and delayed utility bill payments. There have also been new expenses ranging from small business grants to masks and plexiglass shields to protect City Hall employees.
The result has been the need for further cuts.
"We need to prepare this city for the challenges of the coming fiscal year," Schmidt said.
Balancing the budget
Schmidt proposes taking on the $13.3 million gap in the next two fiscal years in a variety of ways.
First is through utilizing a portion of the CARES Act funds — which was funneled to local jurisdictions by the federal government as a form of COVID-related financial relief. Gresham is receiving an allotment of $3.94 million thanks to the decision by the city of Portland to pass along a portion of their funds to other communities in Multnomah County.
"The city is very appreciative for Portland's fund sharing offer," Schmidt said. "This funding is a key first step in addressing our budgetary problems."
While there are restrictions to how the funds can be used, it will cut into the gap by $2.3 million.
Another one-time solution is to draw from the Community Service Fee — a fund attached to Gresham's Enterprise Zone program that defers taxes to encourage large industrial companies to make an investment in Gresham. As part of the deal, those businesses kick money into the fee.
Taking a portion of those funds, plus money from the Rental Inspection program and the Metro Housing Bond, removes another $2.5 million from the debt.
The remaining $8.5 million gap would be addressed through cuts in Schmidt's plan.
The majority would come via the Police, Fire & Parks Fee that was adopted in December 2012 as a temporary solution, but was permanently implemented two years later. That fee costs utility payers $7.50 per month, and has not been adjusted since its inception.
"The cost of those services go up each year," Schmidt said.
One option that could help reduce the amount of cuts facing the Gresham Police Department and Gresham Fire & Emergency Services would be for City Council to adjust the fee rate. A $3.75 increase would generate almost $2 million in additional funds. Schmidt also suggests an annual indexing of the fee moving forward to ensure it remains viable.
But if council decides to leave the fee unchanged, then all three departments would have to reduce expenditures by $5.8 million in the next two fiscal years. Police would take on the majority of those cuts.
The remaining funding gap would be taken from the General Fund.
The cut proposals include $1.7 million by Police; $1.2 million by Fire; $131,000 by Parks; $221,000 by Planning; $120,000 by Community Development; $38,000 by Economic Development; $316,000 by Budget/Finance; $302,000 by Facilities/Fleet; $86,000 by the Attorney's Office; $112,000 by Administration; $72,000 by Community Livability; $51,000 by Information/Innovation; $39,000 by Communications; $41,000 by Human Resources; and $157,000 by IT.
Across the board General Fund cuts would be about 5% throughout City Hall, and Schmidt has been meeting with department heads to identify how those reductions would be achieved.
"We need to send the city in a more positive direction," he said. "This is not a reflection of our departments or talented staff — this is simply a matter of budgetary limitation."
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