By a unanimous vote, the Marion City Council on Monday approved a 6.2 mill increase for its 2015 budget.
City Administrator Roger Holter said the main expense is the debt service, which is slightly more than $5 million.
In dollars and cents, Holter explained the mill increase is equivalent to about $40.61 a year for an average homeowner.
While most everything else was lowered in the 2015 budget, paying out $505,000 this year in principle and interest payments and next year $450,000 is quite a hit, he said.
?This year, (the city) was projected to spend down every bit of money in our reserves,? he said. ?We stopped that train and should be able to come out at the end of this year with some reserve.?
Since 2009 at the peak of the financial crisis, Holter said the city?s economy experienced an inflation rate of 8.4 percent while ad valorem city taxes (taxes on real and personal property) have only increased 3.1 percent.
The Marion School District increased its mill levy more than three times as much as the city and Marion County more than twice as much as the city.
?Unfortunately, this means that some of these actions required funding of services by spending (cash) reserves and borrowing through general obligation bonds.?
Pulling back on projects
Holter said next year the city is not planning to do capital improvement projects.
?We have been on a progressive pace,? he said, ?so we are pulling all of those back, except for electrical lines.?
The reason for not holding off on this is because we have only two substations?one near Marion Elementary School and the other near the city building in the valley.
?What runs those (substations) are the big transformers which are no longer available and cannot be rebuilt.?
It puts the city at risk, Holter said, because if ever a lightning storm knocks out one of those transformers, it would take half the town down in one of those two locations.
?This year we are spending $970,000 on capital improvements and next year, the city will spend $200,000,? he said.
The money not spent in 2015, Holter added, would basically be held for reserves to build back up that cushion.
With more than $5 million in bond and loan debt, Holter said, the city has payments that have increased.
?In the past, we paid the debt service out of raising utility rates,? he said. ?There is not the margins to be able to do that, and the council (in work sessions) said that basic philosophy is not how we want to run (the city?s) business.?
According to Holter, the city should be competitive on its utility rates.
?We want to truly and fairly represent what the tax base should be tied to,? he said.
Regarding the mill increase in 2015, the reason is for the debt service on the $1.2 million in street improvements in the city, he said.
?The total project was $1.2 million and the city pays $70,950 a year (on this debt).?
Councilor Chad Adkins asked Holter if the Bown-Corby building sells, could money from that be used to retire some of the debt.
Holter said, yes.
In general terms, Holter said the debts include the $1.2 million for street improvements and putting in a new water purification system.
?This was a necessary expenditure because with our source being blue algae blooms, the system we installed address 100 percent of any issues we have with that,? he explained to the council.
The purification system treats the water with ultraviolet and not chemicals.
Additionally, there were smaller street projects in the past to include Eisenhower and Cedar streets replacements, which is also part of the debt service.
The city also refinanced the industrial park and business park to take the interest rate being paid from 7 percent down to 1.9 percent.
The city also spent $600,000 on water line replacement on what is called the South Hill, he said, but the project was unable to be completed and is being looked at for 2016.
What happened, Holter said, is that unfortunately the end of the water line has all new plastic pipe, but from the water tower to that point is still the old iron pipe.
?Now the city has water coming out clean (from the tower) and is picking up some of the discoloration from the old pipes and then going through brand new plastic pipes to get to the homes.?
All of these projects, he said, tie into the debt.
Most departments are restoring spending levels to 2012 with the exception of law enforcement, police protection and economic development, Holter said.
?All other departments have lowered (spending),? he said.
However, there are two departments that could not lower all the way back to 2012 levels because they have only one employee and retirement benefits keep going up.
?It ended up costing more for that reason,? he said.
The library is also lowering its mill levy to 7.926, which brings the city into compliance with its own ordinance adopted in 2007, limiting the library to 8 mills.
In discussions, Holter and council members talked about how the federal government can print more money when it needs to have more.
?But we understand that everything we do locally impacts our children?s future,? Holter said.
?So now is the time to put it back on a financial sound path of managing debt, taking care of our responsibilities and not pushing it off on the next generation.?
That was the philosophy, he added, and that was what some of these course corrections are about.
Traditionally, Holter said the budget process has looked at just a year at a time.
?We have now started planning with a three-year cycle in mind and looking to 10 years out on the capital equipment purchases and improvement projects.
Along with the mill increase, the council will also be considering a proposal increasing utility rates.
?The council approves all rate increases and they still have the opportunity to adjust it,? he said.
?The best projections we have are that utilities went from operating at a 39 percent margin (which is the difference between what services are sold for and what is paid out) to absorbing 5 percent of that over the last three years.?
Now the city is at a 34 percent margin, he said.
The approved budget starts a three-year process to rebuild the cash reserves, while lessening the dependence on the utilities to fund the operations of the city?stabilizing utility rates.
?The guiding principles of the budget process defines accountability to the services and purchases,? he said.
Moving forward, when a street project is financed, that debt service will be tied to property taxes as these actions go to improve or maintain property values.
?When equipment is needed,? Holter said, ?it will be purchased or leased and the expenses charged directly to the department requesting the equipment.?
For more information about the 2015 budget, call 620-382-3703 or stop by the city building at 208 E. Santa Fe.