In a press release on May 19 Commissioner Madigan provided a revised plan to address the city’s financial needs resulting from the pandemic. The release includes a statement that by borrowing additional moneys and drawing down more from the city’s fund balance, the projected depletion of the city’s cash is now moved back from June to December.
Here is the full press release:
Commissioner Madigan has also provided a thorough, well designed, and easily understandable spreadsheet to the City Council that documents the cash flow by month for this year. In order to borrow money under the Tax Anticipated Note (TAN) program the bank required this information. This is the information that John Franck had been requesting.
Financial shortfalls such as the city is facing can only be addressed in one of two ways: increase income or decrease expenditures. Commissioner Madigan has made a compelling case that the city at some point will have to reduce its staff in order to close a budget short fall that she projects will be between $15,000,000 and $17,000,000.00 and her first line of attack was to decrease expenditures by furloughing a large number of city employees.
Commissioner Madigan has been critical of her colleagues for accepting voluntary furloughs rather than insisting on mandatory furloughs and thus not meeting her goal to save $3 million through this process.
My understanding was that the city could not require furloughs, however, but had to negotiate this with the unions so I was confused by her criticism. I wrote to Commissioner Madigan asking for clarification. Her response is included at the bottom of this post. She believed that the city should have somehow forced the unions to accept involuntarily furloughing many of their members.
I know that some would argue that it was in the interest of the unions to go with the furloughs in order to minimize future layoffs but given that the threat of layoffs was not imminent and that the number of employees who would have been affected by a mandatory furlough was very high, giving the city the authority to choose who and how many employees would be affected was highly unlikely to be achieved by even the most talented negotiators.
So now that we know that furloughs are not a solution and that the immediate need for cash flow has been addressed by borrowing and accessing more of the city’s fund balance, the question remains where do we go from here. Many of us are confused about what actions are required and what the timing of these actions should be given the projected $15 to $17 million deficit and the probability that 2021 will continue to be a financially difficult year. How much do we need to save during the coming year? How can these savings be achieved? Is there an urgent need now to reduce expenditures by laying off employees? How should the potential for an influx of federal money be factored in?
I have asked Commissioner Madigan these questions and she has indicated she will be responding. I will be publishing her answers.
[JK: From the Finance Department]
Under a “voluntary” furlough program, employees must proactively volunteer to be furloughed in order to be considered for the program. Department heads have final approval. No employee can be furloughed unless they volunteer.
Under a “mandatory”, or “deep” furlough program, the Department heads review their employees and recommend those that would be appropriate for furloughs considering tasks, staffing etc. These employees are approached with a request/requirement to go out on furlough. It is not clear whether an employee could refuse a furlough, or negotiate its terms, as the City did not complete the negotiation of this procedure as any type of “mandatory” furloughs were rejected at the outset. Employees could also volunteer to be furloughs. Again, the Department heads had final approval.
The Union would only agree to an all volunteer furlough program.
My understanding, based on the information provided to me by the city’s labor attorney at the time this option was put forward, was that the City would present and support a deep furlough program: the city management’s negotiating team would negotiate objective criteria for furloughs with the unions, and that, if the City were to implement such a program, all employees meeting a certain criteria would be furloughed and that the program would be temporary and last 90 days with a possible 30 day extension. This would not require the individuals to agree, or to volunteer.
My motivation was to reduce expenses immediately in hopes we could avoid layoffs.
Instead, what was brought back to the Council was a program where the only people furloughed are those who volunteered, and for only 60 days, until the extra $600 per week additional unemployment under the CARES act ends, for a total savings of $277,400. In my estimation, this is hardly worth implementing as it is equivalent to 1/2 weeks of city payroll and may involve implementation challenges. The Council choose to move forward with this option. I would have preferred a better cost saving measure, one that saved taxpayers the interests cost of a substantial short term loan.
Finance was looking to fill a $3M gap between anticipate revenue and expenses. Having cut most much of what is otherwise available (Finance also requested 10% overall other expense reductions; while we did not receive 10%, departments did their best to accommodate), wage-related expenses are one of the last and largest options.
“Wage-relate” includes wages, as well as ancillary times such as chiefs’ stand-by pay, IT on-call pay, education incentive pay, personal and sick-time increases and payouts, health insurance contributions, clothing and uniforms expenses, mandatory salary increases, vacation increases, retirement incentives, etc.
The matter of furloughs is now moot. Finance, which is not part of the city management negotiating team, has moved onto borrowing a $6.3M Tax Anticipation Note (short-term, paid back in full with interest within 12 months) to ensure we can meet payroll and other expenses through November. If revenue does not come in as anticipated, this note may prove insufficient. As such, we continue to revise figures and prepare for each possible outcome. Nothing can be off the table at this time.
And now I plan to move on from this and responding to your blog — I need to turn my attention toward dealing with the impact of the pandemic on the 2021 city budget, including the impact of short term borrowing and depleting our fund balances instead of reducing our 2020 expenses as I had hoped.Thank you!
3 thoughts on “Commissioner Madigan: City Has Addressed Immediate Cash Flow Crisis”
Just on observation – I don’t see where Commissioner Madigan says the Union should be forced to accept mandatory furloughs though perhaps she had hoped the negotiating team had done more or that the Unions had been more cooperative. What I do see is that she truly believes this would have been more productive and is disappointed at having to go to loans at this time.
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Because of Covid-19, Commissioner Madigan is facing unprecedented burdens. It is in the interest of the other City Council members and of the unions to cooperate with her as much as possible.
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What part of this massive drop in tax revenue do the other Commissioners not understand? Ms. Madigan is correct in that mandatory furloughs are necessary. In economics there is the reality of “Demand Delay” and “Demand Destruction”. The vast majority of the City’s revenue comes from services that are perishable (e.g., hotel, restaurant, entertainment events, etc.) and once lost are not recoverable. Thus this demand has been destroyed. The City must also look into delaying costs, such as capital improvements.
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