Lexington's financial picture has improved significantly, director of revenue Bill O'Mara said Tuesday during his annual report on the state of the city's finances to the Urban County Council's Budget and Finance Committee.
The city overcame a $27 million projected deficit and finished fiscal year 2012 with $3.3 million left in the general fund. Fiscal year 2012 ended June 30.
Drawing an analogy to a family's finances, O'Mara said, "Essentially, after all the bills were paid and money was put in the rainy day fund, this is what was left in the city's checking account."
O'Mara said city revenues increased and expenses were kept under control. "The combination is what we're excited about," he said, adding the last time this happened was about 2007.
Increased revenue came from the city payroll tax, reflecting an improved job market, and a net-profit tax on business.
Unemployment in Fayette County dropped from 8.3 percent in January 2011to 6 percent in September, according to the U.S. Department of Labor's Bureau of Labor Statistics.
Curtailing expenses included tackling health insurance benefits and collective bargaining.
■ The city's health insurance ran deficits for several years, with the city paying increasingly large subsidies. In fiscal year 2012, a deficit of $10 million was budgeted, budget director Ryan Barrow said. But the plan was completely restructured. Employees now bear more of the cost of their insurance. Also, the city opened a wellness center, free to employees, and an on-site pharmacy.
■ The city achieved savings in new collective bargaining contracts with police, fire and corrections. The resulting contracts will save about $10 million over the span of the 3- and 4-year contracts.
Additionally, a financial team that includes O'Mara, Barrow and Jane Driskell, Commissioner of Finance, meets monthly with each of city government's 30 divisions to go over expenses and see if the division is meeting its budget.
"We find out about problems earlier and deal with them more efficiently," Barrow said.
Using what O'Mara called good financial management practices, the city has created several new savings accounts and added to others. A payment of $3.5 million was added to the rainy day fund, raising the balance from $15 million to $18.5 million.
The city set money aside to pay for health insurance claims, construction projects, vehicle replacement and streetlights. An energy improvement fund was established to re-invest energy savings.
Mayor Jim Gray told Budget and Finance Committee members that "The Great American City is back in the black. But, we're not out of the woods yet, and we're not declaring victory prematurely."
The city still has hurdles to clear, he said. "Our pensions are hemorrhaging. We have a $17 million dollar annual required contribution gap every year. So far, we've only put a band-aid on the problem with bonding."
Bringing pension costs under control will require "continued resolve and, most importantly, the political will to do the right thing," he said. Gray referred to the pension liability as "the dark, dark cloud over our heads."
With the city's financial house in order, Gray said, "Now we have a chance to imagine investing in the future."
Beverly Fortune: (859) 231-3251. Twitter: @BFortune2010.