Budget Finance - Research Paper Example

?Budget John Jones Introduction Every municipality, from the smallest village to the largest mega has to have an operating budget. In essence, it is a document drafted so that the town governors, usually the council, can determine exactly how much money can be spent by the city and how the different departments get the most money they can to operate in a given time period, normally a fiscal year. Once adapted by the city council and approved by the mayor, the budget then becomes a binding legal and historical document and any further deviations need to be reapproved by the council. The historical factor especially comes into play if the Federal or State Governments decide to audit the budget, to ensure grants and matching funds are spent correctly. The city budget is therefore no different than the budgets of the higher governments, because at the State and Federal levels, their budgets have to be enacted by the appropriate congress and signed into law by the governor or President, even though the budget of course gets progressively larger. However this is not always the case, because New York City proper with a population of 8.2 million has a current budget of $47.1 billion while tiny Wyoming with just over a half million people budgets itself currently at $3.2 billion (Wyoming). Therefore this paper will examine the current budget of New Orleans, Louisiana, and how the city spends its money, whether it operates at a surplus or deficit, and whether the city is efficient. After all, many times over the past century the press has reported on the corruption of the city and the state of Louisiana in general. Discussion New Orleans Louisiana is a relatively small city, although the largest in the state, with a rank of only forty-six in terms of the United States’ most populous cities. It encompasses five districts with one city council person each and two at large councilmen with the current mayor being Mitch Landrieu. In its Fiscal Year 2012 budget (January 1, 2012 – December 31, 2012), the budget is entailed as to what condition the city is in. There is a two page introduction by the mayor, entailing his personal accomplishments and what he envisions for the future, including this budget, along with a copy of the Government Finance Officers Association Distinguished Budget Presentation Award presented to New Orleans for FY 2011 (New Orleans). The budget then encompasses some 565 pages and is pretty much detailed and informative, with graphs and comparisons to similar sized cities such as Portland, Oregon and Atlanta, Georgia. It tells where revenues come from, what money is spent and where, whether there is going to be a surplus (yes with a 2011 surplus of $500K), and whether there are to be any cuts in city services. The budget also addresses two other difficult areas. One is the situation faced by municipalities all over the country, that of the nationwide recession begun in 2007-08 and continuing today. New Orleans has its share of unemployment woes; at 8.3% it is slightly higher than the national average. With the unemployment comes hundreds of foreclosures and other abandoned buildings. Added to that is the fact the city is still trying to recover from Hurricane Katrina in 2005 which only adds to the blighted structures and a good portion of the city’s budget is devoted to placing liens and demolishing these buildings. So yes, the current budget does give a very adequate overview of New Orleans’ financial position. By far and away, the biggest expenditures from New Orleans’ budget are public safety, fire, police, and other emergency services. For the 2012 budget, when taken from the Adopted General Fund Expenditures public safety accounts for over half of that budget, sixty per cent. Even when considered as part of the entire budget (general and non-general, public safety still accounts for thirty five per cent. Of the divisions within that department, the police have the biggest slice, budgeted for 2012 at almost $119 million, an increase of nine per cent over 2011. With the fire department receiving another $84 million, the two divisions are among the few in which their budgets actually increased in the new budget. Although the budget doesn’t specifically address the issue, for many years before and after Katrina New Orleans’ crime rate has been astronomical, ten times the national average in murders (almost 200 in 2011). This included murders and robberies on the tourist dependent Bourbon Street and French Quarter to such an extent that the State threatened to send in the National Guard. The mayor, with campaign promises to get tough on crime, has hired a new police chief and “welcomed Justice Department officials to oversee the department” (Jervis). The budget did address the fact that it utilized what it referred to as Budgeting for Outcomes (BFO). To quote, “BFO starts with a set of results that matter to citizens and encourage creative ways of achieving them within the resources available”. Basically the Department of Public Safety was tasked to survey the general public and