Mayor Greg Fischer's prepared budget address

April 25, 2019

Mayor Greg Fischer's prepared budget address, April 25, 2019.

Learn more about the proposal here.

 

Thank you. 

Thank you for your service in both a promising and a challenging time.

Each of us decided to run for public office to make a difference, believing we had the skills, experience and passion to help our city grow and succeed.

When I ran for Mayor, I wanted to work with our residents, the council, and the Metro Government team to help our city emerge from the Great Recession stronger than ever, with a renewed sense of confidence and possibility, with a growing economy, creating opportunity for people in every neighborhood in our city.

Fortunately, we are experiencing economic prosperity unlike anything we’ve seen in generations. Since 2011, our city has:

Created 80,000 new jobs;

Opened 2700 businesses;

Welcomed $13B in capital investment, including nearly $1 billion in west Louisville.

We’re creating a more equitable city where everyone shares in our prosperity. Over the last four years, we’ve invested $41 million in affordable housing. We’ve seen 20,000 Louisvillians lift themselves out of poverty, and 17,000 families join the middle class.

We established a global reputation as a city of compassion, turning our Give A Day Week of Service into an annual festival of volunteerism. In partnership with Metro United Way, we again broke our own record this year, with 235,000 acts of compassion.

We’re working to address public health and public safety challenges like opioid abuse, Hepatitis A, violent crime. And our strategies are seeing success.

We achieved all of this by working together – Council, my team and our Metro employees, and a long list of community partners.

And our work has been validated repeatedly by third parties. Public Health, for example, just received a $4.6 million, five-year federal grant to reduce infant mortality and improve the health of newborns in five west Louisville ZIP Codes.

Last month we broke ground on Phase 1 of the Beecher Terrace redevelopment. We’re working with the people of Russell to revitalize that historic neighborhood. This quarter of a billion-dollar project began with a $29.5 million federal Choice Neighborhood grant, that we competed against more than 30 other cities to win. 

There is much work still to do to successfully compete with our peer cities, and so many steps we still need to take to reach our full potential as a city.

But we are making great strides. And for me, every step forward provides more fuel to fight harder, move faster, because I believe in the people of Louisville and the opportunity-rich future they deserve. That future requires investment in our municipal and social services, as well as physical and human capital.

Those are the beliefs that guided the crafting of the nine budgets I’ve presented you, including the one I’m presenting today.

This budget proposal is balanced as required by law -- a $623 million general fund budget. Revenue forecasts assume a growth rate of 2.9 percent and no recession.

Of course, as President Obama once said, “A budget is more than just a series of numbers on a page; it is an embodiment of our values.” 

Each of our budgets has embodied our city values of health, lifelong learning and compassion, and was designed to move us closer to our full potential. 

And, each received the overwhelming approval of this council – passing by an average of 90 percent – a tremendous endorsement of our shared values, of the work done by Metro Government and of the overall direction of our city. Your votes have been critical to our progress.

What makes this budget difficult are the parameters under which we were forced to create it, specifically the need to cut $35 million from an already lean operation.

That’s due primarily to two main issues.

First is the huge increase in our state pension obligation. A debt created not by any of us, but a debt we’re required to pay.

The second is this body’s vote against revenue to avoid cuts in services.

Let’s start with the pension.

In July 2017, the Kentucky Retirement System changed its assumptions about the return on investment on all state pension funds, including the one that covers Metro Government employees.  

We lobbied the General Assembly to lessen the impact of that change by phasing in this enormous expense for cities and counties. But there remains tremendous uncertainty around pensions, what actions Frankfort might take, and what impact they might have on our future. That uncertainty continues with KRS’ announcement, just last Thursday, of revised assumptions that will further extend our increasing pension obligation. 

 Our CFO has briefed the Council on the potential budget impact numerous times, starting in November 2017 and all the way up to an orientation for recently elected Council members last December. 

I’ve been talking publicly about the pension challenge since July 2017. Standing here one year ago, I warned that, “absent accelerated revenue growth … this pension issue will be a drag on our budget for the foreseeable future.”

