View the Mayor's 2022 Budget PowerPoint Slide Presentation
MAYOR DONCHEZ'S 2022 BUDGET ADDRESS
November 5, 2021 9 AM Town Hall
Slide numbers coordinate with the 2022 Budget PowerPoint slides linked above, which include Chamber of Commerce sponsor slides.
Good morning, and welcome to my 2022 budget address.
It goes without saying that 2020 and 2021 were years unlike any we have ever seen. When I recently re-read my budget address from last year, I was reminded of those dark days, and what has been required in order to navigate through this pandemic. While we understand the pandemic is not over, we have been successful in continuing to deliver all essential services to the citizens of Bethlehem, and the future of Bethlehem is bright.
I want to take this opportunity to thank my department heads and City employees that have served the City through these challenging times. Their dedication to serve the Bethlehem community has been steadfast.
Today is my 8th and final budget address as Mayor.
My first experience with the Mayor’s office was in 1977 when I worked with my good friends, Judge John Morganelli and Senator Lisa Boscola, on Paul Marcincin’s campaign. Many people called us the 3 amigos. To this day, we remain close, and each of us has been blessed with success in politics. As public servants, I would like to think our impact has been positive for the communities in which we serve.
After the closing of Bethlehem Steel, we have seen Bethlehem become a vibrant city with a diverse economy. The 1,800 acres of the former Steel property, once one of the largest brownfields in the country, has been transformed into industrial parks and an arts and entertainment district.
The transformation of our downtowns, neighborhoods, and recreational facilities, especially the new Memorial Pool, the renovated golf course and the Greenway continue to make Bethlehem an attractive place for families to locate.
As I took office in 2014, I often wondered what my challenges would be in guiding and managing our City. Today, I believe Bethlehem is positioned to continue to move forward and continue to be the jewel of the Lehigh Valley. The state of the City is strong.
During my time as Mayor, the city has seen unparalleled development interest in the growth of our downtowns and surrounding neighborhoods. We’ve seen completed projects, like the Gateway at Greenway building at 3rd and New Streets and 510 Flats on East Third Street.
We’ve see existing buildings renovated, like the Flat Iron Building on 4th and Broadway and The Pinnacle on Center and East Elizabeth Ave. There are projects under construction throughout the City, including a hotel expansion at Wind Creek, the Health Sciences and Technology building at Lehigh University and the apartments at the Wilbur Mansion and the Armory apartment addition in West Bethlehem. Since 2017, we have seen more than 1400 apartment units proposed, under development or completed. In my more than 30 years in public service, I don’t know that we’ve ever seen an explosion of residential and commercial growth like the city is experiencing today.
I believe my administration has taken all the necessary steps in order to provide a solid foundation for Mayor Elect Reynolds to build on.
With that, let me present my 2022 budget proposal.
For 2022, I am proposing a no tax increase budget at $93.3 million dollars.
This budget provides the necessary staffing to continue to provide the residents of Bethlehem, with the highest level of essential services. It makes the necessary investments in order to maintain critical assets, without additional debt, and it reinvests in our community.
Due to the pandemic, Bethlehem, like most cities, experienced significant revenue loss in 2020. Businesses were closed, the operations of Wind Creek were limited, events and festivals, such as Musikfest, Celtic Fest, and Ockoberfest, were cancelled.
Unemployment increased, and the activity in our downtowns was negatively impacted for months. The City responded with staff reductions, the postponement of capital purchases and projects, and used CARES money to help our small businesses and restaurants survive during these challenging times.
In 2021, life has returned to some degree of normalcy. Revenues have increased closer to traditional patterns. Businesses and schools are open, our festivals were successful, and the newly renovated golf course and Memorial Pool set attendance records. The downtowns are now actively preparing for a busy holiday season. We project that trend to continue into 2022 and our budget reflects that belief.
Slide 12 illustrates the primary components of our 2022 revenue, which is budgeted at $93.3 million dollars. The blue represents real estate taxes, which make up 35% of our overall budgeted revenue. As a mature, built out city, this line item does not grow substantially each year. We are fortunate that new developments are being proposed, especially on the old Steel and Martin Tower properties, but they will take some time to have an economic impact. Without a tax increase, we typically see small but moderate growth in this category.
Moving to the gray area, that represents grants. They are budget neutral: if the revenue would grow, so would the expenses associated with the grant.
Yellow represents the casino host fee. At nearly $9.8 million, it’s incredibly important, but we need to make it clear that the host fee stays the same – it does not grow. So the blue, gray, and yellow areas, which collectively make up 64% of the budget, do not provide much growth from year to year. The orange, which includes Act 511 taxes such as the earned income tax, grows more quickly with job and wage growth, but it is only 17% of the budget. The overall result is small but steady revenue growth each year.
Slide 13 illustrates the primary components of our 2022 expenses. The 2 shades of blue make up our personnel expense. As often pointed out, it makes up nearly 75% (74%) of our entire budget. Public safety personnel (Police, Fire, EMS), which is the lighter blue, makes up 52%. Personnel includes items such as salaries, medical, and pensions.
