View the Mayor's 2021 Budget
View the Mayor's 2021 Budget Address
MAYOR DONCHEZ'S 2021 BUDGET ADDRESS
Mayor Robert Donchez 2021 Budget Address
November 5, 2020 9 am Artsquest
Last November I delivered my budget speech in front of 300 hundred people at the Factory. I reflected on the strong national and local economies, and highlighted the ambitious goals and initiatives we had in place for 2020. Today, we are live-streaming my budget address from the Musikfest Café in the ArtsQuest Center, with only 25 people in attendance, wearing masks, and scattered across the room. Who could have imagined what 2020 would hold in store for us? We have witnessed, and withstood, unimaginable heartbreak and tragedy at every turn. During that same time, we have had heroes step forward to help us in our time of need. We are not through it yet, but hopefully there will be positive signs in 2021 that indicate we are making progress, and a return to normalcy will begin to take place.
It was soon after the New Year that we began to hear the words that have become household terms: Coronavirus, COVID-19, Pandemic, and Social Distancing. By March it was here in the Lehigh Valley, right on our doorstep. Cities became ghost towns as we sheltered in place. Businesses closed. Supermarkets were pressed to provide basic necessities as supply chains were stretched. Hospitals prepared to fight this invisible enemy.
Inside City Hall, I worked diligently with my cabinet to take all the necessary steps to keep our employees and residents safe, while continuing to deliver all the essential services a city is responsible to provide. As we learned more each day, our policies and procedures continuously evolved. Our Health Bureau, led by Kristen Wenrich, has been invaluable during this time. I want to thank all the employees of the City for their courage, cooperation, flexibility, and focus on our mission.
I also want to take this opportunity to thank the many individuals and organizations that have donated equipment and supplies to the City. Melissa Fillman, a good friend, has made and donated thousands of masks. Wind Creek supplied gloves and disinfectant very early on when it was very difficult to find. St. Luke’s University Health Network provided hospital grade virus disinfectant, COVID killer, masks and other PPE. Chick-fil-A, Walmart, and Josh Early Candies provided food to our first responders.
Eight Oaks, Social Still and Bethlehem City Spirits donated hand sanitizers. Zulily provided 11,000 KN-95 masks. Northampton County provided PPE for unmet needs and Northampton County Executive Lamont McClure has been a true partner and very supportive throughout this pandemic.
The Federal CARES Act has allowed the Counties to provide funding directly to businesses. In addition, both counties provided grants to Bethlehem to purchase first responder equipment, PPE, IT equipment, and supported our response to our downtown community, specifically the restaurants that have been struggling during this time.
The impact of the pandemic derailed economic activity across the country and Bethlehem was not spared. Our revenues will not meet projections this year. We made a number of adjustments to reduce expenses and limit the deficit. I immediately issued a hiring freeze. Some employees were furloughed. The recycling center and yard waste facility were closed. Pools and parks were closed. Traditional summer programming was cancelled. My financial team met with each department to target specific reductions in line items, and postponed a number of planned projects.
Despite the trauma the pandemic created, Bethlehem moved forward in 2020.
Our employees remained healthy and the City remained fully functional.
Construction of Memorial Pool was put on hold in mid-March, but restarted in mid-May, and is now complete. It looks fabulous, and I am looking forward to its reopening next summer.
The golf course re-opening was delayed from March to May 1st and proceeded to set an all-time record for revenue in a month. From May to September, the course set monthly records. In August, it actually re-set the all-time record that was just set in May. All sand traps were fully renovated last off-season and playing conditions received rave reviews all summer. Last month the cart paths were fully renovated and really provided that finishing touch. Over the winter we will review plans to replace the starter’s shed with a permanent pro-shop behind the putting green, making check-in at the course safer and more user-friendly.
On August 3rd Engine-6 arrived at Memorial Fire Station on West Broad Street, the second new fire apparatus in two years. The third engine in three years will arrive next spring to replace Engine-3 at Schweder Fire Station on 4th Street.
