Ann Arbor’s Budget: Straws in the Wind

What services does Ann Arbor owe its citizens?  What does it mean to be a city, anyway?

The Ann Arbor City Council began discussion of next year’s budget with a retreat on December 4.  Little information was available in the checklist of city services they were provided.  The theme was “A New Sustainable Service Delivery Model” and the checklist had a column titled “Modify/Eliminate”.  The message from the City Administrator, Roger Fraser, was simple: Ann Arbor will have to start eliminating services to meet the challenges of reduced revenue and increased costs.

Noticeably missing from the list of services was any mention of the departments serving the Administrative branch.  The cost of various council expenditures such as money to support  SPARK, WALLY, or the Fuller Road Station (to name a few of my favorities) were not on the list, nor were other discretionary amounts such as the special grant to support human services (we lost the federal money that formerly supported them when we joined the Urban County and gave up our special status as a CDBG community). Also missing was any accounting of the debt service that the city is bearing because of the large “investments” (to use Fraser’s term) in capital projects like the new city hall addition.  The challenge to the council was not “how shall we make the budget tighter” but rather “what services shall we eliminate”.

There will be many meetings and a fair amount of negotiation before the 2012 budget is finalized.  But there were a few indications to show which way the wind is blowing.

A technical note:  because Ann Arbor lives by a July 1 fiscal year calendar, it seems we are always living in the future.  It can be confusing to hear of what happened last year – FY 2010 since we have been living in FY2011 since last July.  The council is now considering FY 2012 and because the city has moved to a modified two-year budgetary process, some thought is already being given to FY 2013.

Here are a couple of straws:

1.The city as a business.  One of the recurrent themes that indicate a particular philosophical position was that the city is essentially a business and should be operated as one, on similar principles.  I described it this way in a post last year (budget time!):

Business is all about the bottom line.  You build each department like a separate company subsidiary and make it pay its way.  If it is not profitable, axe it.  So some services that are loss leaders have to go (be shut down) and others get shifted into a branch of the company that has a better revenue stream.  Or – some are sold off at a loss to someone else that wants to operate it. (In government, we call this “privatizing”.) Above all, you want to be able to skim the cream for your own use.

Or as mayor John Hieftje explained it this year, “We don’t have the options businesses do, we can’t move the plant to Mexico or go out of business.” Councilmember Stephen Rapundalo seemed to take this to heart, arguing at one point that perhaps there was no “return on investment” in street-sweeping in neighborhoods (one assumes that there is a financial return on sweeping streets in commercial areas). CM Sandi Smith reflected it somewhat also when she stated that most of the services listed (trash removal, sewage, police, fire, water) were basic to what a city is, but that parks and recreation were not “essential”.

One of the business-like ideas that Fraser is pursuing strongly is privatization of all solid waste services. At one point he even suggested that this should not be subject to citizen input. Although he stated that this process began with the “2004 Solid Waste Plan”, there does not seem to be any such plan. There was a 5-year Solid Waste Plan Update for 2002-2007.  That plan does have many indications of a drift towards privatization, including the call to expand fee-for-service approaches and a proposal to make solid waste into an enterprise fund (which was done).  But what Fraser seems to be suggesting now is that the city would dispose of any municipal ability to do trash pickup and would instead either contract with private waste haulers or require residents to contract for their own waste hauling, as most townships do.

2. Employees are the problem. As with any business, the most expensive element is the labor force.  Fraser noted that the city workforce has been reduced by 36% since he arrived about 10 years ago.  But aside from other compensation, the pension and health care costs, especially for union employees, are a really big concern.  Nonunion employees have already signed onto a lower-cost health plan, but “Act 312” employees, mostly police and firefighters, are a big problem because their unions have refused to come down on the health care costs in current contracts.  Contracts for these workers are subject to binding arbitration and Ann Arbor has lost on some major decisions, causing these workers to be much more expensive than other city employees.  Fraser stated that public safety costs are 50% of the budget.  (Editor’s note: This is an “unaudited figure” since he may not have been referring to the entire extent of the city budget.)

Fraser made a blunt statement that future cost increases would be borne within the department that experienced them.  In other words, if the cost per worker goes up because of adverse contract negotiations, employees (police and firefighters) will lose their jobs.

This means less fire and police protection, of course, and there was a long discussion of ways to avoid damage from this, with CM Rapundalo suggesting that we should retreat from a “legacy business model”.  One idea is to employ paid-on-call firefighters, as is done by some communities, Troy being a major example.  Police Chief Barnett Jones carefully explained the three models: a career department (as we have, with full-time firefighters), a volunteer department (used by some very small rural communities), and a paid-on-call system, where there are only a few full-time officers on staff and other firefighters are called in on an as-needed basis.  The obvious savings are that such personnel would not be entitled to pension and health insurance, though presumably would be covered by hazard insurance for doing the work. As reported by,  this idea received a lot of interest, though no decisions or concrete proposals were made.