A large percentage of the City’s work force are union employees, which means, their salaries are obligated by contract. Increases in medical have slowed, but still represent a very significant expense. The next category, marked in gray, are Purchased Services, which includes utilities, professional services, and the recycling contract. Yellow represents debt, which I will talk about shortly. Green is equipment, materials, supplies – police cars, fleet vehicles, and computers. It only makes up 2% of our overall budget.
So while revenues exhibit some growth, they continue to be outpaced by the growth of expenses, primarily personnel expense. Director of Budget and Finance, Mark Sivak, uses a 5-year model to assist us with financial planning.
The model uses the facts we have and information from a variety of sources to make assumptions for revenue and expense line items in the budget. This model has been used for over a decade. As you can see by this graph, the model illustrates the structural imbalance we have in our income statement. Based upon the information we have, and assumptions we have made, the model initially projected a $2.4 million dollar deficit for 2022. This is an imbalance most every city has, and must work to solve.
Slide 15 calculates the property tax increases it would take to close the projected deficits. For example, the initial $2.4 million gap for 2022, the City would need to find a way to increase revenues, decrease expenses, or face the reality it may require a 7.1% tax increase to close the deficit.
Some would quickly point to reducing personnel in order to close the financial deficit. But upon further review of our staffing, it is very clear we are thin in many areas. As you can see from this graph, we had a staff of 670 in 2010. We are now staffed at 589. The lack of depth has been difficult to bridge when employees leave or retire.
Many skill areas are one deep, so there is no more room to cut in City Hall. The staffing cuts have made it difficult to keep up with the ongoing maintenance demands around the City. The only area of depth is public safety, and it is not advisable to reduce personnel in this area.
On March 10, 2021, the U.S. House of Representatives passed the American Rescue Plan (ARP). The ARP provides $1.9 trillion in relief to respond to the coronavirus (COVID-19) and includes provisions on aid to individuals, families, schools, hospitals, healthcare, small businesses, non-profits, restaurants, and state and local governments.
Local governments across the United States received $65 billion, and the City of Bethlehem will receive $34.4 million dollars. Funding directed to local governments is intended to support the response to the pandemic, recover lost revenue caused by the pandemic, and provide for reinvestment into the community. Our budget proposal includes funding for each of these categories.
$12.8 million of American Rescue Plan funding is included in three locations of this budget proposal and will allow Bethlehem to Respond, Recover, and Reinvest through 2024.
I am dedicating $2 million dollar in 2022 for COVID Response for essential personnel. All City Departments have been involved with providing a response to the pandemic. Providing for public safety needs (Police, Fire, EMS), essential Public Works services, supporting individuals, businesses, and organizations within our Community Development Department, to running dozens of vaccination clinics, City employees have been at work every day during the pandemic.
The continuing challenges of the pandemic has made it clear, this response will need to continue for some time to come, and this funding will allow that to happen.
The Rescue Plan also provides guidance for Cities to recover lost revenue. Following ARP guidelines, Bethlehem’s 2020 revenue loss was $6.7 million dollars. ARP allows Cities to recover that revenue for the provision of government services, capital needs, and specifically recommends roads.
My proposal includes using revenue loss recovery to fund $6 million of capital needs and $3 million for road infrastructure. The purchases and projects that were postponed last year due to the pandemic can be scheduled for 2022 and 2023 with this plan.
Each year, the Administration presents City Council with a 5-year Capital Improvement Plan. This year the plan was presented to Council at a Committee of the Whole meeting on October 19th. The documents from that meeting can be found on our website.
Items in the capital plan include heavy equipment needed for our public works department, fire trucks, and projects to maintain our parks and facilities, including City Hall and renovating police headquarters.
One example of what is included in the Capital Plan this fall is a replacement for Engine 9, housed at the Northwest Fire House on Catasauqua Road, an $850,000 piece of front-line public safety equipment.
Some of you may recall this slide from a previous presentation in 2019. This graphic identifies our 4 fire stations, their geographic proximity across the City, and the apparatus housed at each one. At that time, our fleet was becoming outdated, as you can see in the blue box. Engines are very expensive, and we needed to find ways to update the fleet.
In 2019, the City borrowed money to replace Engine 5 at the Lincoln Fire Station on Easton Avenue. In 2020, remnant cash from the 911 Center was used to replace Engine 6 at the Memorial Fire House on Broad Street. Last fall, CARES funding was used to order the replacement of Engine 3 at the Schweder Fire House on 4th Street. Engine 3 is almost built-out and being scheduled for delivery.
The Capital Plan will propose using ARP Recovery funding to replace Engine 9 at the Northwest Fire House on Catasauqua Road.
If that purchase is made, and we complete the replacement plan in 2024, the fleet will be in much better condition, as you can see in slide 25.
The capital plan includes improvements to City facilities, which includes 30+ parks, 5 pools, 4 fire stations, 2 EMS stations, City Hall, police headquarters, Town Hall, the library, Public Works buildings on Rodgers Street, Schoenersville Road, and Stefko Boulevard, our streets, lighting, and heavy equipment. These items are expensive, and must be maintained.