make their budget requests accordingly. Not surprisingly, a fed up citizenry called for not only crime to be a top priority but also the prevention, so that they city could become more proactive rather than reactive. With a 2012 budget funding of $55 million, their Field Operations Bureau (FOB) encompasses forty-four per cent of the total $125 million budget for the police department. The total budget includes administrative functions such as Information Technology which were not included in the originally quoted $118 million. The FOB consists of the uniformed patrol officers, some seventy two per cent of the department’s 1,800 personnel. To quote the budget the FOB “is the operational key for successful implementation of a community policing strategy designed to reduce crime, improve response time and enhance public perception of the Police Department”. As such, the department hopes by increasing the Bureau’s budget the notorious criminal rate can be done away with and tourism will return to pre Katrina levels. Salaries and benefits for the personnel entail most of the Department of Public Safety’s budget. Like other businesses and government throughout the United States, the costs of benefits programs especially health benefits and pension schemes have grown astronomically over the past several years. For example, in the Police Department alone its contribution for the State Pension Fund is currently $19 million, or about fifteen per cent of the entire operating budget. The city’s budget plan projects health care and pension costs to grow by seven per cent annually. The city of New Orleans operates thirteen different funds as sources of revenue. The General Fund accounts for almost 57% of the entire budget and includes such things as property and sales taxes, licenses, fines, interest income, and monies received from the various gaming centers operating in the city, including casinos. For FY 2012 the General Fund amounted to almost $500 million. Making up a small part of the budget is the Self Generated Fund, at only 0.3% or $2.4 million. This represents seizure money and property taken from drug arrests and reallocated to the police department for various crime fighting methods. An even smaller source of revenue is the Mayoral Fellows Fund at 0.05% which provides jobs for recent college graduates to breathe new life into the city. The US Department of Housing and Urban Development (HUD) provides another 7.4% for various housing programs. City libraries are supported by a special AV tax and account for 1.4% of the revenue. Another tiny part is the Local Law Enforcement Grant Fund at 1%, which manages all state and federal grants for LEO, while two more administer federal and state grants for all other sources and is nearly 25% of all revenue. Two new funding sources are the Grants Contributions and Transfers Fund (used to clear all other types of grants and endowments) and the Downtown Development District Fund (another Ad Valorem tax to support revitalization of the old downtown city) and both constitute around nine per cent of monies received. The other three funds represent parts of property development. One is still another AV tax strictly for the city Regional Business Park for infrastructure maintenance and improvements. The others, Economic Development Fund (to encourage business) and Housing Trust Fund (a thirty year plan to improve the city’s neighborhoods and alleviate urban blight), each devote 1.25 mils for their respective initiatives (Questions four and six are incorporated in this section). In New Orleans, the Capital Budget and Capital Improvement program are two different parts of the budget. The Capital Improvement program is required by law in the City Charter and calls for a five year plan to be instituted in each year’s city budget plan. As such, the 2012 budget allocates for $395 million through 2016 and includes revenue from bonds, the Federal Emergency Management Agency (FEMA), and various other state and federal funding sources. It does specifically state what this money is to be used for but the mayor hints in his open letter to the city that some of the Capital Improvement dollars will be utilized for urban modernization and blight control. Also a city that received unwanted international attention for its medical care (or the lack of it) plans to have three new hospitals in three years. This will not only provide desperately needed care for the poor but also provide jobs in a community hard hit by yet another natural disaster, the BP oil spill. Again the mayor states that the cultural and recreational needs of the city will receive long term attention. In contrast, the Capital Budget plans for a three year forecast (2012-2014) and budgets $286 million with almost the same projected funding as the Improvements program. Libraries, community centers, the municipal park system, and a much needed facelift for police headquarters are all scheduled to receive allocations from the $257 million scheduled to be spent from the Capital Budget, while infrastructure repairs and upgrades (streets, bridges, etc.) are