Citing strong economy, city forecasts higher-than-expected revenue in FY20; long-term budget challenges remain

February 13, 2020

Would provide temporary relief from new cuts in FY21, but not enough recurring revenue to restore FY20 cuts or address long-term challenges

Presenting a half-year budget update to Metro Council today, the city’s Chief Financial Officer (CFO) echoed two points that Mayor Greg Fischer made a week ago in in his annual State of the City address:  1) Louisville’s economy is strong; and 2) long-term budget challenges, caused largely by an increasing state pension obligation, continue.

Largely because of the strong economy, Metro Government is now forecasting revenue for the current fiscal year (FY20) to be $18.9 million higher than budgeted, CFO Daniel Frockt said. The higher projection stems from two factors:

  • An expected revenue growth of $14.2 million, largely from an increase in corporate profitability and company payrolls.
  • Non-recurring revenue of $4.7 million from the Jefferson County Sheriff’s office. This surplus was to be delivered in Fiscal Year 2019 (FY19), but came later because of an audit delay.

Frockt used data from FY19, which ended June 30, to explain the updated revenue forecast, noting that after growing by just 2.6 percent in the first nine months of FY19, employee withholdings grew 11.1 percent in the last quarter, higher than the 6.4 percent projected increase. That’s an important jump, he said, given that employee withholdings make up 48 percent of the city’s General Fund revenues.

Frockt also reminded Council of the volatility of corporate net profit revenue, noting that after contracting by 13.7 percent for the first nine months of FY19, net profits grew by 9.3 percent in the last quarter of the fiscal year.

Frockt stressed that if the forecast holds, the additional revenue represents “short-term relief from a long-term problem.”

It should help avoid additional cuts in the city’s FY21 budget, but it is not enough revenue to restore the cuts made in June, nor will it cover the expected increases in the city’s pension obligation over the next three years. Over the next three years, the pension tab is expected to grow by $41 million, reaching $141 million by FY23.

In his State of the City address on Feb. 6, Mayor Fischer outlined many examples of Louisville’s strong economy but noted that the city still isn’t adequately addressing “our three most serious challenges” of equity, skill development and our built environment.

He added that with the pensions growing from 7 percent of Metro’s budget at merger to 21 percent in FY23, these challenges “will continue to hold the city back,” unless new revenue is identified.

Frockt said the additional projected revenue would go first to cover the FY21 pension increase, avoiding the kind of cuts seen in FY20. Metro recommends the rest fund one-time projects, such as street resurfacing, park maintenance and sidewalk repair, as well as an additional investment in the city’s Rainy Day Fund.  

The city’s policy is to have a Rainy Day Fund that’s 8 to 17 percent of general fund revenues, but it’s currently at 10.4 percent, which national credit rating agencies have cited as an area of concern.

Good credit ratings are key to saving on future borrowing costs, he said, “by reducing the interest we have to pay and providing us greater resources to manage our cash flow.”

Mayor Fischer will present his budget for the next fiscal year (FY21) in April.