That future is here.

Metro’s pension obligation is now growing by about 12 percent a year, starting with an extra $10 million in the current fiscal year, and another $10M – for a total of $20 million – in the fiscal year that starts July 1.

And the tab just keeps growing.

Initially, we expected our pension bill to increase by about $10 million a year until 2023, when it would stabilize, meaning at least another $30 million in the three years after the upcoming fiscal year.

 But just last week, as I said, KRS adjusted its predictions again. It now appears we can expect the rate of increase to continue even beyond 2023.

To understand the impact, consider this: At merger, our pension bill was 7 percent of our budget.

By 2023 our total state pension bill will be around 21 percent of our budget.

I spent 30 years growing national and global businesses.

Here is how this businessman sees this: Our pension costs TRIPLED over 20 years, and we know they’re going to keep growing. At the same time, our customers are demanding – and deserve – increased services.

We have met those demands by increasing our efficiency every year, without once raising our prices – also known as taxes.

What company could absorb a cost increase this significant – 14 percent points; over $50 million – without raising its prices?

When a business is faced with a challenge like this, the first thing it does is make sure it’s using every dollar efficiently. 

That’s why we’ve worked every day for over eight years to apply the principles of efficiency and innovation to Metro Government.

We established our nationally recognized LouieStat program, which collects and uses data to help us constantly improve. Run by our Office of Performance Improvement, it has helped us find more efficient ways to reduce accidents in Public Works, manage our vehicle fleet, reduce ambulance turnaround times, and many other areas.

Additionally, the Office of Performance Improvement’s processes have resulted in millions of dollars in savings and cost avoidance for our taxpayers, helping us create what data shows is one of the leanest mid-size city governments in America.

Cities across the U.S. see Metro as a model for excellence in operations.  

Just yesterday, the nationally respected What Works Cities recognized our effective use of data and innovation to create efficiencies and improve services. Louisville is one of just four U.S. cities with Gold Certification status – one of four chosen out of 90 applicant cities.

Think about that.

It’s a strong validation of our work and our stewardship of tax dollars – and it’s something we should all be very proud of.

On top of all these accomplishments, the Office of Performance Improvement has competed for and won $13.5 million in grants for our city, an amount that exceeds the lifetime operating costs of this office.

Also, of our 19 peer cities, Louisville has the 4th fewest city government employees per capita. That’s a sign of a lean operation:  effectively delivering more services with fewer people.  

Flagship rating agencies like Fitch, S & P and Moody’s have given us some of their highest ratings for financial stewardship.

And the Government Finance Officers Association has honored Metro Government with both its Excellence in Financial Reporting and Distinguished Budget Presentation awards for the past six consecutive years. 

Folks, all of these accomplishments and third-party validations confirm that our Metro Government team is among the best in the nation.

I want to thank all of our Metro Government employees for the work they do every day to make that possible.

I’m also grateful to our employees, and to the members of the public who responded to our request for ideas and suggestions for dealing with this pension-driven budget crisis.

Many of the suggestions echoed our belief about the need for more revenue options to support this work, work that keeps getting validated by objective third parties. 

That said, we will always work to improve and to face challenges head-on.

To deal with the budget challenge for the current fiscal year that ends in June, we operated like a business with accelerating costs. We eliminated almost 50 positions, adopted new fees, implemented a hiring frost and limited spending. 

But that approach could only take us so far, because for eight years, we’ve been adding services to adjust to changing demands, without raising taxes.

Merged government has never raised taxes. The last county tax increase was in 1990. The last tax increase in Louisville city government was in 1982. Thirty seven years ago!  

In February I proposed to phase in an increase in the insurance premium tax, the only option the state allows us that would provide sufficient revenue in time to prevent drastic cuts.

I also released a list of the potential cuts that would be required over the next four years without new revenue.

My intent was to be as upfront and transparent as possible about the potential impact on public safety, our economy, our workforce readiness, paving, libraries and other services, and our need to invest to keep our momentum going.

