Allentown missed budget signs: City saw falling revenues but spending plan ignored harsh reality
(Morning Call, The (Allentown, PA) Via Acquire Media NewsEdge) Mar. 29--Mayor Ed Pawlowski invited media from as far away as Philadelphia recently to hear this news flash: Allentown ended 2008 with an unexpected $3.4 million budget deficit.
Nobody could have foreseen the economic "tsunami" that would push the city into budget crisis mode, Pawlowski said at the March 17 news conference.
But actually, anyone who had been paying close attention would have seen it coming.
Despite reams of evidence, both council and administration officials ignored warnings that revenues would come in far below projections. The result was a 2009 budget with revenues that could fall short by as much as $7 million, a Morning Call review has found.
It's unclear why council and the administration failed to see the shortfall. Financial statements provided to council members each month showed that as far back as June, revenues had fallen sharply.
By September 2008, as the administration was preparing to present the 2009 budget to council, revenues were short millions of dollars compared to September 2007. By the end of November, the city had collected just 86 percent of its projected revenue, far below the level seen in past years.
"The administration knew this was happening and did not put up any red flags," said City Councilwoman Jeanette Eichenwald. "But all seven city council members, including myself, share the blame." Eichenwald said the administration's "lack of candor" about the state of the city's finances last fall has taught her a lesson.
"This is not going to happen again to me personally. I am no longer going to trust the administration's financial prognostications," she said.
In November, the Pawlowski administration told council to expect a balanced 2008 budget with $75.2 million in revenues. That figure served as the baseline for the 2009 revenue projection of $78.6 million, a 4.5 percent increase that several council members criticized as overly optimistic.
However, in 2008, the city collected just $71.5 million, which is 10 percent less than the 2009 projection.
At the March 17 press conference, Pawlowski said the true picture of the 2009 budget remains unknown because the city is seeking ways to boost revenue and cut expenses.
"We are going to look at everything," Pawlowski said. "My hope and my goal is not to have anybody lose their job in this tough economy, but I can't promise anything at this point." Pawlowski said his administration provided council with the best information it had at the time.
He said the city's budget process began in August and was based on two things: actual figures through the month of July, and historical trends for October through December.
By the end of July, revenue was significantly lower than the previous year, but those shortfalls were not reflected in the budget estimates issued in November. City Finance Director Larry Hilliard said recently that it was "too late" to amend the budget in November or December to reflect the decreased revenues.
Among the revenues that were down sharply last year were real estate transfer taxes and earned income taxes. To meet its revenue projections, the tax on transferring real estate would have to grow by 33 percent and the earned income tax would have to grow by 6 percent. That growth is not expected to happen in the recession.
Pawlowski said in a written statement Thursday, he expects revenue increases this year from a fee connected with the Sands Casino in Bethlehem, a full year of the local services tax after only getting a portion in 2008, and drug forfeiture fees, which were collected in the past but never included in the budget.
Even with the ambitious revenue projections, the 2009 budget was initially projected to have a $1.7 million deficit. That gap is expected to grow much larger.
The city denied The Morning Call's request, filed under the state's Right to Know law, to review proposed department budgets submitted before September. The city also refused to release correspondence between Hilliard and Pawlowski relating to the budget.
Given the economic downtown, Lehigh and Northampton counties projected relatively flat revenues for 2009. Easton increased revenue projections by 9 percent because it raised the earned income tax. Bethlehem projected a 1.1 percent increase in revenues, mostly from casino hosting fees, according to budget officer Mark Sivak.
To find answers to Allentown's budget crisis, the mayor and council President Michael D'Amore will lead a 17-member committee of outside experts, who will meet behind closed doors. No other council members have been named to the committee, which is expected to issue a report in 90 days.
All solutions, including layoffs, union concessions, spending cuts and using surplus money to pay for operating expenses, are on the table, Pawlowski and D'Amore said.
"We believe there is the potential to increase nontaxable revenue and reduce expenditures to offset a 2009 shortfall," Pawlowski said in a written statement Thursday. "This group will take a fresh look and assist us in the process of putting together a plan and a strategy. If the economy continues to tank, everything is on the table." City Council members, with the exception of David Howells, who did not return phone calls, all said that had the 2008 revenue shortfalls come to light during last year's budget hearings, the discussions would have focused on the same thorny issues the committee will address, only they would have been in public.
"The tone of the hearings and the topics discussed would have been much different. We would have had to make the tough decisions," said Councilman Tony Phillips, the lone Republican on council, who is expected to challenge Pawlowski in this year's mayoral election.
"I dropped the ball. I am not afraid to admit it, but we should have known the whole picture," Phillips said.
Eichenwald said had it not been an election year, the mayor might have been more realistic about the budget and more up-front with council.
"The mayor is up for election, the council president is up for re-election and that affects people's decision-making," she said.
Councilman Michael Donovan, who questioned the projections but, like his colleagues, voted to approve the budget in December, said Pawlowski ruled out a tax increase this year.
In a November meeting where solutions to fill the 2009 budget gap were discussed, the issue of tax increases was debated. "As I recall, the mayor said no tax increase in an election year," he said.
D'Amore, who -- along with two other Democratic council members -- is running for re-election this year, said politics played no role in how he analyzed the budget.
"We could've, and should've done better." he said.
But he noted that because City Council is a part-time job, council members rely on the administration for information.
Pawlowski in a written statement Friday said "politics played no role" in the budget forecast. He said his administration tried to provide council with accurate information and added that no one, including council members, wanted to raise taxes.
"It is easy to sit back in late March and criticize estimates made months ago," he said. "We're not looking to throw stones; we're intent on finding solutions." [email protected] 610-820-6539 To see more of The Morning Call, or to subscribe to the newspaper, go to http://www.mcall.com.
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