to get the lion’s share or $208 million. This is especially important to a city which lost almost all of its outside accesses during the Hurricane. However, the budget points out that Government funding of FEMA programs is uncertain and FEMA specific programs such as EMS and Recreation will be funded as monies become available. It is also specifies that certain city programs like the French Quarter, Audubon, and the Yacht Harbor have some self generating funds that help to operate those functions. In his opening remarks, Mayor Landrieu states that the 2012 “budget is a lean, no-nonsense budget that is structurally sound”. In a post disaster city that is sitting at only three quarters of its pre-Katrina population level, the city appears to be financially solvent and has evidently arrived at a break even zone where the city’s revenues of $876 million are matched by the same amount of outlays. The Profile area of the budget arrives at the conclusion that in essence, Katrina actually helped New Orleans be cushioned from the economic fallout of 2007-08, as the rebuilding boom from the hurricane acted as a buffer for the bitter recession that still continues in the rest of the country. With the price of crude oil up the petroleum industry has kept New Orleans’ unemployment rate at 7.5%, at least a percentage point below the national average. The mayor also took a jab at his flamboyant predecessor by stating “we cannot jeopardize our recovery by budgeting and spending irresponsibility”. The city also plans to ask the state and federal governments to forgive debts accumulated during the GO (Gulf Opportunity) Zone initiatives, which are programs to help those Gulf States affected by Hurricanes Katrina and Rita, recover and rebuild. Yet it is evident the city is teeter-tottering on a very dangerous economic precipice. The entire budget is full of references to Katrina. True the storm was one of the most devastating in American history and resulted in a terrible loss to New Orleans. Yet every June through November there is another hurricane season and the next Katrina could be any time. Nowhere in the budget is the term “hurricane resistant” used although the city is rebuilding at an astounding rate. Maybe it is a factor that is supposed to be understood but for a city that is sitting below sea level, storm preparedness should probably be top on the budget priorities because local government could be the only help available for days on end. Another fragile part of the city’s economy is the petroleum industry. The BP oil spill in 2010 showed just how quickly thousands of jobs could be wiped out, for months or maybe forever if the President had carried through on his threats to curtail offshore oil drilling. Also an article in the New Orleans Times Picayune showed forty per cent of the city’s children live in poverty, more than four times the national average. Most live in concentrated ghetto like housing projects like Iberville and the reporter says the city’s Housing Authority has been “long-corrupt” (Reckdahl). The projected General Fund for FY 2012 is almost a half-billion dollars, or $496 million which is a growth of eight million from FY 2011. New Orleans is unique in that Katrina lowered the fund for several years between 2006 and 2008. Only after 2009 did it begin to grow and finally reached pre-storm levels in 2010. Most of this is due to the loss of property tax dollars, which decreased from a high of $85 million in 2004 to just over $60 million. However, because of the flurry of new construction, 2012 and 2013 are predicted to surpass $100 million. It is also evident the city’s much needed tourism suffered during those years but hotel and restaurant taxes are likewise up to and exceeding levels prior to 2005. The enterprise funds grew dramatically from 2010 through FY 2011 but dropped slightly for FY 2012 ($41 to $70 million to $66 million for 2012). This is explained in the budget as the leveling off of the funds with the majority ($33 million in FY 12) going into a slush fund called “Other Operating” Expenses. Also, the decrease could be explained by $3.3 million being set aside for debt relief. In conclusion, New Orleans’ budget is somewhat balanced but the city could obviously ignoring warning signs for an impending collapse. References Wyoming, State of, “Wyoming State Budget 2011- 2012 Biennium”, Web, February 1, 2010, accessed May 22, 2012, http://ai.state.wy.us/budget/pdf/2011/2011-12StateBudget.pdf. City of New Orleans, Louisiana, “2012 Annual Operating Budget”, Web, October 15, 2011, accessed May 23, 2012, http://www.nola.gov/HOME/Mayors-Office/City-of-New-Orleans-Budget/. Jervis, Rick, “Crime Still Dogs New Orleans”, USA Today, Web, December 29, 2011, accessed May 23, 2012, http://www.usatoday.com/news/nation/story/2011-12-29/new-orleans-murder-rate-violence/52275788/1. Reckdahl, Katy, “New Orleans children still likely to live in high-poverty neighborhoods”, Times Picayune, Web, March 6, 2012, accessed May 23, 2012, http://www.nola.com/news/index.ssf/2012/03/new_orleans_children_still_lik.html. Read More