City of Duluth 2010 Annual Budget
A Review of the Public Administration section
March 22, 2010
For the City of Duluth Council
By Richard Mc Govern, CMA, CFM
City of Duluth 2010 Annual Budget (2010DAB)
On February 1, 2010, Councilor Dan Hartmanasked the public for ideas on resolving a potential $4.0million dollar reduction in the State of Minnesota’s Local Government Aid (LGA) to the City of Duluth. On that date, I responded to his request to let him know I would review the 2010 Annual Budget (2010DAB), which was (is) posted on the City of Duluth Website.
My initial March 2, 2010 letter to Councilor Hartman followed hours of research and a review of the annual budgets of three similarly sized regional cities.On March 2, I did not have the printed 2010DAB, and the Online version lacked needed information; on March 8, I received the printed 2010DAB,which Councilor Hartman gave me.
The March 2 letter(6 pages) included the following comments:
1.Property or Sales Tax increases should be “avoided, as it ultimately reduces city resident disposable incomes, which reduces spending in the non-government sector, which deflates the local economic recovery, and especially with small businesses”.
2.Every effort should be made to increase the benefits of software and technology within the departments, as these efforts increase productivity and reduce overhead.
3.Referencing the Online version, in Revenue Categories 10-80 (pg. 5-8), 11 of the 148 accounts are valued at $1.0 million and over, and those 11 accounts total $59,980,500 or 79.6% of the $75,375,000 total revenue (re: 80-20 theory).
4.Most of the 137 (148 -11) accounts/fund sources are either negligible or at low risk of affect on the city’s financial stability, and for most or all, rate or fee increases ultimately reduce city resident disposable incomes, which reduces spending in the non-government sector.
5.The City of Duluth largest expenditure is salaries and employee benefits at $60,692,900, or 80.5%of the total General Fund budget of $75,375,000.
6.An idea for reducing GF expenditures: An overall 10.087% reduction in salaries is $4.0 million- a rate of this magnitude should be stratified by salary level so the lowest salary receives a lesser reduction and the higher salary receives a higher reduction.
Note: To implement this reduction would require the consent of the city’s bargaining units.
7.An initial review of the 2010DAB found numbers that appeared excessive, and benchmarking can assist in an understanding, if reasonable comparisons are possible. To test the 2010 Duluth budget, I reviewed the 2010 City of Green Bay (GB), the 2008 City of Rochester, and the 2009 City of Bloomington Annual Budgets.
8.As the City Council is the Board of Directors, one of its functions is to insure the taxpayer is receiving the best value for their dollar. There are few taxpayers with the ability to waste their financial resources, and if government is wasteful, there is less disposable income for generating a stronger local economy. Government should not create jobs, unless there is community growth that warrants more services.
9.While rational or prudent optimism are needed, in brief, the current global and national economic crisis will very likely be followed by a major commercial mortgage crisis and a major private equity crisis. These two crises will further aggravate the unemployment crisis and continue to depress disposable income and deflate an economic recovery.
The March 2 letter was followed by a March 6 (2 pg.), 9 (3 pg.) and 10 (6 pg.) letter, and those letters included the following updates or comments:
1.The annual budget comparison had expanded to include Sioux Falls, SD.
2.Using overall and cost/resident comparisons, the 2010DAB is exceeding the 2010 Green Bay Annual Budget by large cost differences in the Public Administration categories.
3.Using overall, cost/resident, and FTE comparisons, the 2010DAB for the Legal and MIS departments are exceeding the 2010 Green Bay Budget (2010GBAB) and 2009 Bloomington Budget (2009BlAB) by large cost differences. (March 9 letter)
4.The March 10 letter expanded on the Public Administration comparisons, i.e., 2010DAB vs. 2010GBAB and 2009BlAB, and the large cost differences between Duluth and GB and Bl.
After reviewing the above reports, I requested more information from those cities. On March 12, the 2010 St. Cloud and Fargo Annual Budgets were included in the comparison. On March 15, I received the 2010 City ofBloomington Annual Budget, and on March 19, I received the 2010 City of Rochester Annual Budget.
2010 Annual Budget Comparative Analysis
This initial comparative analysis is focused on the Public Administration (PA) portion of the General Fund (GF) budget, excluding Duluth’s Maintenance Operations(MO), which Duluth includes in the PA budget. The other cities include the MO functions in other GF categories.
The following attached spreadsheets compareDuluth with the six other cities.
Budget Comparison Summary- includes the U.S. Census Bureau 1990 and 2008 populations for each city, and other 2008 demographic comparisons, and key PA departmental budget facts and ratios. The ratios compare the department budgets between the six cities, using a Cost/Resident value, Total Salaries/Total FTEand Resident/FTE values.
The demographic information shows the population changes from 1990 to 2008, and except for the declines in the Duluth and Bloomington populations, the other five cities experienced population increases ranging from Green Bay’s 4,559, to St. Cloud’s 18,136, to Fargo’s 19,420, to Rochester’s 29,668, to Sioux Fall’s 54,183.