Last month, 15 of you voted for cuts over the revenue required to maintain services.

I know that was a tough vote.

And for Council members who were recently elected, I know it’s no small thing to ask you to vote on the first revenue increase since merger just a few weeks after taking the oath of office.

Nonetheless, there was a choice to make: 

All revenue

A mix of cuts and revenue

All cuts.

It’s no secret that I strongly disagree with the choice made.

As former U.S. Supreme Court Justice Oliver Wendell Holmes reminded us, “Taxes are the price we pay for a civilized society.”

And I believe that after this budget process, our city needs to have an honest, clear-eyed conversation about the type of services people expect and deserve – and are willing to pay for.

For now, my responsibility is to translate your vote into a budget.

So, let’s talk about the details. Our projections earlier this year showed us facing a $35 million shortfall, including the $20 million bump in our pension obligation. 

Since then, due to changes in tax receipts, workers compensation and auto insurance expenses, and our employee healthcare costs, our starting deficit has decreased from $35 million to $32M.

To help cover a small portion of that, my budget assumes the Council will vote for the statutorily allowable 4 percent increase in property tax revenue, netting us an additional $1.2 million.

That’s the only new tax revenue source proposed in this budget, though we’re also increasing some fees.

This budget still requires painful cuts to all agencies in all parts of the city.

One priority for this budget was to maintain basic municipal functions for a growing city of almost 800,000 people.

Decisions were guided by a thorough review of data and our commitment to equity. 

Public Safety was, of course, a top priority, as our first and greatest responsibility to the people of Louisville.

The brave men and women of LMPD do incredible work, and have helped lead a 10 percent drop in violent crime over the past two years. 

Yet, budget restrictions forced us to cancel the recruit class that was to start in June.

To mitigate that, we’re ending the $2 million subsidy to Jefferson County Public Schools for School Resource Officers, and reassigning those LMPD officers back to the street.

We do plan two police recruit classes later in the fiscal year. Even so, we expect a net reduction of about 40 uniformed officers, depending on final attrition numbers. 

There have been calls to exempt police, fire, EMS and Corrections completely from cuts.

And we did cut a smaller percentage of their budgets than many other agencies.

But given the size of the budget shortfall and the fact that public safety is about 60 percent of our budget, it’s impractical to exempt them.

We could completely eliminate Metro Parks and Recreation, the Louisville Free Public Library, Louisville Zoo, Metro Animal Services and our entire Codes and Regulations team, and we’d still be millions of dollars short of resolving our multi-year budget challenge.

So that’s not a workable solution.

And please keep in mind that public safety is much more than our men and women in uniform.

Our resources and people in public health, safe and healthy neighborhoods, libraries, parks, community centers also make essential contributions to public safety, by making sure kids have a place to go to and trusted adults to help them stay on the right path.

Public safety is supported by people throughout the community, many of whom work or volunteer with non-profits that Metro supports through External Agency Funds, or EAFs. I’m talking about social workers, reading tutors, mentors, coaches, faith leaders. 

We were forced to cut $500,000 from EAFs in this budget.

Our hope is that community partners will step up to fill the gap in the funding to these important organizations, because public safety is a condition we create together as a community.

One of the principle ways we do that is by communicating to our residents, especially young people growing up in challenging circumstances, that their community believes in them and invest in them.

That’s why it’s important that we keep investing in our Office for Safe & Healthy Neighborhoods, which coordinates outreach programs, like ReImage, Cure Violence, Pivot to Peace -- the work to stop violence before it begins.

These programs have helped over 500 young people find the path to a hopeful future, which makes our city safer and more prosperous.

Impressively, since we established the Office for Safe & Healthy Neighborhoods in 2013, it has helped bring nearly $7 million in grants to our city, including, most recently, a $5 million federal grant to help Louisville families and young people most affected by trauma, inequity, and violence. 

Still, the pain of this budget touches every agency, and we’re having to reduce OSHN’s budget by nearly $450,000, or about 18 percent.

Another principle for us in crafting this budget plan was minimizing the pain on our most vulnerable.

