Hoover revenues not keeping pace with expenses

HOOVER – If current trends continue, Hoover’s expenses will outpace its revenues as soon as the current fiscal year, likely forcing the city to draw on its reserves to balance the budget, according to a financial report presented to the City Council at its meeting on Monday, April 2.

Chief Financial and Information Officer Melinda Lopez said she raised a flag about the city’s situation while going through the budgeting process.

“I was concerned looking at some of the expenses, looking at the revenue projections,” Lopez said.

Hoover retained Porter White & Company to analyze financial trends and make projections for the next five years, and the company’s Chairman, Jim White, and President, Goodloe White, presented their findings to the Council.

“We were asked to take a look at the history, see what the particular problems were and then to try to look forward to see where current trends, if continued, might lead Hoover in a financial point of view,” Jim White said.

The Birmingham-Hoover metropolitan area’s growth has lagged behind the United States and other areas in the Southeast since the recession of the late 2000s, White said and added that officials have little control over the local economy.

Projections presented to the Council were based on that trend continuing.

Hoover’s cash flow has not gone below zero but is likely to do so during the current fiscal year, Jim White said, in which case officials would likely draw from reserves to balance the budget.

“We expect a continued drawdown of reserves unless you make some changes,” White said and added that a “break even” financial performance is not the goal for the city because surpluses are required to fund capital projects needed to maintain the quality of life residents expect. “There is a need to have positive cash flow so Hoover can reinvest in itself going forward.”

Goodloe White said that over the time period projected, through 2022, Hoover’s general fund balance would decline from $32 million to $10 million if no changes were made based on reserves being needed to supplement revenue.

The investment in the opening of the Finley Center, new hires and contributions to the city’s school system as significant recent expenses, and noted the growing prevalence of online shopping as a problem for revenues, as municipalities do not collect as much tax from online sales.

Sales and use taxes account for 65 percent of Hoover’s revenue.

Mayor Frank Brocato said officials have been analyzing the situation and potential options, and he expects to bring a recommendation before the Council at its next meeting, on April 16.

“The sky is not falling, but we have some issues…that we need to address,” Brocato said. “We are working hard to help us satisfy this budget. We have a number of positions that are not filled. We are doing the things that I think are important for us to do as city leaders and that’s look at our house and make sure we have it in order.”

City leaders have kept expenses below budget, and sales tax revenue so far this fiscal year has been above projections, but Lopez said she is not sure tapping into reserves can be avoided this fiscal year.

“This would be the first year we would have to make a transfer to balance the budget,” Lopez said. “It makes the 2019 budget very hard to balance without additional cuts.”

Councilman Curt Posey asked that discussions about the issue take place before the full Council instead of the Finance Committee, and Councilman Mike Shaw called a potential tax increase “the elephant in the room” and said officials should take the time to ensure the best possible decision is made.

“I would hope we don’t rush into a politically expedient decision at the expense of the intelligent decision and the smart decision that’s going to set us up for long-term success,” Shaw said.