Our new housing inspection program officially began when procedures were in place to allow for safe inspections. The Community and Economic Development Department, led by Director Alicia Karner, took the initiative to support our restaurants by providing parklets, furniture, and heaters for outdoor dining. A big thank you to our Public Works Department, led by Mike Alkhal, for building, filling, and deploying over 100 parklets in the two downtowns. Public Works, short staffed for months due to the hiring freeze, diligently maintained our streets, parks, green spaces, public buildings, and fleet of vehicles.
The Recreation Bureau partnered with our Health Bureau to run safe outdoor programming for youth across the City. The Police and Fire Departments were great additions to community engagement initiatives.
In the midst of this, Standard and Poor’s conducted a credit review in July. They analyzed our financial status and listened to our strategies for the future. They issued a report that re-affirmed our A+ credit rating, with a stable outlook.
Our strong financial position was built by developing and implementing sound financial strategies. I want to take this opportunity to thank my Financial Advisory Committee, members of City Council, and City Controller, George Yasso, for working with my Administration during my tenure to create a successful budgeting process.
2020 has certainly delivered a punch to the gut, but we have responded, and will make it to the end of the year on stable ground.
2021 will present a whole new set of challenges that will need to be met. Even under the best scenario the impact of the pandemic will continue to be with us well into next year.
The financial impact of the pandemic became clear enough by late summer, that we were able to begin running projections for 2021. Our initial budget model revealed a deficit of $4.5 million, primarily driven by two items, the loss of revenue due to the ongoing effects of the pandemic, and another increase in pension obligations.
Projections indicate that many of our revenue sources will be significantly reduced in 2021. Earned Income Tax, one of our largest line items, is subject to employment levels, and it falls when unemployment rises.
Another large line item is the casino host fee. Although Wind Creek has continued to make their quarterly base host fee payment of $2 million, the activity inside the casino is limited for safety reasons, and thus the incremental fee that is based on gaming activity will not reach prior levels of nearly $500,000 per quarter. General economic activity requiring permits and inspections, will continue to be affected, as it has been this year.
The other major factor complicating this budget is increased pension obligations. Pensions have often been the topic of concern at budget time in cities across the Commonwealth. Every other year we are faced with adjustments to our Minimum Municipal Obligation, or MMO, which is the City’s required payment into the pension funds.
In 2012, the City was successful in aligning pensions for new hires to the minimum benefit required by state law, and we hope to see some relief from that adjustment in coming years. However, this summer, when our bi-annual actuarial pension study was completed, it was confirmed that Bethlehem’s pension payments will increase by over one million dollars next year.
In 2021, our police pension MMO alone will increase by $900,000 to $7.2 million. Fire pension MMO will increase by $200,000, to $4.4 million. Total pension expense will rise to $16.2 million in 2021, which represents 18.5% of our overall General Fund budget.
Understanding the size of the projected deficit, all departments were tasked with intense cutting of discretionary line item expenses. In addition, we postponed our borrowing that was planned for 2021. Our 5-year capital plan typically includes a bond borrowing of approximately $5 million in order to complete capital projects and purchases. Bond borrowing will be postponed until 2022 when the economy is hopefully back on firmer footing.
In previous years, that would have been enough to balance the budget. Unfortunately, it will not be enough for 2021, and additional steps will be needed. During my tenure, we have streamlined operations, refinanced debt at lower rates, increased the use of tablets and technology, and leveraged our purchasing power to achieve better deals for energy, banking, and healthcare. Those decisions have made us a stronger organization. It also has made it more difficult to find incremental improvements to address budget deficits.
Due to the pandemic, we anticipate a loss of $1 million dollars in revenue in 2021 in the areas of EIT, casino activity, and economic development. Although it is not desirable to use cash balance to replace recurring revenue, I believe it is appropriate to use $1 million from our cash account towards balancing our budget in 2021. Hopefully, the effects of the pandemic, will begin to improve by the end of next year, and those specific line items will begin to return to previous levels, negating the need for ongoing cash infusions.