So while we have to reduce our investment in affordable housing from the $12 million allocated last year, we are designating $5 million for the Affordable Housing Trust Fund.  

While we’re eliminating funding for the Living Room because of its per-visit cost of $500, we are investing $1 million in homeless services.

That still won’t meet this enormous challenge, so I’m calling on individuals, businesses, non-profits and faith groups to step up and help address this need.

I’m really appreciative of the good work of our community ministries. And we’ll continue funding them at the $1.1million level.

We have to make these investments because we know that if we want to help people be productive, they have to have enough food to eat, and a stable and affordable place to call home. 

As we reallocate and cut resources, we also must recognize that it is smart to make investments that help our city adapt to the reality of changing times. According to a Brookings Institution analysis, Louisville’s jobs are more vulnerable to automation than all but seven other U.S. cities.

So our economy is going to change. We have to get our city ready. We have to help our businesses get ready, and we have to help our workforce get ready.

That’s why I’m investing $300,000 to support our efforts to quintuple tech training, to scale successful programs like Code Louisville and start new ones like the Bit502 tech apprenticeship program.

Louisville received a significant boost for those efforts last week when JP Morgan Chase announced that we’ve been awarded a $3 million AdvancingCities grant to fund creation of Tech Louisville, a new KentuckianaWorks program that will help 300 low-income people start a good-paying career in the technology sector.

Our city’s application was one of five selected from 250 that applied, further underscoring our ability to leverage value for our taxpayers through grant funding.

I approach the expenses of government as investments, and I believe we should expect a return. That’s why we emphasize data, to measure the impact of our investments.

Data shows, for example, that SummerWorks is a sound investment.

 According to a study by the Kentucky Center for Statistics, SummerWorks youth are more likely to stay in the workforce and pursue postsecondary education than those who don’t work in the summer.

That’s why this budget continues our SummerWorks investment, albeit at a 16 percent reduction. Last year, 6,245 young people were employed by our SummerWorks employer-partners, a new record from the 200 in our first class of 2011.

I believe in SummerWorks, because I believe in the transformative power of work, of getting that first job and earning that first paycheck.

That’s why I am going to invest in our city’s youth by donating 20 percent of my salary in the coming fiscal year to SummerWorks.

I’m also calling on our business community to step up and help us mitigate these cuts by supporting SummerWorks. 

This budget also allows us to keep all our community centers open, at least for the coming year. They’re an important part of our public safety strategy, giving kids a place to go for critical out of school time activities.

There were many investments we could no longer afford to make.

This budget includes many difficult and painful decisions, like personnel cuts and elimination of key services:  

  • closing two libraries,
  • one fire house,
  • one Neighborhood Place and
  • taking one ambulance off the street. 

This budget reduces funding for everything from our economic development initiatives to agencies that work to keep our city clean and green.

This budget cuts yard waste and recycling pickup to every other week and reduces paving.

This budget cuts each Metro Council’s collective discretionary funding of $205,000 by $40,000.

We worked hard to mitigate the pain wherever possible. While this budget cut hours at the libraries, for example, we are keeping them open on Sundays.

Unfortunately, we are closing two libraries – Middletown and Fern Creek, which each operate in leased space. These actions will save more than $1 million.  

In June, we will be opening the beautiful new Northeast Regional Library, completing a key component of the library Master Plan. 

This new library is only about four miles from Middletown, which will ease the inconvenience of that closure.  Fern Creek is less than five miles from the J-Town Library and less than six from our South Central Regional Library. 

Plus, next month we will re-open the St. Matthews Library. We contributed $1 million to leverage more than $3 million of investment from the City of St. Matthews. 

Facing the reality of tens of millions of additional dollars in pension expenses in the coming years, we also are pushing ahead on some long-range potential changes, including:

  • We will request proposals to set up the Louisville Zoo as an independent entity to help us cap our costs for that operation.
  • After the profitable summer golfing season is over, we believe we can save over half a million dollars from our city’s golf courses by bidding their operations or possibly closing up to four courses.
  • And we will work over the next year to return operations for Youth Detention Services to the state. Jefferson County has historically subsidized the cost to house youth at YDS, to keep them closer to families and their schools. That’s costing us $9 million over the state reimbursement, and in the current budget climate, that’s impossible to maintain.

