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    City Mgmt Says LB On Credit Rating Agencies' "Negative Outlook" [corrects misspeak, not Negative Watch] For Past Three Years & Credit Downgrade Still Possible, Urges Council To Adhere To Three Yr Deficit Reduction Plan

    (May 3, 2005, updated) -- Senior city management says credit rating agencies have had LB City Hall on a "negative outlook" for the past three years, a credit downgrade is still possible...and credit rating agencies told city management last year that it's not typical for them not to take action in such circumstances.

    During a May 3 City Council Budget Workshop, city management budget chief Mike Killebrew previewed next week's release of City Hall's midyear budget performance report by referring to a "negative watch"...but after we reported this, Mr. Killebrew contacted us to correct a misspeak.

    "It's not a 'negative watch,' it's a 'negative outlook,' Mr. Killebrew said...noting that a "negative watch" is usually accompanied by a credit downgrade...which hasn't happened in LB's case.

    At the afternoon Budget Workshop, Mr. Killebrew told the Council:

    "A credit downgrade is still possible. We spent quite a bit of time this past summer with the credit rating agencies, speaking to the updated Three Year Plan, speaking to the FY 05 budget that the Council was at the time debating, and they told us in no uncertain terms that we've been on a negative watch [misspeak, should be outlook] for three years and that it is not typical for them not to take action. So it's our feeling that as long as we're still showing great progress toward eliminating our structural deficit that they would hopefully still look favorably on us, but we do have some work to do here."

    Mr. Killebrew's statement came after urging Councilmembers not to extend city management's Three Year Financial Plan into a lengthier plan to balance the budget. "Extending the plan to any great extent is going to be extremely difficult. The one-time resources that have been relied on in prior years, including related funds, they've been tapped. There are still some, and even in the endorsed and updated Three Year Plan, we had anticipated possibly having to use a little bit, but we're getting down to the nub on where we can go for one-time resources," he said.

    Mr. Killebrew noted that the Council had endorsed an "updated" Three Year Plan in Sept. 04 which requires finding $30 million of solutions to get the budget fully balanced...and in the current (FY 05) budget, $3 million of $5 million in savings from employee wages/work practices and benefits remain to be found, plus $1.5 million in savings or revenue in fire services study...but "we do expect to be successful in achieving these structural savings."

    Mr. Killebew also forewarned that the FY 06 budget now being prepared by city management assumes savings from closing LB's main branch on Mondays...and voter approval to increase LB's hotel room (transient occupancy) tax.

    Mr. Killebrew said LB's current (FY 05) city budget is performing at or above projections last year (about 1% above, amounting to roughly $3-4 million)...but the high performance of some funds is being offset by the underperformance of others.

  • LB's golf revenue could end about $1 million behind projections, which management attributes largely to winter storms. LBPD moving-violation revenue is also short of projections...attributed to officers focusing more on calls for service, shootings and task forces and the like.

  • LB oil revenue is also up (with worldwide oil price increases)...but higher gasoline fuel prices are costing City Hall roughly $2 million more than expected.

  • Property tax revenue is LB City Hall's biggest General Fund revenue source -- and it has increased -- but not to the extent predicted by City Hall last year. "It could be that delinquencies are up, it could have to do with the state's "triple flip" [budget balancing] and the VLF property tax in lieu payments, so it's very complicated this year with all these new programs taking effect. However we are doing a detailed review and we hope to have that done shortly," Mr. Killebrew said.

    The fact that property tax revenue provides the largest sum for LB's General Fund prompted 8th district Councilwoman Rae Gabelich to remark:

    "Since that [property tax revenue] is our number one source of revenue...I think that it's critical that we focus on the health of the neighborhoods, because what that does is increases the property value, which increases the property tax, which brings in more money. And that's my mantra, is neighborhoods first and let's take care of them," Councilwoman Gabelich said.

    Mayor Beverly O'Neill has touted the city's credit rating in speeches In her January 2005 "State of the City" address (delivered as a fundraiser for the LB Area Chamber of Commerce), Mayor O'Neill said:

    "In spite of our structural deficit, our investment pool has the highest possible rating for cities from Standard and Poor’s Fund Services, affording protection from credit defaults and changing market conditions."

    At the end of the May 3 Budget Workshop, Mayor O'Neill said:

    "I was very pleased to see that sales tax and transient occupancy tax, those were two of the objectives of the city, one was on tourism and the other was on increased revenue from retail, and so I'm glad that they are performing well."

    Sales tax provides LB with a penny for each taxable dollar. Only half of LB's transient occupancy tax goes to the General Fund (the other half is given in large part to the LB Convention and Visitors Bureau).

    Norm Ryan, who challenged Mayor O'Neill for Mayor in 2002, told

    "I would much rather see the City Council impress LB taxpayers with their resolve, and stick with a Three Year Plan for that reason, not to impress the credit rating agencies."

    LB City Hall's budget problems ballooned after Councilmembers voted to increase FY 02 spending entering the 2002 election cycle for Mayor, Council districts 1,3,5,7,9 and other citywide offices. Supporters of Mayor O'Neill's reelection campaign said City Hall was on the "right track"...but after her reelection (and a Council vote boosting pensions for city employees), Mayor O'Neill attended a somber press event announcing that City Hall faced a major budget crisis.

    The Council subsequently named Jerry Miller City Manager...and Mr. Miller's staff devised an ambitious Three Year Financial Plan to curtail Council spending that exceeds revenue.

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