Wednesday, October 23, 2019
INSIDER: KANSAS CITY 'BURN RATE' AND FINANCIAL MISTAKES UNSUSTAINABLE!!!
Investors typically define the "burn rate" as the pace at which a company spends money without taking in revenue. The negative connotation of the term emphasizes the fact that it's an unsustainable state of affairs which will eventually be resolved one way or another.
To wit . . .
CHECK THIS KICK-ASS INSIDER REPORT OUTLINING UNSUSTAINABLE 12TH & OAK SPENDING THAT THREATS TO TORCH SKETCHY MUNICIPAL FINANCES AND DRIVE KANSAS CITY TOWARD BANKRUPTCY!!!
Sadly, KCMO wouldn't be the first, biggest or the nicest American town to confront this kind of economic calamity and this INSIDER PASSAGE outlines how politicos have already set residents down that path . . .
THE BLIGHT AT THE END OF THE TUNNEL?
KCMO Operating Budget Summary
Adopted Revenue Budget (Money coming in)
$1.72 Billion Adopted Revenues for Fiscal Year 2020
The revenue sources for the city:
"Earnings tax is the largest single revenue source in the City. The Submitted Budget projects growth of 4.4 percent, which is above the historical average of about 2.5 percent."
Adopted Expenditure Budget (Money going out)
$1.73 Billion Adopted Expenditures for Fiscal Year 2020
The operating budget provides funds to the city's ongoing programs and services.
Changes To The Budget:
"Governmental Activities, which exclude the Aviation and Water Services Departments, increase 4.4 percent to $1.12B. The Fiscal Year 2019-20 Submitted Budget draws an estimated $9M from reserves in Governmental Activities Funds to support current service levels and maintenance. This targeted use of special revenue fund reserves is manageable in the short run but unsustainable in the long term."
When you plan to spend more than you're taking in, you are heading in the wrong direction.
When you project revenue growth significantly higher than the historical average, you are setting yourself up for inevitable shortfalls.
When you start drawing down your reserves in order to maintain normalcy, your days are numbered.
If we're going to understand the state of the City's finances, lets concentrate on the dollars and not the cents.
As stated above, the largest source of funds coming into the City is the KCMO 1-Percent Earnings Tax. For the current Fiscal Year budget it's projected to bring in just over $271M, which is more than sales tax (#2) and property tax (#3) revenue. Of this $271M, approximately $214M consists of Earnings Tax Quarterly Withholding payments from those employed within City limits. Despite numerous dedicated taxes for various City services, the earnings tax is used in part to pay for police, fire, ambulance, trash, and street repair, enabling City Hall to extort voter renewal of the tax, lest there be chaos in the streets as they warned in 2016.
Kansas City and St. Louis are the only 2 cities in Missouri to impose an earnings tax, and there continue to be legislative efforts in Jefferson City to eliminate the practice. It's next up for renewal in KCMO in 2021.
Now let's look at the largest expenditures in the current adopted budget, per Council Goals:
1. Transportation and Infrastructure $628,412,429; of which Water Services gets $424,198,197
2. Public Safety $469,781,264; of which Police get $262,247,405 and Fire gets $188,092,835
Public Safety Expenditures increase $21.2M (4.7%) in the Fiscal Year 2019-20 Submitted Budget. Public Safety accounts for over 75% of the General Fund operating budget, and nearly 42% of the total Governmental Activities budget.
When looking at the Public Safety budget, it's a bit like opening a series of nesting dolls, smaller and smaller, eventually revealing the hidden data contained within.
The KCPD is separated into 6 geographical Divisions (East, Central, Metro, Shoal Creek, South, North; ranked here according to budgeted dollars, most to least).
Within the Police expenditure, what's glaringly obvious is that the Management Bureau spends almost as much as the Patrol Bureau (approx. 83M vs. 93M respectively).
Within the Management Bureau, Human Resources account for about 85% of funds, with Police Retirement System and Health Insurance devouring 84% of the Human Resources total.
Police Retirement System and Health Insurance devouring 84% of the Human Resources total.
Within the Fire expenditure, Emergency Operations account for 80% of funds, of which Fire Fighting Force accounts for 87%. Personal Services claim 91% of Fire Fighting Force funds, and this primarily consists of employee wages, Fire Pension System, and Hospital/Life Insurance.
Bottom line: KCMO is on a financially unsustainable path. When your largest budget expenditures continue to grow at a faster pace than the growth of your largest revenue sources, you are falling behind. The day of reckoning can be temporarily delayed by cutting the budget of non-emergency City services, reducing the workforce, and/or further raising the tax burden on residents. However, if you're unable/unwilling to control the spending on your largest annual expenditures, you are heading toward insolvency.
Mayor Sylvester James is now gone after 8 years, and come February, City Manager Troy Schulte will retire after 10 years in his current position. We hope that new Mayor Quinton Lucas and the KCMO Council fully understand the fiscal implications of the current budget. It's way past time to get the City's financial house in order.
You decide . . .