Unfortunately, many projects and purchases placed on the plan have been there for many years. Even when clearly needed, it can be difficult to identify a funding source, and the project or purchase is delayed or cancelled.
In my 26 years as a Councilman and Mayor, no topic has been brought to my attention more often than streets. We have a mature City that underwent tremendous growth 50+ years ago. Much of that infrastructure is now aging – the aforementioned City Hall, many of our recreational amenities, the water lines, and our road system. We have over 250 miles of streets and they need work. Unfortunately, because of financial constraints, we have not made the investment through time.
Mike Alkhal, Director of Public Works, reports a $20 million dollar back log of streets that need attention. The Federal mandate to re-do all the curb cuts have made them much more expensive to complete. These photos are from northeast Bethlehem, but can be found on the west side, south side, and center city just as easily.
Whether you are driving, walking, riding a bike, or this is the view from the front of your house, it cannot be dismissed. This proposal will provide $3 million dollars for much needed road infrastructure in 2022 and 2023.
In order to help provide and maintain capital assets throughout the City, we do receive grant funding from federal, state, and county sources, and they are identified in our capital plan.
To fund our capital needs, many years ago, the City began to issue $5 million dollar bonds every other year.
If we continue that strategy, $5 million dollars in additional debt would be taken out in 2022, 2024, 2026.
With all the improvements and efficiencies we have made during the past decade, our debt is still a challenge. S&P, the credit rating agency that has us rated A+, noted our debt as a concern. This slide points to 3 recent references to our concern for debt. I identified the issue in my 2019 budget address.
In the summer of 2019, we used cash to complete high priority projects and purchases, avoiding debt. And last fall, we deferred the traditional bi-annual policy of issuing debt to address our capital needs. At the same time, the City needs to maintain capital assets in order to function and deliver services. Deferring reinvestment is not a long-term solution.
This graph from our budget book can be found on our website. It lists the City’s debt and the payments due each year. On the far right (at the red arrow) is the total annual debt service the City must make. In 2021, that amount is $10.7 million. In 2022, it increases to $11.2 million. The next slide will make it a little easier to view.
The blue bars on this chart illustrate the debt service from 2021 to 2034. The red line has been added at $10 million dollars to give perspective. You will see the debt payments remain over $11 million through 2027 before it begins to decrease as older issuances mature and get paid off.
By 2032, it falls to $8 million, then down to $5 million dollars. The problem is that this graph does not reflect the addition of any new debt. If we continue to add debt every other year, as we have, this curve will not hold in place.
This blue bar chart is updated to illustrate what our debt service would look like if we DO continue to borrow $5 million every other year. Notice that our debt service increases to nearly $12 million a year by 2024, and over $12 million in 2026 and 2027. It remains well over $10 million through 2032.
These increased payments are another upward pressure on the general fund. This budget proposal will allow us to invest in our infrastructure without adding debt, and begin the important plan to reduce our debt.
The 3rd allocation of ARP funding in this budget proposal is $1.5 million to establish a Community Reinvestment Fund. This can provide funding to small businesses, non-profits, and housing initiatives.
Although we are anxious to distribute this category of funding, we also want to gain understanding of how best to award these funds – to prevent duplication with the Counties, and reach those most in need.
Once we gather enough information and feedback, we will build the structure needed to responsibly program the funds. There are ARP guidelines that must be met – recipients must qualify for the funds, just as the City needs to: demonstrate revenue loss, provide explanation on how they were negatively impacted by the pandemic, or how they will use the funding to respond to the pandemic.
When the programs are announced, the applications and all supporting information will be placed on our website.
The comprehensive plan that was presented to City Council for ARP funding on September 28th listed $8.5 million for the Community Reinvestment Fund, and that plan is still in place.
We felt with the change of administrations it would be prudent to propose $1.5 million to establish the fund in 2022, knowing the new Mayor can request, and Council can approve, increasing the fund as 2022 progresses and programming gains clarity.
Together we have faced many difficult decisions, and enjoyed many successes. We each have our own set of priorities, but as a municipal government it always comes down to the efficient delivery of core services.
During my tenure we have streamlined operations, refinanced debt at lower rates, expanded the use of technology, and leveraged our purchasing power to achieve better deals for energy, banking, and healthcare. Those actions have made us a stronger organization.
The strategies and plans laid out by my Administration over these past 8 years have earned consistent upgrades and confirmations from Standard & Poor’s, an international credit rating agency, and that speaks volumes.
From a BBB Stable in June of 2014, we have received 4 upgrades, to an A+ stable. It has been a team approach within my Departments, and with the support of City Council.
This concludes my final budget address. It is focused on controlling spending with a no tax increase budget, the continued delivery of essential services, maintaining critical assets, upgrading our roads, (without debt), and reinvesting in the community.
It has been a privilege, and an honor, to serve the citizens of Bethlehem for 18 years as a City Councilman and 8 years as Mayor.
Thank you, and I wish Mayor Elect Reynolds and the new members of City Council the very best of luck and great success.