Main Street Journal: Feature Article: Keeping Lean: What can we learn from Collierville?

The following article is taken from the April 2009 issue of the Main Street Journal. Click “Subscribe Online” above to start your subscription.

Keeping Lean: What can we learn from Collierville?
By Michael Roy Hollihan

While the behemoth that is Memphis receives the lion’s share of the news about budget shortfalls, revenue decreases, tax rates, possible layoffs and more, it is also tough for the average Shelby Countian to picture the problem. Comprehending and discussing the numbers involved is difficult. When a budget runs to hundreds of millions of dollars – or even hits the billion dollar mark — and the bureaucracy is thousands of government employees, employed in a vast number of divisions and sub-departments, it’s not easy to visualize in a concrete way.

So it helps to turn to one of the smaller cities of Shelby County to discuss how a town reconciles the various demands of a bleak, near-term future, economic picture. The numbers are more comprehensible and the smaller divisions and departments can be personalized. Relationships are clearer and simplified.

Collierville is an excellent example. A town of 45,000 souls with a government of roughly 500 people. Late in 2008, the city’s administrators began to realize they were facing a problem with their current 2008 – 2009 budget and would have serious gaps between spending and income in the 2009 – 2010 budget. “Serious” for Collierville meant roughly $3 million overspent for the 2010 budget. It’s a number the average person can imagine, it’s graspable. But when your total budget for that year is just under $40 million dollars, it’s also a significant gap that demands hard choices.

The first red flags started going up in the Finance Department. Finance monitors and controls the funds that make government possible; and watches local, state and national trends across an enormous range of measures and revenue types, using a ten year baseline to stay ahead of problems. Says Finance Director Jane Bevill, “There are many different revenues that we have to look at. Our biggest revenue is property tax; that’s about half our budget. The next largest one is local option sales tax.” She goes on to mention the Hall income tax, the hotel-motel tax, licenses and permits, court revenues (which alone make up $1 million) and more.

Mayor Stan Joyner also points out that construction in Collierville has declined steeply in recent years, especially residential building thanks to the mortgage crisis. The number of permits pulled for new residential construction dropped from 322 in 2006, to 223 in ‘07, to 78 in ‘08. Through December, 2008 (the halfway point of the ‘08-’09 fiscal year), the number of permits issued was a staggering 24. Commercial permits followed the same pattern.

Bevill was seeing the same thing from the State – that revenues were dropping, and sharply. And with a two month gap between collections and reporting, it was imperative to act swiftly.

“They [revenues] were not coming in. We started work on it right after the election last year, in December,” Joyner says. He was beginning his first term in November as the realization dawned. Two-term Alderman Tom Allen places his own awareness as far back as June and July of 2008, the beginning of the current fiscal year.

Property taxes are raised locally, of course, based on rates that are set by the County and by the City’s Board of Mayor and Aldermen. Service fees, permits, licenses, user fees, court costs and so forth are collected by City Hall. The money raised by the State of Tennessee from the local option portion of the sales tax and from state-shared revenues and the Hall income tax on interest from bonds and other investments are sent down to the County and thence to the City of Collierville.

“Sometimes our [revenue trends] mirror the national, but typically ours is a little bit different,” notes Bevill. “Usually, we’re a bit behind the curve. We don’t get hit as quickly as a lot of communities. We’ve been doing this for many years, so we’re not projecting revenues that aren’t coming in.” But the money streams were drying up nonetheless.

“We saw a picture of what was happening to us,” Joyner says. “I had a meeting with each of the department heads and collectively with them all, and asked them to get into their budgets and look for opportunities to save money in the ‘09 budget year that we might be able to move forward into the ‘10 budget.”

Also integral to these moves was Town Administrator James Lewellen. Unfortunately, the Journal couldn’t interview Mr. Lewellen for this article. He was, ironically enough, involved in the very budget work that is the subject of this article, before traveling to Nashville for an important Tennessee Municipal League conference, where budgets and revenues were an issue, and was regrettably unable to respond.

As Town Administrator, Lewellen is the person responsible for daily operations of the various executive and administrative departments. Mayor Joyner sets policy and direction, and is ultimately responsible to the voters; Lewellen carries out those policies by supervising the directors under him. He is in charge of all the departments within City Hall: police, fire, finance, budget, payroll, accounting; water, sewer and maintenance; and others.

Both men attended the biweekly work sessions where the City’s budget is literally gone through, line by line. As Mayor, Joyner chaired the meeting and Lewellen would bring up, explain and justify each expenditure, or explain why the item could be safely cut without harming core services.

Expenses were expected to near $40 million, while revenues from all sources would fall to just over $36 million. It was through these meetings and other discussions that the City’s leaders, including the Board of five Aldermen, formulated an approach to dealing with the 2010 budget’s problems. Their plan involved three separate plans of action: cut the budget; withdraw funds from the City’s reserves; and use money from other accounts to meet some debt obligations.

