City budget heads to commission for approval

By MARY WARDELL

Journal Staff Writer

MARQUETTE — Next year’s city budget is balanced with no tax hikes or increases to water/sewer rates, though budget amendments are expected as details emerge from the Johnson Controls energy performance contract.

The Marquette City Commission wrapped up its series of public meetings on the 2017-18 fiscal year, but citizens have one more chance to speak on the subject at a public hearing ahead of the commission’s final approval.

The public hearing is scheduled during the commission’s regular meeting at 6 p.m. Monday in the commission chambers of city hall at 300 W. Baraga Ave.

City CFO Gary Simpson said no utility rate increases are proposed in the current budget, but “that’s not to say an increase won’t be coming down the road.”

Once planned automated meter infrastructure is installed, the city expects more accurate meter readings, and the city has a firm on standby to recommend rates based on that data, Simpson said.

Simpson said he’s “fairly certain” there will be an increase with the adjusted data, but they “don’t know how much” or whether it will go into effect in this upcoming fiscal year or the following.

Water and sewer rates have gone up fairly steadily in the last decade, with water rates on average about 5 percent per year and sewer rates about 11 percent, according to the proposed budget.

The “smart” meter infrastructure is part of the city’s energy performance contract with Johnson Controls, Inc., which says it will save the city $42 million over the 20-year life of the agreement.

The city approved the JCI contract at the beginning of August for $28 million. The work will be completed in two years and the city will pay off the cost over 20 years at an interest rate of 2.84 percent.

It’s financed through a Tax-Exempt Lease Purchase agreement, which doesn’t register with the state as debt and so won’t affect the city’s bonding capacity.

The deal was opposed by some city commissioners including Sara Cambensy, who pointed out the city has more-than doubled its debt this year not counting the JCI contract.

The impacts of the Johnson Controls deal on next year’s budget are still unknown, with that expected to come as a budget amendment in the next couple months, Simpson said.

“We don’t have the information we need to get it incorporated into the budget, so we put into the budget everything as if the Johnson Controls contract didn’t exist, and once we get all the information we need, then we’re going to submit a budget adjustment to get everything the way it should be,” Simpson said.

Simpson is hoping there will be zero impact, he added, but he won’t know until he gets the information.

“I’m not sure what the hold-up is,” Simpson said, “But it’s a complicated project and I suspect that’s what’s taking a lot of time. A lot of these projects impact a lot of different funds at the same time, and I think JCI is just trying to be very careful.”

The total proposed budget is 1.1 percent higher than in 2017, with a 37 percent decrease in capital outlay spending and contractual increases in personnel and fringe benefits, along with supplies and services, according to the budget overview.

For all funds, the total budget is just short of $69 million, Simpson said.

The balanced budget doesn’t include statutory revenue sharing from the state, which the city hopes to receive in the amount of about $357,000.

“We think we’ll qualify, but you never know,” Simpson said. “This is the statutory portion, so the state Legislature could decide not to divvy that out at any moment in time if they wanted to.”

The city’s constitutional revenue sharing is projected at about $1.675 million, which is based on state sales tax.

More significant financial uncertainties relate to the city’s two largest taxpayers, WE Energies’ Presque Isle Power Plant and Duke LifePoint’s UP Health System-Marquette.

We Energies has a Michigan Tax Tribunal case pending that could lower its taxable value this year, and the plant is expected to close by 2020. DLP’s new hospital site is a Brownfield Tax Increment Financing district, meaning tax increases will go to pay for public bonds taken out to help fund aspects of the project.

Future use of the existing hospital campus is yet to be determined.

Further down the line, uncertainties exist in the form of “sleeping dragons,” as Simpson calls them, which largely consist of anticipated capital costs and retirement liabilities. Their total is nearly $68 million, with unfunded pension liabilities and other post-employment benefits about $45 million of that.

“We know those things are there, they aren’t hitting this year’s budget – but at some point, the sleeping dragon’s going to wake up, and we’re going to have to be prepared to fight it at that time, rather than just kind of pretend, ‘Oh, we didn’t see that one coming,'” Simpson said.

The city’s fiscal year runs from Oct. 1 to Sept. 30. A full copy of the city’s proposed FY2018 budget can be found online at www.marquettemi.gov/ departments/financial-services/financeaccounting.

Mary Wardell can be reached at 906-228-2500, ext. 248. Her email address is mwardell@miningjournal.net.