City Manager Ken Tsuchiyama said there are several employees present that are concerned about their employment and the conditions of their employment and that is understandable. He said that the City is facing the most challenging times it has faced in the past quarter century and that management is forced to do many things it would prefer not to do. He outlined the evening's presentation and began a PowerPoint presentation (attached).
Mr. Tsuchiyama presented background information on the State of Michigan's economy and challenges facing other cities. He said Grand Rapids is facing a $27.43 million shortfall and plans to eliminate 125 jobs including 44 police and fire department personnel. He noted that most of the information about other cities highlight cuts in police and fire because this is a typical focus of media, which is the source of the information he is summarizing. He said that Lansing is discussing furlough days with their unions. Kalamazoo is focusing on the issue of retiree health care. He said the issue of reducing retiree health care expenses is an area that the City of Battle Creek can be proud of as the City dealt with the Police and Fire pension issues a few years ago. He said that there are many reports and articles about these issues across the state and that he will provide it to Commissioners if they want it.
Comm. Sullivan asked about comparing budget shortfalls among cities in relation to overall budget. Mr. Tsuchiyama explained that Battle Creek is facing $700,000 for the current year and $2 million shortfall for the next fiscal year. He said Midland's budget is smaller so its shortfall of $4.7 million has a higher impact. On the other hand Grand Rapids budget is huge. Overall he said other cities are taking a harder hit.
Mr. Tsuchiyama said that it is going to take a long time for the State to get their financial situation turned around and that the City of Battle Creek can't wait for this. The City must continue to manage its resources in a strategic way. The City's financial challenges are not just a result of the state economy, but also the national economy. He said that the recovery has been slower in Michigan and the Midwest and that it is likely that things will get worse before they get better. He said it is important to keep things in perspective and that Battle Creek is better off than other communities. He said potential investments downtown and business opportunities look positive for Battle Creek. He said there is real potential to create a more diversified local economy that develops an educated and tech savvy work force. He said that United Solar's primary customers are European and that there are signs that investment from overseas is coming around for that company. He said business for Toda America, a Japanese battery manufacturer, is looking up as well. Other Michigan communities are not seeing positive signs such as this.
Mr. Tsuchiyama said it is important to realize that the City of Battle Creek is a major employer in this community and that when the City lays off people it has the same impact on the community as any other employer. He said stabilizing the local economy is two to three years away. Comm. Sullivan asked how many city employees there are. Mr. Tsuchiyama answered about 574 and said that this is more than some factories at the industrial park. He said the work force is very diversified and specialized due to the diversity of services provided. He said the City needs to balance cost reductions in a way that doesn't gut the organization. He said that the City needs to be viewed as a partner in the community and that projects, such as the downtown transformation, means the City needs to be at the table with resources to support community projects. Cuts without consideration of impact on the organization could result in the City becoming an anchor when it comes to important community projects.
Mr. Tsuchiyama recapped the past decade of cuts that the City has taken beginning with the closing of the Kellogg Company south plant which reduced the City budget by over $4 million. This was the beginning of staffing reductions that have continued nearly every fiscal year since. He said that in some fiscal years the overall budget has increased, but not at the rate of the consumer price index. He said there have also been years when the City needed to tap into fund balance. He said for the current fiscal year the budget was approved with $2 million in realignments. He said 23 positions have been eliminated, reducing the total work force by 4%. Today, he said, the City has a $47 million general fund expenditure budget with a $5.8 million fund balance. He said that this fund balance could get used up very quickly in the event of a natural disaster or emergency so it is important not to spend it down further. He said over the past 11 years, 56 positions have been eliminated; 15 were management level positions and 41 were non-management.
Mr. Tsuchiyama then turned to problems in the current and coming fiscal year .He said that state shared revenue has been reduced by $700,000 for the current fiscal year, which requires a budget adjustment. He said it is too early to predict income tax revenue for next fiscal year, but logic says it will down. He also said it is safe to assume that the reduction in state shared revenue will continue and that property tax revenues will be down. He said that the community foreclosure rate is about 2% and that residential and commercial property values are declining.
Mr. Tsuchiyama said that pension funds have not yet recovered from the market losses in 2008 and that the City will need to budget additional resources to fund this in the coming year. He said much better numbers will be available in mid to late March for next fiscal year. Mayor Baldwin asked if there was a rough number of what the additional pension funding will be. Assistant City Manager James Ritsema said the estimate is about 1% as a percentage of payroll and that this could be approximately one mill for Police and Fire Pension Fund, however the City is still working on projecting payroll costs for next year. Mr. Tsuchiyama said that unfortunately hard numbers aren't available tonight, however the City can't wait until they are to begin the budget discussions.