The first was already underway. Thanks to prudent planning of long standing, the City had a healthy reserve fund of more than $8 million dollars. It had long been policy that for every dollar spent an additional 25 cents would be diverted into the reserve fund. Alderman Allen emphasizes, “Savings to me is a number one priority.” The Board of Mayor and Aldermen decided to withdraw up to $1.5 million from their reserves to replace the lagging revenues.

And lastly, they decided to use money from State Street Aid and the parks improvement fund to directly pay down the City’s bond debt. Here, too, was another example of careful foresight. Ten percent of the property tax had been going into the Parks and Recreation fund all along; money would be taken from that for the General Fund for the duration.

The last two were easily accomplished, merely requiring the decision and the Board vote to authorize them. The first one took some doing. Fully seventy percent of Collierville’s budget expenses are for personnel; making cuts would affect people.

Alderman Tony Sarwar, himself a freshman just starting his first term (”Still wet behind the ears,” in his description.), describes the process of the budget work sessions as one of a lot of discussions before action is taken. “Each department gives a presentation and the directors will discuss what they need to discuss. We will ask questions to the directors. ‘Where did you get that number?’ ‘How did you come up with that statistic?’ ‘What information are you getting?’ ‘What is this based on?’”

He stresses that no decisions are made at those work sessions. They wait for the monthly Board meetings. “It’s more or less an opportunity for directors to give us their feedback on their side, to present what they’re doing. They’ll come in and say what things look like for them. It’s us talking to the directors on the issues.” Debate and back-and-forth are common.

“We’re hoping to find ways to stay as lean as possible, so we don’t pass along any burdens onto any of our citizens,” says Sarwar. “We’re going to do everything we possibly can,” adds Joyner, “to live within our means.”

In a story on the budget work sessions, the Commercial Appeal mentioned that Alderwoman Maureen Fraser asked about the grants the City hands out to various civic and arts groups. But everyone interviewed for this story was clear that even in late March, with budget cuts bringing costs into line, it was still too early in the process to think about withdrawing or cutting grants. The idea was tabled until much later, May or June, and then only if other measures hadn’t produced the necessary alignment between revenues and expenses.

Two words heard over and over again in interviews were “conservative” and “frugal.”

According to Allen, Lewellen presented three budget scenarios, involving cuts of 5, 8 and 11%. They did not, he says, want to affect police, fire and public service with those cuts. Lewellen determined that it was the draconian 11% cut that got them to the necessary $1 million in savings by eliminating 12 positions and not filling 4 more empty ones. The lost jobs were in building and engineering inspection, code enforcement, tourism, several in the fire department, and others in administrative areas. Mostly these cuts are in areas tied to construction, where new development has vapored away

In the town’s master guiding document, Comprehensive Plan 2003 – 2013, “A Safe Community” is the very first principle listed for Collierville. And in late March, the Police Department won an impressive fifth national accreditation, placing them in an elite company across the state. It’s worth noting that the police are nearly untouched by the staffing cuts. Both Aldermen and the Mayor mentioned that safety was at the top of concerns they heard from the citizens of Collierville.

Even though the job losses hurt, the City made the separation less hurtful by giving all those let go a “severance” of their full pay through the end of the fiscal year, benefits included.

It’s also interesting to note something expressed by everyone interviewed for this article: raising the local option sales tax was an absolute last measure. Alderman Sarwar speaks passionately. “It would be very difficult when people are looking at the unemployment rate being so high, people making less money, FedEx having a 5% cut across the board; it’s not the time for raising taxes on the citizens. It’s something that would be the last thing to do.”

“We take this very seriously,” adds Allen. “Because it’s the taxpayers’ money and we work for the taxpayers. It’s never fun to have to close down a position. Again, we’re required to balance the budget every year and we wanted to do that without raising taxes and putting another burden on taxpayers because we were aware of what the County was planning to do, and that affects everybody. You don’t need a double whammy.”

Mayor Joyner sums it up. “Collierville is a very financially sound city. We have been and remain very frugal about our budget processes. I think we’re good stewards of the taxpayer dollar.”

The fiscal year still lacks three more months before it runs out. While the cuts made so far, and the planning already charted, will meet what’s expected it’s also possible that things may get worse before they get better. The just-hammered out 2010 budget may need to be revisited yet again before July 1, when a new budget must be in place.

But the attitudes and guiding philosophy, the respect for the citizens, and the awareness of their roles as public servants, should reassure the people of Collierville at least that it is possible to have a government that meets the needs of its people without draining them dry. What must be done is done, after careful deliberation, and with acute awareness of the pain being caused minus showy solicitousness.

Collierville is indeed a good example to look toward.

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