Manhattan officials present flat mill levy, discuss employee raises, new revenue

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Manhattan officials Tuesday discussed new revenue, increasing cash balances and rising debt service in a broad budget overview.

Manhattan City Commissioners Tuesday discussed the proposed 2021 budget in a remote city work session. Currently, the city is holding property tax in the proposed 2021 budget to a flat mill levy of 49.79 mills. Manhattan is budgeting for zero dollars worth of capital improvement projects in the general fund. An estimated 1 percent property valuation growth in Riley and Pottawatomie County is expected to contribute an extra $291,438 in revenue, raising anticipated property tax collections from $29.14 million to $29.44 million.

Though the amount budgeted may need further reduction if shortfalls continue into 2021. Manhattan, like the rest of the nation, has taken a financial hit due to COVID-19 related shutdowns and increased costs in response. Officials expect an up to $3 to $8 million dip this year and are unsure what to expect going forward. In response to the revenue drop, Manhattan has cut or offset $3.9 million in costs and is working to identify an additional $3.5 million.

Current reports indicate Manhattan has seen a 15 percent drop in sales tax revenue from March of ’19 to ’20 and Riley County has received 93 percent of property tax payments — 2 percent lower than usual this time of year. But a 6 percent unemployment increase in the area from April ’19 to ’20 has mayor Usha Reddi concerned whether the picture will look any better in ’21.

If approved as is, owners of residences valued at $200,000 can expect an annual property tax bill in 2021 of about $388. Commercial properties valued at $500,000 can expect an annual property tax bill of about $2,112 per year. That doesn’t factor in bills from Riley County and USD 383.

“I think we’re kind of headed in the right direction,” says Commissioner Mark Hatesohl. “I just can’t be part of a property tax raise on businesses that federal, state and local governments have asked […] to close and make their lives harder.”

“If there was some way to raise the property taxes on the big box stores and the grocery stores that made bank over the last couple of months, I’d be in favor of that.”

Deputy City Manager Jason Hilgers says the additional $290,000 is currently slated for commitment to the bond and interest fund with increased debt service payments expected around 2024.

“We’re just over 4 and a half mills in our bond and interest fund,” says Hilgers. “We’ve been as high as 8 and 9 mills in the bond and interest fund because you have peaks and valleys of this debt.”

“We’re clearly in a pattern that we anticipate in the next 3 or 4 years that debt limit is going to start creeping back up to a point that’s going to require a higher participation either from additional sales tax from somewhere or property tax.”

The city will also need to make up for an additional $1.2 million in expenses for 2021, which Hilgers says staff will elaborate on further at the next budget discussion. He says if offsetting revenue cannot be identified, the cuts needed to make up for those costs would noticeably impact city services.

The proposed 2021 budget does not include cost of living adjustments (COLA) or pay raises for city employees, though Hilgers says they are waiting to see RCPD’s budget before committing to that.

The Riley County Law Enforcement Agency board published a $22.1 million dollar budget, flat with 2020, but still including step and merit raises. Deputy City Manager Jason Hilgers says their decision on employee wages is pending the Law Board’s final decision, indicating they’ll follow the police department’s lead in seeking to work balances internally if possible to accommodate raises.

“If a flat mill levy means if you can pay your people, pay your people, then that’s the direction we’ll go off,” he says. “But if a flat mill levy means no pay increases, then we’ll go down that path as well.”

Mayor Usha Reddi says though the service provided by RCPD is essential, it’s an issue of fairness and equity.

“We want to retain the staff, but at the same time we’re not in a position to give raises,” says Reddi. “Mainly because we don’t know what 2021 is going to look like.”

Mayor Pro Tem and Law Board member Wynn Butler has advocated for RCPD to cut raises and further cut its budget, reducing the city and county’s financial commitment. He questioned providing raises for RCPD if it means the city has to cut employees to cover the cost.

“Who’s taking the risk here?” says Butler. “Are we all in the same boat or not?”

The Law Board will continue its budget discussions in a special meeting Friday at noon.

In the face of budget uncertainty, Hilgers says commissioners will need to consider whether Manhattan can provide services at the level it previously has. City officials are looking to create a strategic plan to help prioritize cuts in such circumstances. Administration have previously looked to Lawrence’s 4-tiered ranking of city programs and services as a benchmark. Staff says a strategic plan, developed with public input, would make apparent what first to cut during down financial years and make the process transparent as well.

Multiple commissioners expressed support for the plan, with previous discussions touching on whether to do so in-house or via a consultant. Commissioner Linda Morse asked that City Manager Ron Fehr and Hilgers do some internal analysis of Manhattan’s operations to give the body a starting point.

“I encourage the city administration to review those and make some recommendations to us,” Morse says. “Rather than us just kind of flailing around taking a stab at this one and that one.”

Additionally, administration is looking to increase general fund cash balances to better withstand crises. A city memo has called the fund Manhattan’s most exposed. For a city of its size, national standards by the Government Finance Officers Association recommend Manhattan carry a balance of nearly $9 million cash in the fund. Manhattan holds about a third of that at $3 million. Hilgers says a higher balance would make sudden shortfalls or expenses less of a hardship.

“If we had a higher cash balance, there’d be less anxiety,” says Hilgers. “There’d be more assurance about where we are headed financially.”

Commissioner Aaron Estabrook says he makes a good case, but questioned whether it can happen this year.

“It’s hard to build up those cash reserves when you have austere revenue conditions — it’s probably hard any time,” says Estabrook. “I hear you, I just don’t think that that’s… It’s not going to be easy. It needs to happen, but it’s not going to be easy to put money away like that.”

Commissioners also talked ways to bring in new revenue. City income had already plateaued of late prior to COVID-19, which has ramped up the pressure to find new funding sources for Manhattan.

Morse pointed to short-term rentals like AirBNBs as a potential source, advocating extending transient guest taxes to such properties. She says she believes there are numerous property owners holding their units for such uses around Manhattan.

“That industry is just growing and growing and we continue to not receive revenue,” Morse says. “We are punishing the hotel business and rewarding the short-term rental business and it’s all over this community.”

Butler, though, questioned that approach. He instead saw potential in implementing a user fee for the new recreation centers co-located at the USD 383 middle schools. Butler says the city could consider creating a pass that covers all Parks and Recreation facilities including Sunset Zoo, the pools and Discovery Center, raising the idea of different rates for city and non-city residents.

“I know people aren’t going to like that, they’re not going to want to pay a fee,” says Butler. “But at a certain point, with that $9 million [Parks and Recreation] budget I think it’s worth investigating.”

“We did it with the pool passes, we tried to keep them reasonable [and]didn’t put in what it would actually cost to break even,” he says. “But at least something to offset that.”

Estabrook says if considered, the city needs to find a fee structure that is mindful of potential burden to lower income residents. Fehr says a re-evaluation of Parks and Rec. cost recovery practices could be looked at.

Butler also says Manhattan will have to keep a close eye on outside agency funding due to their reliance on transient guest tax revenue, which has taken a major hit, saying funding cannot continue “business as usual.” He also questioned whether planned utility rate increases will be possible. Morse did so as well, though expressed support for the projects and flood mitigation efforts those dollars will support.

Manhattan’s next budget session is planned for June 9. A public hearing on the budget is slated for August 4 with final approval planned at the August 18 meeting.

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Nick McNamara

Local government reporter, sometimes host/producer of the KMAN Morning Show. 2017 Long Beach State graduate in Journalism/Native American cultures. Los Angeles County born and raised. Nick can be reached at Nick@1350KMAN.com.

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