The city council will be presented with a first draft of the FY2018 budget, as well as a plan to restructure the city's debt on during Tuesday night's meeting
PETERSBURG — The Robert Bobb Group will present the Petersburg City council with a first draft of the Fiscal Year 2018 budget tomorrow night. The task of creating the budget was made trickier given the city’s ongoing financial crisis.
“Typically what happens when you do any sort of analysis, you look at historic trends: you look at how expensive a typical month is,” said Nelsie Birch, a consultant with the Robert Bobb Group. “You do budget planning based on trend analysis. The problem is, it’s been very hard to determine what a normal month [for Petersburg] is.”
Because the city has held invoices and not paid them in a timely manner in the past, there is an atypical spike in spending in certain months, which makes projecting future budgets more difficult.
Birch is also the only one currently working on preparing the budget full-time.
“There is no one in house right now looking at budget analysis,” Birch said.
The city will be looking to hire a budget analyst in the upcoming months.
Birch added that the city is looking to avoid anticipating big revenues, saying that there “isn’t going to be a windfall in the next year”.
“Government must be restructured to provide the services the citizens need, but not to count on the revenues coming in,” she said. “At the end of the day, it’s revenues and expenditures, and they have to balance.”
Because of mismanagement, city financial records are somewhat inadequate. When Birch and the Bobb Group were preparing amendments to the FY2017 budget in January, they had to prepare it using only excel spreadsheets. Though this time around, they had more manageable ways to put together the budget.
In addition to the budget, the city is working on restructuring its extensive debts. Davenport and Company has prepared a plan for the city to reconfigure its debt, in part to make it more manageable.
“It’s basically taking the $5.5 million dollar annual debt service obligation that would start to fall off very steeply in about three years, and instead of doing that, it remains flatter for longer,” said Interim City Manager Tom Tyrrell.
Davenport’s restructuring turns the debt service payments into a “house mortgage style repayment.” The current debt service plan would have the city paying a little over $5 million a year for several years. The revised plan makes the timeline longer, with the city paying around $3.5 million a year.
“It frees up about $1.5 million a year in cash,” said Tyrrell.
In total, approximately $8.9 million will be freed up in the next 5 years, which the city can use to repay its remaining unpaid obligations. The extra cash will also provide flexibility when preparing budgets for future years.
By spreading out the debt payments, the city also hopes to buy more time to get its bond rating back up to investment grade. Currently, Standard and Poor’s has the city rating at “BB” with a Negative Outlook. The rating is below investment grade, and is the lowest of any local government in the commonwealth. In its most recent report, S&P stated that “the current long-term rating is constrained by our view of the city’s very weak liquidity based on diminished market access, and very weak management conditions that resulted in an ongoing structural imbalance”.
Raising the S&P rating will make it easier for the city to access capital markets without raising its overall debt service.
The plan will also allow the city to rebuild its fund balance more quickly, which is a key consideration for the credit rating agencies. The fund balance, which officials describe as a “rainy day fund” is currently at negative $6 million. Based on the city's financial policies adopted in 2014, the fund balance goal is approximately 10 percent of operation revenues. With the negative $6 million, the city currently does not meet that goal.
•John Adam may be reached at firstname.lastname@example.org or 804-722-5172.
After the printing of this story, the City of Petersburg announced that the FY18 budget presentation, originally scheduled to be a part of the March 21 city council meeting, will be moved to a date and time to be determined during the meeting.