Council set to vote on next budget

At its June 10 meeting, Springfield City Council is scheduled to vote on the city’s $507 million budget proposal for the 2025 fiscal year, which begins July 1.

Over a fifth of the budget is its $110 million general fund.

In a report on the budget at the May 20 meeting of council, city Finance Director David Holtmann presented a budget that is $15 million higher than the current fiscal year, with revenue growth up 2%-2.5%.

Holtmann pointed to the largest revenue sources for the city, which are sales and use taxes, making up about 35%, with charges for services at 27%, property tax and other taxes at 12% and intergovernmental revenues, provided by Missouri and Greene County, at 7%.

He also noted the three-quarter cent tax to fund the Police and Fire Pension Fund, which brings in $45 million solely for that fund, will be received for only three quarters of the fiscal year.

“Since we will only be receiving that for three quarters, we will see a reduction in our normal sales tax of about $11.2 million, and we will also see a decrease in our general fund and our transportation fund of roughly $650,000 due to the decrease in use tax that is collected as a result of that Police Fire Pension Sales Tax,” he said.

Council plans to consider a recommendation from the Citizens’ Commission on Community Investment to put a replacement tax on the November ballot this year. A related story appears on page 3 of this issue.

At the May 28 meeting of the Citizens’ Commission, Holtmann said departments submitted about $22 million in new budget requests from the $110 million general fund, including 13 position requests, but new revenue was only roughly 2%-3%.

“We weren’t able to fund any positions,” he said. “We put two-thirds of our new funding – the growth in all of our general revenues – into pay plan improvements just to try to keep our people up to speed with inflation, so that’s just the reality – and that’s not that unusual. I mean, that’s typically where we end up on a particular budget.”

Budget process
Under the city charter, the city manager must present a budget with an explanatory message to council at least 60 days prior to the start of each budget year. Council members received the budget April 29, though preparation began much earlier. Department heads received budget prep worksheets in early December 2023 with a deadline to submit budget requests to the Finance Department by Jan. 30.

Council’s introduction to the budget began with an overview presentation by Holtmann on Feb. 27. This was followed by Tuesday luncheon meetings devoted to the topics of revenue on April 30, general fund budget highlights on May 7 and nongeneral fund highlights on May 14.

Council had its formal first reading of the budget in its May 20 regular meeting, with second reading and adoption scheduled for its next meeting, June 10.

The city charter requires a balanced budget.

Credit rating agency Moody’s rates the city’s creditworthiness as very strong, Holtmann reported during his Feb. 27 introduction. The city’s bond rating for 2023 was Aa1, the second-highest score the agency assigns.

In its March 1, 2023, bond rating assessment, Moody’s credited the city’s healthy reserves and conservative budgeting practices for its strong rating.

“Recent positive operating performance is due largely to growing revenues, despite the pandemic, and adherence to formal policies,” Moody’s reported. “Management continues a long trend of adhering to the city’s financial reserve policy of maintaining at least 15% to 20% of revenues committed for stabilization fund reserve.”

That rainy-day fund is intended to cover two months’ worth of operating expenses, Holtmann said.

Moody’s also noted the city charter does not allow the city to fund ongoing expenses with reserve funds or one-time revenues.

The city’s Finance Department has received the Government Finance Officers Association Distinguished Budget Award for its budget presentations for 18 consecutive years. Budget information for both proposed and current budgets can be found online at the city’s budget website, Springfieldmo.gov/Budget, and its open data portal, Springfieldmo.gov/OpenData.

In outlining other relevant financial policies and guidelines, Holtmann noted the city’s budget is very reliant on sales tax, which he described as an elastic revenue source. The city has a fee study ordinance that requires it to annually evaluate its charges for municipal services to ensure that the fees cover costs incurred.

Moody’s statement noted that Springfield has a diverse economy “anchored by a significant higher education institutional presence.”

The agency adds, “Springfield will continue to experience growth given its role as a regional economic and employment center of southwest Missouri. The city’s economic base has experienced notable growth in recent years, including an expanding housing market and job growth, particularly in the manufacturing and industrial sectors.”

Impacts on financial condition
Holtmann outlined factors affecting the city’s financial condition. He cited business growth, both current and projected, like the opening of the 53,000-square-foot Buc-ee’s travel center in 2023, with 175-225 full-time positions paying a starting rate of $18-$23 per hour plus health insurance, 401(k) plans and three weeks of paid vacation. An estimated 6 million customers are anticipated annually, and 1,000 additional acres have been opened for development in its vicinity north of Interstate 44.

He also cited the Sunshine Towne Center now under development at Sunshine Street and West Bypass, with Target at its anchor tenant. Total anticipated retail sales volume is estimated at $60 million-$70 million.

Moody’s noted a challenge for the city is below-average resident income, which Holtmann reported at $45,400 in 2022 for Springfield, versus $64,811 for Missouri and $74,755 for the nation, per U.S. Census Bureau figures.

He also reported an annual average cost of living index of 84.8, as reported by the Missouri Economic Research and Information Center. The state’s cost of living index is 88.5, making it the sixth lowest in the country.

Holtmann also reported on broad fiscal indicators for the city, in addition to the Moody’s rating.

The city’s current general obligation debt load is less than .05% of the state allowed maximum. The Missouri Constitution limits general obligation and special assessment debt a municipality may issue

“We have very little GO debt. Most of our city’s debt is through annual appropriation, which is not subject to these limits,” Holtmann said. “To put that in perspective, if we were to take our special obligation debt and classify it in a similar manner to GO, we have about $82 million in special obligation debt on a $1 billion debt margin, so our debt load would be about 8% – a very low margin.”

The general fund’s main source of revenue is sales tax, Holtmann said. Moody’s does note that a challenge for the city is its dependence on sales tax revenue, which it describes as economically sensitive.

In his annual budget letter, City Manager Jason Gage writes that sales tax growth has slowed from last year as expected and is trending within historical norms.

“Overall, sales tax is exceeding collections from last year, however at a much lower rate of approximately 1%-2%,” he writes. “Use tax, a smaller component of sales tax on out-of-state sales, exceeds budget projections by approximately 15%.”

Gage cites inflation as a factor on the budget, and he notes additional resources are funded in the proposed budget to help mitigate increased costs of supplies and materials due to rising prices.

“Concerns of a slowing economy due to increasing consumer debt, higher consumer prices and geopolitical uncertainty across the globe continue to loom,” he writes.

He adds that the city is experiencing slower growth and expects modest growth in the next fiscal year.

“The city continues to live within its means and is well positioned moving into FY2025,” he writes.