Retreat Summary: Finances, Economy, and Priorities

So, this is my first posting on the City’s new blog and I’m eager to share some post-retreat thoughts and highlights. A few of you may have had the opportunity to preview the financial and budget Powerpoint I presented to City Council two weeks ago.  The jest of the presentation centered on the fact that for the past 25 years we’ve made budgetary and tax decisions that generated revenues sufficient enough to stay roughly one percent above inflation; thereby allowing us to sustain and maintain day-to-day operations.

Most people may not understand that City’s only control three decision making processes for insuring revenues are sufficient to maintain basic levels of services and make investments in capital projects: tax rate, fees, or decisions that help raise property values. All other sources of revenue are controlled by other entities and are usually based on the city’s population (which is why the 2010 Census is so important).

Similar to other parts of North Carolina, property values in Kannapolis have steadily increased over the last 25 years. It’s tempting during periods of increasing property values to make decisions that adjust the tax rate to near revenue neutral levels, as opposed to keeping the rate the same, because based on circumstances at that moment in time the short-term gain may be in the best interest of a majority of people. However, while such decisions may provide short-term gains, doing so can also have unintended consequences often associated with delayed infrastructure repairs, upgrades, and quality of life improvements such as: higher construction costs, costly emergency repairs, low community moral and enthusiasm.

My research shows that past budgetary decisions to maintain, as close as possible, a revenue neutral tax rate, resulted in the City’s ability to stay one percent ahead of inflation…which doesn’t leave a lot of additional revenue to do much else.  Of course, there were occassions, usually every 3-4 years, where monumental decisions were made to invest in capital projects such as Village Park, Baseball Stadium, Public Works Operations Center, Fire Station #1 and #5, etc., that have benefitted the community.

There’s no argument that the economy is struggling. There are many factors to use when determining if the economy is good or bad (unemployment rates, consumer price index, inflation rates, new home construction, etc.). These factors, along with plenty of talking head interpretations, are critical to determining when the economy is healthy enought to make capital investments.

Point is, the economy is dynamic in the sense that it’s always going to fluctuate. In a great economy everyone’s revenue is plentiful but the cost of products may be on the rise; in a sour economy our revenue’s may be decreasing but the costs of construction could drop as much as 20%, as is the case in 2009.

Bottom line, the intent of my presentation was to close the loop on the projects and ideas that city council heard during the two-day retreat and get them focused on how to make these intiatives a reality. At the end of the day, we all have to decide if we’ll let our priorities dictate our financial decisions or whether we’ll let our financial decisions dictate our priorities. A dilemma indeed for any city, regardless of its age.