He said that this crises will require structural changes, not quick fixes. He said that he has challenged staff to look at things differently because things cannot stay the way they exist today. He said significant changes are needed to have a sustainable organization. He said the priority is on minimizing job losses but that everyone will need to help. Employees will need to participate, as well as other community partners. He called for greater collaboration with school districts for transportation for example. He said staff is looking for ways to better collaborate across department lines.
Mr. Tsuchiyama said there is some good news. The City received a refund from Blue Cross Blue Shield of $172,000 because the City's actual costs were below what was projected. He said Delta Dental has also indicated a refund is coming, although a smaller amount of about $10,000 is expected.
He said that three recent retirement vacancies will not be filled, including a police detective, a police records operational representative, a police sergeant. There are a few other retirements that are anticipated and that some of these would result in elimination of positions. In addition, staff is recommending eliminating four positions through layoffs including: a purchasing buyer, a part-time finance clerk and two neighborhood organizers. He said that the neighborhood organizing layoffs were proposed during the last budget process and that these employees have been in limbo ever since. He said this work is nice to do, however the city can't continue to do everything it is currently doing. He said even if the city weren't looking at this now, they would probably be included in recommendations for the budget beginning July 1. He said that the City is looking at contracting for park maintenance with Cereal City Development Corporation, which currently provides some maintenance already. That change would not result in any layoffs but would significantly reduce the seasonal staff payroll. He said there would also be overtime savings as a result and allow for reassignment of full-time employees to support downtown transformation work. The Downtown Development Authority would cover salaries of employees dedicated to downtown work.
Mr. Tsuchiyama said he is recommending furloughs for all employees, including himself and the City Attorney. He said the furloughs would be one day a month for the last quarter of the year. He said looking to next fiscal year, further service reductions are likely. He said that he will continue to attempt to minimize layoffs, but can't avoid having any. He said other payments to employees, including longevity and educational incentives are likely to be cut. The cooperation of bargaining units is critical, he said because so much of the City budget is personnel. He said the bargaining units have been cooperative and understand the severity of the situation. Comm. Gray asked what percentage of the work force is represented by unions. Mr. Tsuchiyama said that about 90% of the work force is represented and 10% is non-represented.
Mr. Tsuchiyama said that staff has looked at every single service provided. The preliminary chart is huge and that staff is still working on the detail of this, including defining what is mandated and what is discretionary, which services are common across department lines, and what costs are associated with these. This is a massive undertaking involving business process review. He said this will not likely be completed for use in developing the budget for the coming fiscal year, but will be useful for the budget years following.
He outlined next steps including a resolution for action on the proposed mid-year reductions to be presented to Commission in February depending on reactions to the plan tonight. He said implementation of current year budget reductions will be immediate following approval. He said development of revenue projections for next fiscal year will be done in March and that a budget recommendation would be presented to the Commission at late April or early May workshops. A budget hearing and budget adoption would be scheduled by the first meeting in June.
He then asked if there were any questions. Comm. Morris asked if management is asking or telling non-represented employees to take furloughs. Mr. Tsuchiyama said management is directing this. Comm. Morris then asked about represented employees. Mr. Tsuchiyama replied that contracts allow for implementation of this without bargaining. Comm. Morris said that a message is being sent that everyone is in this together. He then asked about overtime. Mr. Tsuchiyama said that overtime is different for each department, however for police and fire it is a considerable issue because of the size of the departmental budgets and the nature of the work. He said managers in these areas have had ideas that are being reviewed. He said the importance of reducing overtime costs is that it reduces pressure for layoffs. Comm. Morris then asked for clarification of retirement payoffs in terms of using vacation time for final annual compensation. Mr. Tsuchiyama said that this issue has been addressed to eliminate the use of vacation balances for pension compensation purposes.
Comm. Morris asked Mr. Tsuchiyama's opinion about a reward process for employees that come up with money savings ideas. Mr. Tsuchiyama said the City tried to implement a reward system previously and that the City has to be very careful in respect to compensation because of bargaining rights. He said there was pushback from the previous system and that it was eventually let go because the ability to get that reward was nearly impossible for employees to achieve. Comm. Morris asked if management could work with bargaining units on rewarding money savings ideas. Mr. Tsuchiyama said that this discussion would need the full commission's involvement and that these reward systems are often not well received when implemented in the public sector.
Vice Mayor Simmons said in past years there have been opportunities presented to employees who have been displaced by position cuts by considering them for other vacancies. He asked if there would be efforts to do this again. Mr. Tsuchiyama said yes and that there are minimum qualifications that must be met for employees to qualify for a position transfer. He said there are some vacancies out there and that it will depend on the individual interest in doing this as well. He further explained that employees being reassigned from maintenance at Bailey Park to downtown will retain their positions and salaries, just the funding source will change to the Downtown Development Authority. In some cases, they will be reassigned elsewhere in the department, and shift other individuals to downtown.