By delaying this move until at least the end of the year, our goal is to give the state time to find a way to continue housing Jefferson County children in Jefferson County.

As you’ve heard me say, everything in a city is connected. 

And all those connecting lines at some point come through Metro Government, where our team of dedicated public service professionals works to provide efficient and effective services for the people of Louisville.  

I’m proud of this team.

That’s why it pains me that, despite all our efforts, we will be forced to eliminate as many as 312 positions, including laying off about 100 employees. 

That includes full-time, part-time and seasonal employees; union and non-union.

In terms of our manager to employee ratio, data shows we are well within industry standards, and not top-heavy. Still, we prioritized saving jobs that involve the direct delivery of services to our residents.

Government is a service business; about 70 percent of our costs are people. So there is no avoiding layoffs.

These are talented, hard-working folks who deliver critical services. I hate the stress and uncertainty they and their families have been living with for the past few months.

They deserve better.

 My budget includes funding for outplacement and other services to help them transition to other employment.

Also, with the exception of those with the FOP legacy health plan, all Metro employees will see an increase of 3 percent on health insurance premiums and an increase on deductibles and other out-of-pocket expenses.

On the positive side, we will open a new Wellness Center on Fern Valley Road this year, to support our employees and help them stay healthy. 

I’m also proposing that we address the Cost of Living Adjustments to non-union employees’ salaries.

Instead of a two percent adjustment for all, my budget proposes a two percent COLA only for those making under $60,000; a one percent COLA for those making between $60,000 and $80,000; and no COLA for those making above $80,000. 

This budget invites Metro Council members to forgo a cost of living increase as well.  

Cutting COLAs is also not something I want to do. 

With our city’s unemployment rate at 3.8 percent, and with all the uncertainty about our budget, we already have trouble keeping and attracting the talent we need to deliver the world-class services our people deserve and demand.

 And, our leadership already makes well below their peers in the private sector. So this will make filling positions and retaining experienced people even more difficult. 

As you review the budget, I hope you can see that we worked hard to achieve balance in the choices we were forced to make. Cuts affect areas throughout the city, hitting every department, including the Mayor’s Office and Metro Council offices.

 Also - $2 billion – that’s the approximate total of our city’s deferred capital investments.

We have been chipping away at this over the years, but due to lack of revenue, I am proposing the smallest capital budget in six years. 

We are making some targeted investments, but we will be stretched to keep up with all the potholes, broken sidewalks and basic paving projects that need to be addressed.

It seems reasonable to ask, why are we doing this to ourselves when our city is in the midst of an economic renaissance? 

While we’re cutting our infrastructure budget, Nashville, for example, is spending $35 million on roads, $30 million on sidewalks and $5 million on bikeways – that’s $70 million, compared to $17 million in our budget. Nashville also just made a $500 million multi-year commitment to affordable housing.

These are relevant numbers for us as we look to grow.

To stay competitive, especially at times like this, we have to take advantage of every opportunity, like the great community partnerships that have helped fuel our city’s growth.   

As I announced a few weeks ago, Louisville Tourism is contributing a half million dollars to help fund the Belle of Louisville, one of our historic and iconic tourism attractions. I am grateful for that generous act of public service. 

In addition, after hearing that we’re forced to close our outdoor pools, a number of local organizations reached out to say they’d like to help make it possible for kids to swim over the summer. We’re working with Papa John’s and other community partners to find ways to provide that opportunity to residents of the affected neighborhoods.

The unfortunate truth is all four pools operate at a loss and need millions of dollars in repairs this budget can’t accommodate.

I am also reaching out to suburban cities, the business community and philanthropic organizations to see how they may be able to partner with us in other areas.

