Lexington launches belt-tightening push as it ponders $29 million deficit by 2023

How many services does the city of Lexington provide?

“We don’t know,” said Aldona Valicenti, the city’s chief information officer. “We have never had a list of services. We don’t know if there is duplication of services. We don’t know if some of those services are being provided by other agencies.”

Cataloging what the city provides and identifying duplication of services and possible ways to consolidate are part of Rethink Lexington, an initiative to cut costs and streamline services that Valicenti is leading across city government.

Launched last week, the effort is a bottom-up look at how the city delivers services and where it could generate savings. It will likely take at least six months. City employees are being asked for their best ideas to cut costs and deliver services more efficiently.

The cost-cutting push is part of a broader effort by Lexington Mayor Linda Gorton to re-examine the city’s expenses and revenues as costs — including ballooning pension payments to the cash-strapped state pension system — continue to climb. In addition to Rethink Lexington, Gorton has appointed two work groups to look at the city’s finances — including its tax base — and its budgeting process.

Shortly after taking office in January, Gorton ordered a less than one percent cut to most city departments as revenue slowed and did not meet projections for the fiscal year that ended June 30. The current-year budget required most departments to cut expenditures by 15 percent.

Things are projected to get worse in coming years.

By 2023, the amount the city will need to pay all of its fixed costs is projected to be $424 million, but revenue is forecast at $395 million, according to figures the city released in April during Gorton’s budget address.

That’s a $29 million gap. Driving costs on the expense side are increased payments to the state’s pension system and the amount the city spends on public safety — police, fire and the jail. It has hired more police and firefighters over the past several years, driving up personnel costs. Public safety is now more than 50 percent of the city’s general fund budget.

“We have to do things differently,” Gorton said in an interview this week.

Kentucky cities are struggling

J.D. Chaney, who is overseeing Gorton’s work group looking at city finances, said the goal is to examine what the city taxes, how much those taxes generate and if the city can diversify what it taxes.

Lexington and most Kentucky cities are largely dependent on a tax on jobs — sometimes referred to as an occupational tax — for their general fund budget. In Lexington, roughly 60 percent of all revenue — taxes and fees — comes from that tax.

A company layoff or a large employer leaving town can devastate a city’s budget. Relying too much on one type of tax can also mean wide swings in revenue from year to year.

“Cities were struggling even before the pension crisis,” Chaney said.

Chaney would know. As the long-time deputy director of the Kentucky League of Cities, Chaney advocates for city governments at the state legislature.

Tompkinsville, a city of 3,000, recently lost more than half of its police force in part due to the pension crunch.

The state legislature has so far rebuffed attempts to allow cities to implement different taxes, such as adding a city sales tax. The 1891 Kentucky Constitution also restricts what types of revenue cities and counties can tax.

“There is growing recognition that a tax on productivity is contrary to economic development policy,” Chaney said. In other words, if cities continue to raise taxes on jobs, it could hurt economic development.

Chaney said the group hopes to finish its work by November, but it may not recommend creating a new tax. “We will also be looking at current revenue streams,” he said.

If the recommendation is a new type of tax, it won’t happen quickly. The Republican-led state legislature will need to approve it, and it could require a constitutional amendment that must be approved by voters.

“All options have to be on the table,” Gorton said. “But we are doing this in a very systematic, deliberate way.”

Efficiency through technology?

That’s generally not how the government has operated.

For example, city departments were asked to cut 15 percent of their operating budgets this year. Most departments cut what was easy —travel, training and personnel development. But those are short-term cuts, not long-term efficiencies, Valicenti said.

“We also don’t know how those cuts affect services,” she said.

Efficiency also can mean investing in technology, Valicenti said.

For example, the parks department this year bought some self-watering planters and hanging baskets as part of a pilot program. Monica Conrad, director of the city’s parks and recreation department, told the Lexington-Fayette Urban County Council during a Tuesday work session that labor to water those plants costs the department roughly $29,000 each year. By switching to self-watering planters and baskets, it could eliminate that labor cost, she said.

“It’s about how we can use labor more efficiently,” Conrad said.

Another problem: governments rarely examine how much it costs to provide services.

For example, the council voted earlier this year to increase residential building permit fees after it was discovered that it cost the city a lot more to process those permits than it was charging. Building permit fees hadn’t been raised since the 1990s and were lower than cities of similar size.

That same exercise is needed across government, Valicenti said.

“Can we reassess the fee structure?” Valicenti said. “Are we recovering our costs to provide that service?”

Governments have to be responsive to the ever-changing needs of citizens, she said. But they also need to look at what citizens don’t need anymore.

“Governments often add services but never take away any services that maybe aren’t needed anymore,” she said.