Vice Mayor Simmons said he works for the state and he just learned today that state employees are being asked to take 10 furlough days in the next few months. He said he is glad the City is looking at this, but that this is not a long-term solution and it shouldn't be relied upon.
Comm. Gray asked for clarity on the $700,000 shortfall and what savings are related to retirements and position cuts. Mr. Ritsema said the four proposed layoffs would save $48,000 in the final quarter and that next year would show a full year of savings. Retirements and the resulting eliminations would save $104,000 for the current fiscal year. To clarify the mid year reduction plan, Mr. Tsuchiyama wrote the following equation on the white board: $700,000 shortfall less $172,000 (Blue Cross Blue Shield rebate), less $10,000 (Delta Dental rebate) equals $518,000. This amount less $265,000 (furlough savings) and $100,000 (savings by contracting park maintenance) equals $153,000. This amount less $50,000 (rounded up savings from layoffs of four positions) and $103,000 (savings from pending retirements) reaches to the total expenditure reduction needed to offset the $700,000 revenue shortfall for the current fiscal year.
Comm. Sullivan said that the Veterans Association employees worked out a merit pay system that may serve as a model. She asked how much savings is represented by the suspension of longevity and education incentives. Employee Relations Director Russ Claggett answered that savings would be $340,000 citywide for longevity alone. Mr. Tsuchiyama said that education incentives represent a much smaller expense. Comm. Sullivan asked whether paying overtime saves the cost of hiring an additional person. Mr. Tsuchiyama said that it is a matter of finding the balancing point between overtime and full-time staffing, but that the current focus is on reducing overall costs and the reasons for the overtime in the first place, not just doing the same work more efficiently. Comm. Sullivan asked if the strategy couldn't include a new reduced employment package for new hires. Mr. Tsuchiyama gave an example of paying a seasoned employee $50,000 base pay and $15,000 overtime. Hiring a new employee at a lower base rate of $40,000 would save $15,000 in overtime, but the total cost to the department would still be higher. He said these type of adjustments can't get the City to the $2 million cost reductions needed because the savings are so small.
Comm. Yankama asked about seeking grant money. Mr. Tsuchiyama said that there was a concern about hiring new employees and then having to lay them off when the grant money ran out. Instead, management identified five senior level officers whose retirement dates would correspond with the expiration of the grant funds. This resulted in position eliminations without laying off individuals. He said repeating this cycle is a possibility that is being looked at in terms of strategic grant seeking.
Comm. Hersha said he has more questions than he wants to ask tonight. He asked what the timeline is for a resolution. Mr. Tsuchiyama said that the goal is to present this at the next regular Commission meeting. Comm. Hersha said to expect emailed questions. He said that he gets very nervous when he hears talk about contracting out services. He asked what is known about how Cereal City Development Corporation (CCDC) would work with employees. Mr. Tsuchiyama said that the compensation offered by CCDC would be pretty comparable to what the City has offered seasonal employees, which tends to be low on the wage scale relatively speaking. Comm. Hersha said he'd like more information on what we are expecting of our employees downtown. Mr. Tsuchiyama said there is a wide disparity of opinions on the current level of maintenance downtown. Comm. Hersha said that he does not intend to sound negative and that he recognizes this budget situation is very difficult. Mr. Tsuchiyama said that he urges the City to consider the changes that have been made and the city overall, not just management versus front line. He said 20% of the management level staff has been eliminated and that he believes there has been equity overall. He personally does not see this as management versus non-management, as they are all employees.
Comm. Gray asked whether the same level of management needs to exist when front line positions have been selected for elimination. Mr. Tsuchiyama said the City can't just exchange management retirements savings for the layoffs recommended in the current fiscal year, because of the pending $2 million problem. Comm. Gray clarified that she wanted to know about the managers specifically of the employees recommended for layoff and whether analysis was done to determine they are needed at the same level if they are responsible for fewer people. Mr. Tsuchiyama said the City does not have enough work for two buyers, but may have more work than the remaining buyer can do, therefore the purchasing agent may need to pick up the slack. He said in that example the purchasing agent will be managing one less person, but will be doing more work. In Finance, he said the work being done by the part-time position is going to have to be absorbed by others in the department, however there are enough staff in that area that reducing management staffing is not a reasonable action. Comm. Gray said she isn't suggesting that specific managers be eliminated, she just wants to know how it all fits together in relation to Mr. Campbell's comments at the beginning of the meeting about balancing managers and front line staff. Mr. Tsuchiyama said there are five managers that are going to retire and that the City is going to need to do some reorganizing to adjust. He said some of the managers that remain will likely end up with more employees than they have now because not all positions will be replaced.