The duties and responsibilities of the City Attorney, MIS (Management Information Systems) or IT (Information Technology), Human Resource, Finance, and Assessor Departments are very comparable across the seven cities, and any significant differences are,or should be, easily explained.
If populations increase, at some point, city services must increase, but as the comparative analysis indicates, Duluth has generally been the outlierand abnormal to this process.
A.Duluth’s City Attorney’s Office (CAO) has the highest FTElevel (four FTE’s above the second highest); the highestSalary/FTE value at $81,463; the largest budget (96.8% is for salaries and benefits);the highestcost/resident at $20.19;and the lowestResident/FTE value at 5,268.
When Duluth’s $20.19 cost/resident value is compared to the second highest value, St. Cloud at $13.92, using Duluth’s 2008 population of 84,284, this equates to $528,461 budget difference [($20.19 - $13.92) x 84,284]. When compared to Rochester, the budget difference is $687,757, and when compared to Sioux Falls, the difference is $892,568.
Note: In 2010DAB, pg. AP-7, it states “the Duluth court house has radically changed its method of scheduling cases … in response to dwindling budgets, shrinking staffs, and growing dockets”. This statement is insightful in that all of the other cities have much smaller budgets, far fewer FTE’s, and larger populations, except for St. Cloud.
Comment: I have requested and received workload data from some of the cities and I am awaiting same from the remaining cities, and this data will be inserted in the next report.
B.Duluth’s MIS department has the highest FTE level, except for Sioux Falls (SF), which has 155,000 residents and 25 FTE’s; the largest budget (83.8% is for salaries and benefits), except for SF, which exceeds Duluth by $824,879; the highestcost/resident at $25.14; and the lowestResident/FTE value at 3,512.
When Duluth’s $25.14cost/resident value is compared to the second highest value, Fargo at $20.24, using Duluth’s 2008 population of 84,284, this equates to $412,992 budget difference [($20.19 - $20.24) x 84,284]. When compared to Rochester, the budget difference is $1,139,520, and when compared to Sioux Falls, the budget difference is $518,347.
Note: In 2010DAB, pg. AP-10, under Key Challenges for 2010, it states “The City MIS Office’s primary issue to be resolved is understaffing”. Again, this statement is insightful in that all of the other cities have smaller MIS budgets, except for SF, fewer MIS FTE’s, and larger resident populations, except for St. Cloud.
Comment: I have requested and received workload data from some of the cities and I am awaiting same from the remaining cities, and this data will be inserted in the next report.
C.Duluth’s Human Resource (HR) department has the highest FTE level (one FTE above SF, the second highest); the third highestSalary/FTE value at $62,000; the largest budget (95.4% is for salaries and benefits), except for SF, which exceeds Duluth by $174,974 and which 241 more employees, and Rochester, which exceeds Duluth by $6,585and has 16,129 more residents; the highestcost/resident at $11.76;and by a considerable amount, the lowestResident/FTE value at 7,024.
When Duluth’s $11.76cost/resident value is compared to the second highest value, Rochester at $9.93, using Duluth’s 2008 population of 84,284, this equates to $154,240 budget difference [($11.76 - $9.93) x 84,284]. When compared to Bloomington, the budget difference is $271,395, and when compared to Sioux Falls, the difference is $357,364.
Note: In 2010DAB, pg. AP-12 to AP-14, there are several commendable statements, and some concerning ones as well:
1)Under Changes in Expenditures, it states “this budget year will see an increase of 3 positions in HR”
2)Under Key Initiatives for 2010, it states “the cost of providing competitive benefits to City employees continues to rise”.
3)Under Key Initiatives for 2010, it states “City’s comparable worth and pay equity system is vital to establishing fair pay systems for employees”:
4)Under Key Initiatives for 2010, it states “The City of Duluth employees have not benefited from a consistent and effective performance management system for many years. Some individual manages have developed performance review formats and have held reviews with employees, but the majority have not.”
Comment: The fourth statement above is significant indicator of the issues that confront the City of Duluth’s government, and strong contributor to its poor showing in this comparative analysis. Well-developedannual and semi-annual performance reviews are required in every organization that strives for excellence and wants their employees to grow and develop their talents and their contributions toward the success of that organization.
Comment: I have requested and received workload data from some of the cities and I am awaiting same from the remaining cities, and this data will be inserted in the next report.
D.Duluth’s Finance Division, which consists of four separate departments, Auditor, Budgeting, Purchasing, and Treasurer, is not clean comparison, and for this analysis, it has been combined with the City Clerk’s office, which alleviates comparison issues. With a combined 26.5 FTE’s, it is the second highest (Bloomington has 29.5); the second highestFinanceSalary/FTE value at $65,985; the largestnetbudget (84.4% is for Finance salaries and benefits); the highestcombinedcost/resident at $31.34; and the second lowestResident/FTE value at 4,111.