As you go through this budget proposal, you’ll have questions, suggestions, ideas. My team and I look forward to hearing them.

My focus is on working with this council and the people of Louisville to create a responsible, balanced budget that doesn’t compromise our long-term fiscal health. I can only support a budget that addresses our city’s needs and challenges in a structurally sound way. 

During this budget process, we explored a variety of options and ideas, including many that I’ve heard some of you mention – like hope for help from the state. 

I wish that help was coming.

For years, we’ve asked the state legislature to provide pension relief for Kentucky’s cities.

I’ve advocated repeatedly for tax and pension reform.

In 2017, this Council unanimously approved a resolution calling on the Kentucky General Assembly to separate the County Employees Retirement System (CERS) from the Kentucky Retirement System (KRS).

But Frankfort hasn’t delivered.

We’ll keep asking and advocating, and I want to be proven wrong, but we have to assume that for now, we’re on our own.   

One other idea that’s been suggested is using our Rainy Day Fund to deal with the pension crisis.

The Rainy Day Fund is designed for one-time, unanticipated emergencies, and this budget challenge isn’t a one-time issue. It is ongoing challenge that, without new revenue, we’ll have to deal with year after year – cutting two or maybe even three times as much from future budgets as is cut this year.

That is truly sobering, especially if you think of the impact that a possible recession hitting during those next few years might have.

If we spend our Rainy Day fund on this year’s budget, next year we’ll have the same challenges – compounded by $10 million more in pension obligations – and the Rainy Day Fund will be less than half its current, fiscally responsible, size.

Also, our credit rating is partly determined by the size of our Rainy Day Fund, and if that rating goes down, it will be harder, and more expensive, for us to borrow for capital projects, like paving our streets, because investors want to put their money in organizations that have their financial house in good order. 

The fact that we are fiscally and structurally sound is among the advantages we have on our side as a city.

And even with this pension challenge, the truth, again, is that our city today has great momentum.  

We’ve transformed our skyline with new bridges and landmarks.

We renovated the gorgeous Kentucky International Convention Center, built two dozen new hotels.

We’ve developed Bourbonism, our city’s first 365-day-a-year tourism opportunity. In 2011, we had no distillery experiences in our city. Today, we have 10. And they’re helping us attract 16 million visitors a year.

We have been investing in our people – in our libraries, affordable housing and in programs that open opportunities, like Code Louisville, Pivot 2 Peace and Evolve502.

Last year, we were named one of the top 15 cities in the country for millennial growth – that’s a huge turnaround for us.

And the endorsement of national foundations, corporations and federal agencies – and the millions of dollars they’re investing here reminds us that we are poised – still – to become America’s next breakout city.

That’s why I’m still so optimistic about the future of our city. 

And that’s why I will keep fighting for more revenue, for more investment from you, and from Frankfort.  

I hope you will be a part of that, mindful that while we deal with this pension-driven budget challenge, our peer cities –Nashville, Indianapolis, Cincinnati – are investing in themselves, in their infrastructure, transportation and quality of life.

As a city, we need to fully understand what it costs to deliver quality public services, and what our competitor cities are spending.

I can tell you this already: If Metro Government does not provide at least the basic services that citizens and 21st-century workers and companies expect, we will lose the economic competition and experience the job losses that go with it.

Whether we’re talking about business or government, it’s absolutely essential to be lean and efficient. But you can never cut your way to greatness or prosperity.

So we must rise to this challenge, working together to move forward.

To create the city of equity, opportunity and job growth that our citizens deserve and demand.  

To make the investments necessary to sustain a thriving city that wins in the global marketplace and whose reputation for compassion, innovation and opportunity continues to grow on the world stage.

A city where every person has the chance to reach their full human potential.

We all worked very hard to earn the leadership positions we hold. To be the ones Louisvillians trust to understand the issues, the opportunities and challenges ahead, to make difficult decisions at a critical time in our city’s history.

Let’s show the people who sent us here that they made the right choice, that we can work together through this challenge and move through our next challenges for the good of the one thing that unites all – the city that we love.

Thank you.