Lexington's financial outlook took a turn for the better in November, but city officials still plan to move forward with budget cuts.
The preliminary November numbers in the licenses and permits category — the city's largest revenue area, which includes payroll tax, business net profit tax, insurance premium fees and franchise fees — showed that Lexington rebounded from October's sharp decline in the payroll tax.
In fact, collections in the licenses and permits category increased so much that the city is now posting a positive figure in that area in its year-to-date numbers. At the end of October, the licenses and permits category was down $580,288, or 0.9 percent, for the fiscal year that began July 1.
Through the first five months of the fiscal year, the licenses and permits category is up $2.3 million, or 2.8 percent, over the same period last year.
In the payroll tax category, the city has collected $2.1 million more for the year, a 3.5 percent increase ove r this time last year.
"We're thrilled that it's holding," said Kyna Koch, the city's finance and administration commissioner.
Koch was quick to caution Urban County Council members that the revenue trend could reverse itself in December.
"I don't think this means in any form or fashion that we are out of the woods," she said.
City officials expect a revenue decline in the upcoming months. To prepare for that, the city is starting to make cuts.
The first set of cuts? An immediate 5 percent cut in operating expenses throughout government for this year. That's on top of a 10 percent reduction in operating expenses in most departments compared to last year's budget.
The city hasn't decided how much will be cut or saved in each department. "We're looking for possible cuts without affecting personnel."
Some money that had been initially budgeted for debt service on bonds is available for other uses because the bonds haven't been sold yet, Koch said.
Also, the city is seeing additional savings through retirements and attrition. As of Nov. 30, the city has reduced the number of full-time employees by 194 since Mayor Jim Newberry took office. Newberry implemented a hiring freeze in April 2006.
The city balanced its budget this year on the assumption that 170 employees would retire. As of Dec. 5, 107 employees have retired or have notified the city that they planned to retire, Koch said.
"We've got a decent shot of getting to June 30 without having to make a lot of draconian cuts," Newberry said. "My own view is that we're still going to be very well advised to start reining in our expenses now because the first six months of the calendar year, the last six months of the fiscal year, could be very difficult. It's a lot easier trying to make those cuts with a seven-month window instead of a three-month window."
If the expected downturn never materializes, the cuts will put the city on better financial footing for fiscal year 2010, which begins July 1, 2009.
"Anything that we can do in 2009 to protect any of our revenue and not spend it means that we can soften things a little bit for 2010," Koch said.
The city estimates that it will need $44 million to $45 million in new revenue in the next fiscal year to pay for a variety of legal obligations, including debt service payments on bonds, contributions to the police and fire pension system, and the requirements of the city's collective bargaining contracts with police, fire and community corrections.
Councilman Chuck Ellinger II asked whether the city has developed any other contingency plans in case the city's revenues plunge in the next few months.
"I want to make sure we have something in place," Ellinger said. "As a council member, I would like to see the plan."
Koch said the city is evaluating a number of options, but she wasn't ready to share them yet.
"I can assure you, we will be prepared," she said.