The continued increase in pension obligations is more concerning, as it is not a one-time event. Difficult decisions were made in order to implement the corrective action needed to flatten the curve. Police and Fire pensions have continued to increase at rates that are just not sustainable to a budget. Our revenues do not mirror the increase in pension obligations.
To offset the steady growth through the years, there have been personnel cuts across several departments that have reduced staffing to the point, it has become a challenge to complete primary functions and meet daily responsibilities. Continuing to reduce personnel in departments to offset increased costs of other departments creates a fundamental imbalance in an organization. Public Safety is the highest priority, but not the only responsibility of the City.
We spend every day providing a wide array of essential services to our residents. We need to continue operating our water and wastewater facilities, continue to maintain our infrastructure, and continue to respond to the ever-growing and diverse needs of our community.
Pensions that were promised years ago have been earned through loyal public service, but represent a significant burden on the budget of the City, not only by the size, but the rapid rate of growth. The only path to truly slow and contain this growth, without any pension reform from Harrisburg, is to adjust staffing levels. Not taking action will only perpetuate the problem.
Since becoming Fire Chief, Chief Achey has introduced a number of initiatives to improve functions and efficiencies. With the addition of two (and soon to be three) new engines, the Department is more dynamic and flexible than ever before. By reducing one position on each platoon, the Fire Department will reduce staffing, through attrition, from 110 to 106. I have the utmost confidence they will continue to provide the high level of service to the residents of Bethlehem.
Two additional positions will be eliminated from the Bethlehem Service Center. The Service Center has been successful in responding to non-emergency calls, emails, and App submissions from residents and visitors since the creation of the Center in May of 2019. Now that the Center has been in operation for a year, efficiencies have been identified, and the staffing will be reduced from 15 to 13. The Center will still be operational 24/7/365 days a year.
The six personnel reductions between the departments will save $500,000 each year in salary and benefits, and just as importantly help control future pension obligations.
The City’s workforce will drop from a high of 670 in 2010 to 588 during 2021, which will be the lowest in many decades. In order to close the remaining gap and balance the budget, I am proposing a .92 mil (5%) property tax increase for 2021. For a home assessed at $50,000, that would equate to a $46 per year increase.
The budgeted General Fund Revenue for 2021 is $87.4 million. Real Estate Tax remains the largest revenue component at 36.7%. Federal, State, and County Grants account for 13.5%.
The General Fund Expenses are set at $87.4 million to balance the budget for 2021. Note that personnel expense is the largest portion of our budget at 76.4%. The Police Department is the largest in terms of employees and dollars, at 154 and $25.4 million, respectively. As a group, our Public Safety Departments (Police, Fire, and EMS) will cost $44.0 million to fund in 2021.
2020 has been, by far, the most difficult year of my 7-year Administration. I know you join me in that thought and I hope and pray that we will turn the corner in 2021.
I would like to conclude by acknowledging and thanking all the sponsors, residents, businesses, educational and medical institutions for their support, cooperation and patience. The partnerships that were created in the past with the Chamber, the DBA, Lehigh University, Moravian College, Northampton Community College, East Stroudsburg University, BASD, St. Luke’s University Health Network and Lehigh Valley Health Network, just to name a few, have proven unbreakable in 2020. In addition, my administration will continue to support the business and restaurant community the best we can.
As a part of these efforts, I have decided to extend the use of the parklets until December 4th. During the week of November 16, I will reevaluate the use of parklets and future weather projections. If the outlook is positive, parklets will be extended through December 31, 2020. It is also my goal to make the parklets an annual event. I believe it adds a lot to our downtowns. Again, depending on weather, I will look to tentatively bring the parklets back in late March or early April.
This past October 7, 2020, I had the privilege of swearing in the first female Chief of Police for the City of Bethlehem, Michelle Kott. I am looking forward to working with Chief Kott and I believe she will do an outstanding job for the residents of Bethlehem.
The future of Bethlehem is bright, but we need to battle though this pandemic and hopefully, in late 2021, return to some sense of normalcy. I thank you for watching my budget address and I hope to see you on the streets of Bethlehem during the holiday season. Please stay tuned for my State of the City address in 2021.