Comm. Gray said the last time the idea of eliminating neighborhood organizers came up, the idea also was raised to contract with Neighborhoods Inc. to do that work. She asked for an update on that idea. Mr. Tsuchiyama said that he prefers the term neighborhood outreach and that previously Neighborhoods Inc. was providing outreach services and since then a change in the executive director and some staff vacancies prevented the organization from providing that service. That organization now has an interim director and has recently re-committed to providing outreach work. He said in the current fiscal year the Commission had authorized up to $60,000 for outreach work by Neighborhoods Inc. This hasn't been paid because the work wasn't able to be done. He said that the City's annual contract with NIBC will be up for discussion at the next regular commission meeting and that contracting for more outreach service may be part of the long term solution.
Comm. Thompson said that management has already shown great leadership in terms of taking on additional work and taking pay reductions. She said she would hate to see this turn into a management versus front line employee discussion.
Vice Mayor Simmons asked about next steps to resolve the shortfall for next fiscal year. He said the reason he asked is that in the past solutions have been presented and that when commissioners have questions they are accused for micro-managing, which he doesn't want to do. He said he hopes that as the policy making body the Commission is given more opportunity than in the past to participate in the solution. Mr. Tsuchiyama said that commissioners who have been on the board for a long time know that the budget process has been presented in many different ways. He said he welcomes commission input anytime, whether privately or publicly. He said his preference is an update in March, but that timing depends on revenue projections. Vice Mayor Simmons asked if that would be a good time to raise suggestions. Mr. Tsuchiyama said he would welcome suggestions now, or at any commission meeting, or any time in between and the earlier the better.
Mayor Baldwin said she is hearing that Vice Mayor Simmons wants more than a list of ideas, he wants discussion of those ideas. Vice Mayor Simmons said it seems that in the past solutions are just presented. He said he recognizes that the City Manager is hired to do a job and he respects that, but that with a problem of this magnitude it is all hands on deck to come up with a solution. Mr. Tsuchiyama said the earlier suggestions are brought up than the more time staff has to analyze the savings and impact. He said if Commissioners want time to do that he can add a workshop in late February or early March. He said part of the reason commission is presented with a budget recommendation is that it is the city manager's job and he takes that very seriously.
Mayor Baldwin asked if there was interest in setting service priorities. Vice Mayor Simmons said he does not see the commission nit picking each individual position, but that he does see the commission involved in a 40,000-foot view. Mr. Tsuchiyama said his plan was to present a status in March along with ideas staff has for reductions. He said he has no problem adding a step in early to have a conversation around vision and priorities.
Comm. Yankama said he sees things a little differently. He said he called Mr. Tsuchiyama's office last week and he wanted to know the approach and was told that the plan would be presented at the workshop. He said he would prefer the information in advance so he can research it and come to meetings with questions.
Comm. Morris said he thinks everyone agrees that public safety is a priority. He said he would much rather see more police and firemen out there, with less overtime. He said the impact on the local economy of having good paying jobs needs to be considered. Mr. Tsuchiyama said that was exactly his point when he said that the City is a major employer in the community. He said that given the lack of revenues, the City has to make serious cuts.
Comm. Fulton said that the leadership team has taken cuts and shown leadership. She asked if the ideas that are presented to management from employees could be shared with the commission. Mr. Tsuchiyama said he would be willing to provide them in a manner than respects some employee's desire for anonymity.
Mayor Baldwin asked new commissioners whether they felt ready for a 40,000 view discussion, given the extra work this additional workshop would present staff. Mr. Tsuchiyama said that the ability for staff to focus on an additional workshop depends on how quickly the commission moves on the current year strategy. If a resolution is approved at the first meeting in February he doesn't see a problem with an additional workshop. He said there are a few logistical challenges as he and Jim have a conference in the second week of February and a trip to visit bond agencies in Chicago that month as well. Comm. Sullivan suggested that commissioners voice their comfort level with the current year reduction plan. She also asked if in regards to scheduling furloughs if staff can schedule it across more than one pay period. Mr. Tsuchiyama said if the commission approves furloughs, he would be working within departments to implement this. He said minimizing service disruptions will be a consideration.
Mayor Baldwin asked for commissioner consensus on whether an early workshop should be scheduled or not. General discussion ensued with general agreement about adding a workshop. Comm. Thompson suggested the Mayor, Vice Mayor, City Manager and Assistant City Manager meet to discuss a workshop date and format. Mr. Tsuchiyama agreed to schedule this.
ADJOURNMENT
The meeting was adjourned at 8:10 p.m.
ATTACHMENTS
Copy of the PowerPoint presentation made by City Manager Ken Tsuchiyama
 |