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Leaders, candidates grapple with city savings balance

October 9, 2015

Can a new mayor solve the city’s saving problem?

Mayor Greg Ballard fought the Indianapolis City-County Council in July, hoping to replenish a city emergency fund in light of fears that its declining balance could lead to a drop in the city's credit rating.

And the outgoing mayor’s last $1.1 billion budget for Indianapolis, which the Council is set to approve on Monday, will be paid for using about $11 million of the city’s reserves—leaving about $44 million in tax-supported coffers at the end of 2016, or about half as much as his administration recommends.

Many are looking to mayoral candidates Chuck Brewer and Joe Hogsett to craft a long-term savings strategy as Indianapolis’ reserves continue on a downward trend.

“The entire council would like to see reserves,” said Council CFO Bart Brown. “The problem is there hasn’t been anyone that’s been able to define what a good level of reserves is. We should define it and put it in policy.”

Indianapolis Controller Matt Kimmick said Ballard has worked to mitigate budget challenges and, in 2011, created a separate $80 million emergency “fiscal stability" fund. He's also asked city and county taxing units to spend less money in recent years. The stability fund exists outside of the city's budget balance in tax-supported accounts.

The city predicts that 2016 will end with about $44 million left in the tax-supported accounts. It would have been higher, Kimmick said, had the Council not killed an effort by Ballard to eliminate the local homestead tax credit, which would have cost taxpayers' money but added another $6 million to the city’s bottom line.

However, that still would put the city's tax-supported coffers woefully under the Ballard administration's recommended account balance of about $82.4 million, or 10 percent of its expenses.

“You can always be in a stronger position,” Kimmick said. “In a perfect world, the green line exceeds the red line. What gives us comfort is we’ve still got $80 million in the fiscal stability fund. We know it’s there, but we don’t want to rely on it. When it’s gone, there’s no replenishing it.”

The city, which has a AAA credit rating from ratings giant Moody’s, got a scare earlier this year when Moody’s put the city on notice by revising its outlook to negative—usually a precursor to a downgrade. (Standard & Poor’s cut the city’s rating down to a AA in late 2013.) Moody's was concerned about the city dipping into the stability fund.

Under pressure, Ballard tried to repay the fiscal stability fund an earlier $6.8 million loan to the police department, causing a skirmish with Council members who asserted he didn’t have the authority to move the money.

Democrat Councilman Frank Mascari rebuffed the idea that the city’s credit rating is at risk. Mascari said the city should spend more of its reserve money on underfunded city services.

“We’re not Detroit,” Mascari said. “Detroit’s broke. I’m not worried about it."

But the mayoral candidates are taking the threat of a credit downgrade seriously.

Republican mayoral candidate Chuck Brewer said it's a “really dangerous” notion to assume that the city should spend all the money that it earns from taxes. He said a lower credit rating could threaten the cost of future city development.

Moving forward, Brewer said the city should consider committing to having between 10 and 20 percent of the general fund in reserves at all times.

“Part of the way we fund government projects is ensuring we have the best possible rates when we enter into bonds,” Brewer said. “Having a good credit rating is absolutely essential as a city. It can save millions and millions on projects.”

Democratic mayoral candidate Joe Hogsett agreed that the threat to the city’s credit rating could have serious effects.

“It would not be good,” Hogsett said of a possible downgrade.

If elected, Hogsett said he would seek to do a “top to bottom” audit of city spending to try to find cost efficiencies.

“We owe it to taxpayers to squeeze every efficiency before we start spending down reserves or start increasing revenue,” Hogsett said.

Republican Councilman Jeff Miller, who is running for re-election this fall, said it will be critical for the next mayor to establish a middle ground.

“I don’t want to be like the state, where there’s $2 billion sitting in reserves when we’ve got child support staffing issues and infrastructure issues,” Miller said. “I’m not a fan of that. But the question is, what number should it be so we feel that we have emergency funds if we need it, but we don’t have so much that it looks like we’re protecting a nest egg?”

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