Littleton's 2021 budget fraught with challenges

Lackluster revenue, climbing costs, uncertain economy spell trouble

David Gilbert
dgilbert@coloradocommunitymedia.com
Posted 10/24/20

Littleton's city finances face a challenging future, outlined in the 2021 budget approved by city council on Oct. 20. “The financial impacts of COVID-19 on the City of Littleton are profound,” …

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Littleton's 2021 budget fraught with challenges

Lackluster revenue, climbing costs, uncertain economy spell trouble

Posted

Littleton's city finances face a challenging future, outlined in the 2021 budget approved by city council on Oct. 20.

“The financial impacts of COVID-19 on the City of Littleton are profound,” City Manager Mark Relph wrote in the introduction to the 2021 budget.

Read the 2021 budget.

Decreased tax revenues resulting from pandemic shutdowns have taken a toll on city finances, prompting early retirements and layoffs of city staff, service reductions at city facilities, and a dire outlook for the Capital Projects Fund, which pays for projects like long-discussed upgrades to city streets designed to address congestion.

Through June 2020, the city's general fund revenues were lower by 17% and expenditures were lower by 6% from the same point in 2019, according to the budget, losses driven largely by a dive in sales and use taxes caused by pandemic-related shutdowns in March, April and May. By the end of 2020, city sales tax revenue is expected to have declined by 7% from 2019.

And revenue collection isn't out of the woods yet.

“Despite recent improvements, the economy remains in crisis,” Relph wrote. “While this recession is likely to be the shortest on record, it is also likely to be the deepest.”

Cost-saving measures

Relph said that while city council discussion in recent years has touched on a desire to diversify the city's income streams, “The reality is that municipalities receive the majority of their operational revenues from sales, use, and, to a lesser degree, property tax,” Relph said.

Of the $45.6 million in anticipated revenues to the city's general fund in 2021, 78% are expected to come from sales and use taxes.

City staff already enacted a variety of cost-saving measures early in the pandemic, leading to a $2.1 million reduction in the 2020 budget, including reductions in consulting and seasonal staffing, 60-day furloughs of many city staff, a freeze on filling vacant positions and a freeze on pay raises in 2020.

Eighteen city employees accepted early retirement offers in 2020, meant to ease the burden on city payroll, though the number was so high that the city maintained funding for 8.5 full-time equivalent positions in the 2021 budget, including a police corporal, a landscape manager, and three drivers for the Omnibus program, which transports elderly and special needs citizens to appointments.

Layoffs, affecting seven employees, accounted for a total reduction of 4.51 full time equivalent positions.

The 2021 budget includes a 3% raise for employees, which Relph said is necessary to “maintain our commitment to invest in our employees and their families through competitive wage and benefits. Our ability to provide excellent customer service depends largely on our ability to attract and retain well-qualified employees.”

Funding cut for library, museum, immigrant center

The budget also slashes funding for the Littleton Immigrant Resources Center, a program based at Bemis Library that for years has offered low-cost services to legal immigrants, including English and citizenship classes and assistance filing paperwork to obtain citizenship.

Prior to 2019, the center had been funded by federal grants, but attempts to renew the grant were unsuccessful. The city floated the center at the same funding level as the grant, about $200,000 a year, in 2019 and 2020. The 2021 budget cuts the center's funding to $133,000, eliminating citizenship classes.

Bemis Library and the Littleton Museum also took hits, with sharp reductions in operating hours — the library will be open 40 hours per week, down from about 68 before COVID, and the museum will be open 30 hours per week, down from about 47.

Littleton's police department budget saw a slight increase of about $100,000, from $14.3 million to $14.4 million, with some of the increase going to pay for a graveyard shift patrol commander.

Even with the cuts, the long-term outlook for the general fund remains difficult, with expenditures expected to outpace revenues for each year of the city's five-year forecast. Though the city anticipates ending 2021 with a 23.1% fund balance — healthily above the city's best practices of maintaining between 8% and 18% in reserves — the reserve dwindles to 9.1% by 2025, not far above the 8% minimum needed to meet reserves required by the Taxpayer's Bill of Rights, or TABOR.

Many needs, little money

The most dire forecast in the budget, however, is in the Capital Projects Fund, which pays for improvements to streets, large equipment purchases, information technology upgrades and lease payments on city buildings.

The fund has two main funding sources: gasoline taxes, which have been stagnant or dwindling in recent years, and building use taxes, which can fluctuate widely from year to year.

Per the terms of the city's 2019 merger of its fire department with South Metro Fire Rescue, the city is committed to an annual transfer of $3.1 million to the fund, though that money is earmarked for street maintenance.

The list of needs that fall under the fund, however, is immense. Among the biggest-ticket items are matching funds needed to secure state and federal grants to undertake massive infrastructure upgrades, including a long-discussed flyover ramp at Santa Fe Drive and Mineral Avenue intended to relieve congestion at the city's most notoriously gridlocked intersection. The grant match need for that project could top $20 million.

The long-term outlook for the fund is bleak: the fund is expected to end 2021 with $2.4 million, down from a 2020 year-end balance of $3.4 million. By 2025, however, the year-end balance is expected to be just $302,173. With an annual withholding of $300,000 to save up for grant matches, that would leave a mere $2,173 in available funds.

Meanwhile, staff have identified more than $54 million in unfunded projects between now and 2025 — a number that grows to a staggering $98 million when stretched out to 2035.

The yawning gap between funds and needs “is not sustainable,” Relph wrote, “and will eventually lead to much higher infrastructure costs in future years as maintenance yields to costly replacement.”

Costs climbing

The city's sewer enterprise fund will also see massive drawdowns in coming years, though the expenditures were anticipated before COVID and are related to long-term capital projects at South Platte Water Renewal Partners, the sprawling sewage treatment plant Littleton operates jointly with Englewood.

To pay for the upgrades, mostly spurred by heightening standards for sewage effluent in state law, the city is on the hook for millions of dollars for each of the next five years, drawing the fund down from a 2020 year-end balance of $23.1 million to just over $750,000 by the end of 2025.

The city operates numerous smaller funds, mostly regarding health insurance, disability and workers' compensation. A notable change lies in the city's Property and Liability fund, which is expected to see increased expenditures over 2020 of more than $335,000, or 47%, driven by climbing liability insurance costs as a result of the statewide Law Enforcement Integrity Act, which removes qualified immunity for police officers.

The city's financial picture is unsustainable in its current form, Relph said.

One idea to address the problem is a sales tax increase. A 2020 city survey found more than three-quarters of residents somewhat or strongly supported a tax increase of three-quarters of a cent on a one-dollar purchase.

Still, many challenges lie ahead.

“The 2021 Proposed Budget is one of the most challenging budgets the city has developed in recent years,” Relph wrote.

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