Citing "legitimate optimism" about Lexington's economy in coming months, Mayor Jim Newberry proposed a $279 million budget on Tuesday that increases spending next year by 1.5 percent.
Despite a previously projected $27 million shortfall, no city employees would be laid off and most city workers would get a 1 percent pay raise in fiscal year 2010, which begins July 1.
The proposed budget relies on $5.39 million from a new storm-sewer tax that the mayor first proposed last year. Newberry said there are no other new taxes or "broad-based" fees in the budget.
The Urban County Council will spend the next two months reviewing and revising Newberry's proposal. The mayor said he expects the council to make only minor changes to the proposal.
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"The devil is always in the details," Councilman Julian Beard said. "There will be things about this we don't like, so there will be some negotiating and compromise."
Newberry said he chose a more upbeat budget outlook after asking University of Kentucky economist Ken Troske to scrutinize the city's tax receipts. He noted that building permits increased by 20 percent in the first quarter of the year, including a 40 percent increase for single family residential permits.
"We ultimately concluded that there is reason for legitimate optimism about revenues" for fiscal year 2010, he said.
In fact, Newberry expects to end the current fiscal year on June 31 with a surplus, which he said could provide a cushion during uncertain times.
"We're in far better shape than most places in the country" Newberry said of Lexington's economic health.
He attributed the city's relative financial health to its diversified economy, noting in particular the University of Kentucky and the city's status as a regional medical provider. "Our economy, while not recession-proof, is recession-resistant," he said.
Newberry's proposal brought joy to some council members, who were concerned they might be asked to further trim the city's payroll, which has declined by 201 full-time workers since 2007.
"It was a huge sigh of relief not to have any type of layoff recommended to the council because we can't afford to lose any more additional personnel," Councilman Kevin Stinnett said.
While no layoffs are projected, 96 vacant positions would not be funded.
City employees, with the exception of police, fire and corrections, would get a 1 percent pay raise.
Sworn officers are covered by a union contract that is negotiated separately. The mayor proposed a $6 million increase to meet those obligations.
The city has 589 police officers and 526 firefighters. The budget anticipates 20 fewer police officers and nine fewer firefighters.
A general hiring freeze also will continue for the foreseeable future, but Newberry is proposing five new positions: an internal auditor, software manager, minority business coordinator and two new security guards for the Government Center and Phoenix Building.
Newberry said he balanced the budget "predominantly through cutting back."
His budget trims $3.5 million by cutting operating expenses — office supplies, training, travel and other items — of departments throughout city government by 9 percent. He also recommends putting about 80 capital projects on hold.
The proposed budget does not dip into the city's $13.2 million rainy-day fund.
However, it uses $4.1 million in one-time revenue from a variety of sources to meet ongoing obligations. The one-time funds include $1 million from a state mineral severance tax on minerals mined in Fayette County, $1.9 million from the prisoners'-activity fund, $1 million from landfill fees and $185,000 from a coal severance tax.
"I readily admit that paying recurring expenses with non-recurring revenues is not a wise long-term strategy, but given the nature of the times, I am willing to propose such a budget this year in order to avoid the necessity of laying off our valued employees," Newberry said.
New expenditures in the budget include $5.8 million for debt service on a $70-million bond the city recently sold to address the unfunded liability in the police and fire pension system. Another $35- million pension bond will be sold during fiscal year 2010.
The bonds are the city's first serious effort to address a long-standing problem with the pension system, the mayor said.
The mayor also proposed moving forward with $83.7 million in capital projects, most of which would be funded with bonds that will be paid off over several years.
Included in those projects is $250,000 for improvements at parks that have been traditionally shortchanged.
Newberry also noted that his budget maintains current funding for social-service partner agencies, such as The Salvation Army and the Hope Center.