Police coverage also received much discussion.  Chief Jones very politely put some calls for “doing less with more” at rest by pointing out that the number of police has already been reduced from 148 to 124 officers, which has meant that officers are so involved in answering calls for service that they are not available for simply patrolling the downtown, for example.  There was also talk about community standards personnel taking up some of the slack.  These employees do not carry weapons though they wear uniforms, and there are two vacancies currently.  Also, using either these employees or community volunteers (called auxiliary officers) will cause objections from the union. There is a list of specific policing tasks, including “party patrol”,  where police help to keep down rowdy drunken brawls, especially after football games (CM Kunselman suggested that could possibly be dispensed with, news for those in his ward living near the fire zone).

3. Regionalization not a solution A couple of councilmembers asked about “regionalization” – i.e. the notion of combining forces with other governments or better, shoving off a responsibility to the county, for example.  (CM Derezinski had a hard time letting go of it.)  But Chief Jones explained that police services provided by the county would be much more limited than we presently enjoy.  (His previous job was with a sheriff’s department.)  There is currently cooperation with other fire departments and apparently that is working well, considering that we often do not have enough men in a particular firehouse to staff a full truck.  Fraser commented that he had explored many regional opportunities, especially with former County Administrator Bob Guenzel. (One startling comment was that the two looked at combining the (Ann Arbor) city and county governments.) We currently have combined Information Technology and Community Development departments. But Fraser acknowledged that there are not many other such opportunities.

4. Get over it and get used to having less:  A recurrent theme was that citizens of Ann Arbor are just going to have to accept less.  CM Rapundalo seemed to be a chief proponent of this.  He talked of shaping priorities, particularly for parks.  “We’ve cut the fat, let’s see which bones we can live without.”  Fraser articulated this several ways.  He suggested that it is important to cut at “the base”, meaning ongoing recurring expenses.  (That implies outright elimination of some.)  He also meditated on the need to determine what is most important or valuable to a broad segment of the community (“some things are valuable to some but not to all).  “How do we make that mix of services sustainable?”

Mayor Hieftje, who was silent through most of the retreat, stirred himself to make a Panglossian pronouncement that Ann Arbor is “so much better off than anyone else”.  (He refrained from mentioning any awards, however.) He also said that this was the best of all possible councils and he had full confidence in their ability to deal with this situation.  (I am paraphrasing.)

Fraser did indicate the need to have some community conversations, apparently especially in regard to solid waste.  He suggested that a “significant community process” needs to be instituted before major changes happen – and asked rhetorically whether stakeholder meetings, community-wide forums, focus groups, or some other mechanism would be best.  (Editor’s note: Please, not another of those surveymonkey polls.)

5.Maybe it’s time to talk income tax. With all that, Fraser said that we should be able to ask the community about revenue options before beginning to hack away at services.  CM Rapundalo supported this, saying it was time to have “a more robust discussion about structural changes to the revenue model”.   This was clearly a nod to the income tax, though the dreaded “T word” was not uttered.   The last such discussion, as summarized by the Ann Arbor Chronicle, took place in August 2009.

Are we really at the tipping point this year?  It is hard to judge.  But I’ll repeat a little of what I said last year, when a similar discussion was held and I compared our community to an ecosystem:

Our sense of community, the physical and mental health of individuals, and ultimately our prosperity are to some extent dependent on maintaining this ecosystem. We should be deciding what kind of community we want, what services we think are important to our sense of who we are and what we expect from our government.

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5 Comments on “Ann Arbor’s Budget: Straws in the Wind”

  1. Kathy Boris Says:

    Any chance that in a future posting you will expand the list of “noticeably missing” items? Please educate your readers by giving a list of the city departments which serve the city’s Administrative branch. Where could citizens find a list of “various council expenditures” beyond the three you mention? How difficult would it be for a citizen to find out how much the city is paying monthly for debt service on the city hall addition?
    Finally, I wonder whether there was any discussion regarding what sort of morale fire fighters without health or pension benefits would likely have? kb

  2. varmentrout Says:

    Oy! You are asking for real work. Good questions, though.

    There is a matter of definition. Some people would exclude capital expenditures entirely from a budget discussion. Also, some departments that do administrative work are managed separately from central Administration. For example, the Assessor.

    One way to make a list of special expenditures would be to go back over the last year or so and examine council resolutions that have added to budget lines.

    Then there are programs that were added by resolution, like the Percent for Art program, that set up a whole process.

    I’ll think about this, but don’t expect an exhaustive treatment in the near future. I’m a policy wonk, but not a forensic accountant.

  3. Kathy Boris Says:

    Noticeably missing from my previous comment was my thanks to you for producing such a good article. kb

  4. Rod Johnson Says:

    I’m still processing that fact that there’s one item called “Party Patrol” in the budget, let alone two (under both Police Operations and Community Standards).

    • varmentrout Says:

      Yes, that was commented upon by council members too. I think it is the same thing but divided between departmental operations. It is mostly to deal with rowdy parties in the campus area, especially after football games. Maybe the Community Standards piece is in response to complaints and the Police Operations is preplanned. I was amused that major forces are only deployed when certain teams are playing (think Ohio State and Michigan State).

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