News From Terre Haute, Indiana

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October 6, 2013

City believes new revenue for 2014 budget will provide more stability

TERRE HAUTE — The city council is poised to pass Mayor Duke Bennett’s 2014 budget this week, sparing Terre Haute a potentially jarring financial mess.

A few members of the council last month asked the mayor to present a plan to fix the city’s “general fund,” which has come up in the red each of the past few years. On Thursday night, Bennett gave them just that.

The plan, if successful, would erase the need for an annual loan, called a “tax anticipation warrant,” to float the general fund by 2017. That loan is expected to be $5 million again in 2014, matching its level for the past two years. Bennett, using a Powerpoint presentation, showed the council several new sources of revenue he hopes, along with new spending cuts, can make the general fund whole in the next few years.

Councilman Jim Chalos, D-at large, said he commended Bennett for the presentation after the meeting. “I’ve been around [city budgets] since I was a kid,” said Chalos, whose late father, Pete Chalos, was a four-term mayor in the 1980s and 1990s. “The more open we can be, the fewer problems there will be.”

Chalos is one of six council members who have said they plan to vote in favor of the budget, which comes up for a vote Thursday night.

Failure to pass the budget would amount to a budget cut for the city, according to state officials. If a city does not pass a new budget, it forfeits the additional revenue it would have otherwise been allowed by the state’s “growth quotient,” this year set at 2.6 percent, said Jenny Banks, director of communications for the Indiana Department of Local Government Finance.

Still concerned

The general fund, which pays for many of the city’s day-to-day expenses, has required a short-term loan in the past two years to meet expenses, leading some council members, notably Neil Garrison, D-5th, and John Mullican, D-6th, to seriously question the administration’s financial management. Those two have voted against the mayor’s budget in recent years and were still undecided a week before Thursday’s vote.

Garrison, speaking Friday, said he remains concerned.

“I think taxpayers were initially excited about the idea of limiting property taxes” with the state’s tax caps, he said. “Politicians, however, are being forced to choose between two groups to satisfy: Government employees or taxpayers.”

The answer probably lies somewhere between, Garrison said, adding he does not believe Terre Haute has struck that balance. “While the easier choice for many politicians may be to increase revenue, by creating new taxes or fees, that choice stands to upset taxpayers,” he said.

“[I]t is clear Terre Haute has not found that balance as many other … cities in Indiana have,” he said. Garrison and other council members have also questioned how the city has been able to provide annual raises for city workers, set to be 2.5 percent next year, under such financial strains.

“We are looking out for taxpayers,” the mayor said in response. Despite paying $9 million less in property taxes, “they still expect that same level of service today.”

Bennett believes borrowing $5 million annually has been an inexpensive way to avoid significant layoffs of city workers, especially police and fire employees, who make up the lion’s share of the city’s salary and benefit expenses. It costs the city about $50,000 in interest to borrow that sum each year, he said. Because other city departments have already lost a total of 52 jobs since 2008, any new big cuts in the budget would come from police and fire at the potential expense of public safety, he said. “It’s worth every penny of that interest” to prevent that, he said.

Regarding the raises, Bennett said those were negotiated about three years ago before anyone knew Vigo County’s assessed values would drop 7.5 percent last year and when it was expected 2011 would be the year in which the tax caps had their largest effect. Those raises were negotiated in good faith and will be honored by the city, he said.

Taken together, the pay increases for the police and fire departments next year will cost the city about $329,000, according to figures provided by the Controller’s office. That does not include payroll taxes or public employee retirement contributions. The 2.5 percent salary increases for the remaining city workers will cost less than $50,000 next year, Bennett said.

New revenue

In his presentation Thursday night, Bennett pointed to several potential new sources of revenue for the city’s general fund, including a trash removal fee. Currently, city residents receive their trash removal through a city contract with Republic Services. The city pays Republic about $2.6 million annually, Bennett said. He discussed with the council a possible “trash fee” that could generate up to $2.5 million annually. That would require a fee of about $9.25 per household.

“The trash fee obviously has to be approved by the council, so that’s not set in stone,” Bennett said. Other potential revenue sources could be controlled by the administration alone, he said.

One big example would be an administrative fee charged to city departments to cover services provided by the city for those departments. This would allow those departments, which often have significant non-property tax sources of funding, to pay into the general fund, Bennett said. That could transfer about $1.5 million into the general fund in 2014, he said.

Terre Haute will model its administrative fee on a system used by South Bend, the mayor said. “They’ve been doing it for quite some time,” Bennett said. “They seem to have it down to a ‘T.’ We believe that’s the best model for us.”

Another revenue source the mayor called “Enterprise Revenues,” expected to generate more than $1 million annually by 2017. However, Bennett said he was not yet able to discuss this publicly.

“The enterprise revenues are more related to things that we have internal opportunities to do to generate some income,” Bennett told the City Council. “We’ve been looking at a variety of things for about the last three or four years.”

The mayor also said he hopes to generate $50,000 in 2014 and up to $100,000 in the following few years from new “payments in lieu of taxes.” The city has recently started to collect a PILOT fee – expected to be $2.7 million in 2014 – from the Terre Haute wastewater treatment plant.

General fund just one of many

City Controller Leslie Ellis has projected the city will end 2013 with a positive general fund balance of about $400,000 before repaying the $5 million loan. Earl Elliott, financial consultant for the city, however, has projected the general fund to be in a cash deficit of about $600,000 on top of the $5 million loan.

Because much of what the City Council deals with involves the general fund, some council members and the news media tend to focus on it quite a lot, Bennett said. But that is just a piece of the overall picture, he said. In all, the city has about 79 different funds and nearly all have cash surpluses, Bennett said.

If all the funds are considered, the city had a positive cash balance of $37.1 million as of Aug. 31, according to figures provided by the City Controller. That compares with a positive balance of $31.3 million a year earlier and $28.3 million in 2011.

“There is cash in the accounts,” Bennett said. “The bills are being paid. The money’s there.”

The general fund, which has taken big hits since 2008 due to the state’s property tax caps, has lost millions in revenue each year, Bennett said. As a result, whenever possible, expenses have been transferred out of the general fund into non-reverting or other city funds, the mayor said. Several paid positions in the engineering department, for example, have been moved out of the general fund, he said.

On Aug. 31, the general fund showed a deficit of $3.9 million, but the bills continue to be paid due to positive balance in the city’s 20 bank accounts, Bennett said. With an influx of property tax revenue in December, in addition to other smaller sources of revenue, the general fund should be positive at the end of the year, he said.

“We’ve got $40 million in the bank,” Bennett said, explaining, however, that those funds are often restricted and cannot be used to cover the general fund. And each fund must be reconciled at the end of the year, he said.

Reporter Arthur Foulkes can be reached at 812-231-4232 or

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