Note: Unlike the other six cities, Duluth’s CFO is not included in the Finance Department budget, so for cleaner comparison, one additional FTE and $125,000 in salary and benefits (approx.) needs to be considered in the above ratios. If this were done, the combined cost/resident would increase to $32.83 and Resident/FTE would drop to 3,065, the lowest.
When Duluth’s $31.34cost/resident value is compared to the second highest value, Bloomington at $24.37, using Duluth’s 2008 population of 84,284, this equates to $587,459 budget difference [($31.34 - $24.37) x 84,284]. When compared to Rochester, the budget difference is $1,179,133;when compared to Sioux Falls, the budget difference is $1,588,753; and when compared to Green Bay, the budget difference is $1,249,932.
Comment: From my experience and research, the City of Duluth Finance department would save considerable expense and gain significant efficiency and productivity, if the separate Auditor,Budgeting, Purchasing, and Treasurer departments were merged into one department, with a CFO inserted. With aflatter organizational structure, manager titles would be eliminated, cross-training would be implemented, specialists would be created, and more would be done to better serve the community and to enhance employee contributions.
Note: In 2010DAB, page AP-19, under Key Challenges, it states “The City Auditor’s office could be taking a more active roll in auditing from an operational perspective. Current staffing levels limit the opportunity to review, evaluate, update, and enforce internal controls policy and procedures and have delayed the implantation of New World Finance applications that could enhance productivity organization wide.”
Comment: A qualified Internal Auditor would payback their salary in one year or less, with the many issues confronting the City of Duluth government. An Internal Auditor would recommend controls for recordkeeping and operations, and monitor same after they are implemented. A March 11, 2010 article clearly indicates a policy and control issue, when furniture was purchased prior to council approval, and there are other examples to be cited.
From the City of Bloomington 2010 Annual Budget, page 29:
The CFO is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments.
General Fund Budget Details – includes the major components,and some sub-components, of the comparative GF Budgets.
There are budget and FTE subtotals at the City Executive Mgmt., City Attorney, and Administrative Service levels, and cost/resident values are calculated for each level.
On page 2 of this spreadsheet, there are Cost/Residents values for the Total Administrative Services. Duluth’s is $78.36, which exceeds the second highest, Bloomington, by $17.95. This differential value equates to a $1,512,898 budget difference, and when compared to Rochester a $44.49, a $2,854,699 budget difference.
Public Safety (Police & Fire & Other) line is the total of the major components of the Public Safety Budget and the related FTE’s. In some city budgets, the Main Police, Fire or Other budgets have department budgets and they are listed. On page 4 of 4, the Public Safety cost/resident value is calculated for each city.
Public Works lineis the total (bold) of major sub-components; for some cities, these totals are not the completed totals, as other major components are listed in other non-GF sections of the total budget, i.e., Enterprise Funds.
Contingency –Bloomington, Rochester, and St. Cloud have included a value in there GF Budgets for expenditures not foreseen. Bloomingtonallocates 2.5% of the proposed budgetedexpenditures to the contingency budget.
General Comments
1.Under Expenditures[2010 Duluth Annual Budget (DAB), pg. AP-8], it states “Wages and benefits expenditures will rise 22% in 2010; General expense will rise 11%”. I have not reviewed the 2009 DAB, but these percentages are very high, when Duluth’s population has declined or remained stagnant.
2.In 2010DAB, page AP-8, under Key Initiatives for 2010, it statestechnology improvements, performance measures, and the centralized systems of operations are three of those initiatives. In my March 2 letter to Councilor Hartman, I discussed the need to use technology whenever possible to improve efficiencies, and centralizing operations is a key step toward saving costs and increasing efficiencies.
3.TheGB and Bl structures have centralizedfunctions, which allocate costs back to the departments and divisions to provide the true cost of each area (see spreadsheets). This eliminates accounting tasks and it enables each department to focus on their mission.
4.In the SF Annual Budget, nearly every Department Budgethas a Job Performance Line Item.
5.The GB 2010 Annual Budget has a separate budget for centralizedPrinting Services(PS), which is administered by the Finance Department. PS has two FTE’s and one FTE is two part-time employees –42% of the $205,750 budget is salary and benefits, and the balance is equipment and supplies, including $83,000 for postage. It saves costs for equipment.
Closing
For the benefit of the Duluth residents and a more cost effective and efficient city government, the City Council is strongly encouraged to review this information, and request proposals from city staff for increasing productivity and decreasing the cost/resident value.
As this initial comparative analysis indicates, the City of Duluth government is not competitive with the city governments selected, except in the Assessor’s office. Finding $4.0 million is not difficult after reviewing these results, and if other cities can control their costs and maintain low cost/resident taxes, then Duluth should be able to do the same.
In the corporate world, shareholders would not invest in an organization with these results and indicators, and new businesses may avoid Duluth, if local government is not effective.
More information will follow, and my research and spreadsheets are available to designated city employees for review.
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