It appears Fort Wayne’s financial belt-tightening has only just begun.
Thanks to healthy cash reserves, the Summit City has so far avoided much of the pain imposed on Indiana counties, towns and schools by the property tax caps added to the state’s constitution in 2010. But the harsh realities of annual budget deficits and declining tax revenue will make Fort Wayne's current spending levels unsustainable without changes, City Council heard Tuesday.
City Controller Pat Roller said the city will face a deficit of between $3 million and $6 million in its 2013 budget and likely each year for the foreseeable future, forcing spending cuts, income tax increases or a combination of measures.
"Our citizens have kind of grown to expect certain services," Roller said. "The question is, what are citizens willing to pay for?"
A panel of fiscal policy experts convened by Mayor Tom Henry earlier this year presented its initial findings to council Tuesday evening.
Henry launched the study largely to examine how Fort Wayne ought to cope with property tax caps that were added to the Indiana constitution in 2010 and have reduced the city's overall tax revenue by about $13.5 million each of the last two years. That impact is likely to be even greater next year as more property owners hit the caps, which limit taxes to 1 percent on homes, 2 percent on commercial property and 3 percent on farms.
In a report, the study group outlined a variety of options available to the city, including a new local income tax, fees for services provided by the city, deeper spending cuts and at least a dozen more complex measures.
"Is it a crisis? I wouldn't call it a crisis," said John Stafford, director of the Community Research Institute at Indiana University-Purdue University Fort Wayne. "Will it involve some pain? Yes."
Along with the annual budget deficit, which Stafford described as a “structural gap,” the city faces a huge $65 million backlog of unfunded street work and a rapidly shrinking amount of state gasoline tax funds to pay for it.
According to the study group’s report, Fort Wayne’s cash reserves stood at about $25 million at the end of 2009 but shrank to about $17 million by the end of 2011. Roller said the city has tapped its reserves to pay for a wide range of expenses including upgrades to the Citizens Square building, the removal of dead ash trees and half of a $1.4 million city-county plan to streamline the land-use permitting process.
“We’re spending down that reserve, and there’s a certain amount you need to have,” Roller said. “We have put a lot of money into unexpected expenses.”
Roller said she hopes the city can come up with solutions for the deficit in time for the 2014 budget process, which will begin in fall 2013.
The annual budget gap could be as much as $6 million even if the tax caps’ impact levels out, Stafford said. According to estimates by the state’s Legislative Services Agency, the impact to Fort Wayne may increase next year, with the city collecting about $17 million less in tax revenue than it otherwise would have.
At the same time, Fort Wayne would need to spend at least $12 million annually to make a dent in the backlog of street work, but the city likely will not be able to spend even $8 million on those projects this year, Stafford said.
Adding another local income tax would give council at least one way to reduce the impact of the property tax caps. But Councilman John Crawford, R-at large, said any plan to close the budget gap also ought to include cuts.
“I think, myself, a big storm’s coming in the next few years, and we should keep spending down as low as possible,” he said.