The city of Manhattan has found itself in some financial trouble after nearly a decade of spending more than it makes, and city staffers are trying to figure out how to get things under control with budget season around the corner.
Last month, city officials last month told commissioners they expect the general fund reserves to drop from $11 million to $6 million by the end of 2024, well below the $10 million threshold above which they’d like to keep the city’s cash reserves.
Interim city manager Jason Hilgers said the shortage has been building since 2015. He said the city during that time “had to manage periods where expenses outpaced revenues, which required (the city) to draw down cash reserves to offset the shortfall.”
While the city received $15 million-$16 million in federal COVID-19 relief funds in 2020 and 2021 that helped offset revenue declines a bit, that was a one-time influx of funds.
Since then, Hilgers said, the city has made efforts to avoid further into debt.
“The city has had to make adjustments such as delaying capital improvement projects, reducing equipment and vehicle purchases, and limiting travel and conferences to manage budget shortfalls,” Hilgers said.
He added that debt is “not necessarily a negative thing, as it can allow the city to pay for needed infrastructure and improvements over time.” However, the city has opted to be more conservative with its use of debt recently, and Hilgers said the city must “be very cautious about optimistic revenue projections and making necessary expenditure cuts” in the future.
Hilgers said the city is trying to “level off” revenues and expenditures without raising taxes, focusing instead on reducing non-essential expenses and finding ways to generate more revenue from the parks and recreation department.
One potential measure for limiting expenditures is laying off employees. At a city commission meeting last month, city officials suggested cutting 35-70 city workers. Personnel costs make up around 70% of the general fund’s expenses, and city officials believe laying off that number of employees could save between $1 million and $4 million per year.
Officials have floated the idea of a 1% dedicated sales tax for parks and rec as a way to pay for capital improvements — such as a proposed indoor aquatics project in City Park — and for the department to generate more revenue over the long-term.
“The idea is to implement a cost-recovery model to have the department operate more like a business and recoup more of its expenses,” said Hilgers.
City officials estimate a 1% sales tax would generate about $15 million annually, but voters would have to approve it at the ballot box first.
The last three sales tax questions the city has put on the ballet have passed. Those included a .2% sales tax for street maintenance in 2016; a .25% sales tax for quality of life projects in 2017; and a .5% sales tax in 2020 for public infrastructure, economic development and workforce housing.
Along with the city’s 1% permanent sales tax, the total sales tax rate in Manhattan is 9.15%.
Hilgers said 25-30% of the sales-tax revenue generated in the city comes from people who are visiting or passing through instead of residents.
This, combined with the city only receiving a part of the local tax rate, has made it difficult for the city to keep up with expenditures.
The city commission will continue to have discussions about finance. That includes Tuesday’s meeting, when the Manhattan Area Chamber of Commerce will request an annual budget of $1.6 million, a stout increase from last year.
The city will set its final 2025 budget in September.
