Ferndale Budget Shows Breakdown of City Expenses, Future Challenges
(Crystal A. Proxmire, March 27, 2023)
Ferndale, MI – Ferndale City Council spent the better part of a Saturday listening to departments heads talking about their expenses, savings, and needs as part of a process that look at expenses three years at a time. In Ferndale, as in most cities in Oakland County, the City Manager and staff handle the day to day operations, while the elected officials vote on the budget and set bigger picture priorities.
“We are a team on council and staff, and we work together for the community,” said Mayor Melanie Piana as the day-long meeting began.
HEADLEEE OVERRIDE AND IMPACT ON BUDGET
The most pressing topic was that of the Headlee Override.
Headlee overrides can be complicated to explain, but they’re the result of legislation intended to keep tax rates in line with inflation. According to a Michigan Municipal League fact sheet, “In a nutshell, Headlee requires a local unit of government to reduce its millage when annual growth on existing property is greater than the rate of inflation. As a consequence, the local unit’s millage rate gets “rolled back” so that the resulting growth in property tax revenue, community-wide, is no more than the rate of inflation.
“A “Headlee override” is a vote by the electors to return the millage to the amount originally authorized via charter, state statute, or a vote of the people, and is necessary to counteract the effects of the “Headlee Rollback.”
“Although it might appear that a community with an annual increase in uncapped property values would benefit monetarily, uncapped values are treated as growth on existing property and trigger Headlee rollbacks. For local governments levying at their Headlee maximum authorized millage, rolling back the maximum authorized millage rate reduces the revenue that would have been generated from these increased property values.
“The increase in the taxable value of property not transferred is capped at the lesser of inflation or five percent. Even though the taxable value of a particular piece of property increases at the rate of inflation, the millage rate for the entire community is “rolled back” as a result of the increase in the total taxable value of the community. The net result—a less than inflationary increase in the actual dollars received from property taxes. Consequently, the 1994 change to the General Property Tax Act has prevented local governments from being able to share the benefits of any substantial market growth in existing property values.”
In Ferndale the Headlee vote will take place in 2024, putting into play about 27% of the city budget.
“Some of the services our residents value the most, like curbside leaf pick up, could be cut back if Headlee doesn’t pass,” said Councilperson Kat Bruner James. A chart compares Ferndale with Headlee and without, stating that services like social media management, strong staffing of polls on election days, the tree canopy program, sustainability programs, staff positions in city hall and the police department, and the body camera program all relied on Headlee funds.
Mayor Piana remembered her first year on council, 2010, when the community was facing a rollback. “Some of my first votes were laying off people to balance the budget,” she said. “It’s a very difficult conversation to have,” Piana added. “It’s up to the voter to decide what kind of city services they want to have.”
A chart in the presentation showed Ferndale’s tax rate compared to neighboring cities, with Ferndale in the middle with 24.7 mils in 2022. Royal Oak was lowest of those shown, with 17.6 mils. Pleasant Ridge had 22.0 mils. Huntington Woods was 24.3. Madison Heights was 26.1. Oak Park was 32.4, and Hazel Park was 43.5. Because the cities vary both in population and in rate, the value of a mil varies greatly among cities. In Ferndale one mil raises $800,765 while in Royal Oak one mill raises $3,163,168. In Madison Heights its $966,067, while in Hazel Park it is $294,396. In Royal Oak Township, a mil raises just $35,622.
GENERAL FUND
The general fund holds all monies not dedicated to specific causes, such as police and fire, or parks millage funding.
In 2024 the city expected to have $9.4 million in property taxes, $3.5 million in Headlee Millage, $3.3 million in state revenue sharing. $2.0 million in fines and fees. $1.1 million in permits and licensing. $920,511 from intergovernmental sources. $481,724 in grants. And $3.1 million in contributions from investments and other funding sources.
Each department uses money from the general fund. 33% goes to the police department. 20% goes to fire. City Administration and DPW each get 9%. Other expenses include District Court, Parks and Rec, Community and Economic Development, central services, facilities and IT. A chart also breaks down the costs of city administration by department, with the Finance department getting 25% of the funds.
Most years the budget and expenses even out. In 2021 revenues were $23,230,718, as were expenses. Then there was a fund balance of $6,881,811. In 2022 expenses were higher than revenues, leaving a balance of $6,659,712 which did not change in 2023’s adopted budget or in the forecast for 2024. However in 2025 as revenue decreases and expenses increase the city is projected to start using the balance, which is known as a “rainy day fund.” And in 2026 expenses are expected to rise to $17,178,012 while revenue is slated to decline to $22,335,713, which would leave Ferndale with just $1,155,373 in it’s coffers. This comes from an expected increase of 7% to expenses in fiscal year 23-24. Much of the increase is due to the cost of labor and a 100% increase in annual pension obligations between 2020 and 2024.
One of the biggest challenges is payroll, particularly with $1.1 million in overtime for police and fire. “There’s an employee shortage in police and fire and that’s nationally, not just in Ferndale,” said councilperson Greg Pawlica.
Councilperson Kat Bruner James added “Any increase in tax revenue is essentially being used immediately by the increase of wages, so they cancel each other out.”
HOW TO BALANCE THE BUDGET
City administration recommended increasing revenues with service fees, permit and licensing fees, and reducing expenses by not filling vacant positions that are not critical to government, reducing payroll, and cutting back on capital projects. Each department put in requests for funding. Requested amounts totaled $2,398,016. But the recommended budget allocates just $1,295,016. This goes from 65% of the fund to 35% of the fund.
COURT
Each department head was called upon to discuss their department’s budget and needs. Judge Joe Longo kicked it off with a presentation on the 43rd District Court. The District Court includes three cities (Ferndale, Madison Heights, and Hazel Park), each with their own building and their own budget, through their own city.
While the focus of the presentation was financial, it was also an opportunity for Council to hear about successes in the program.
“One of the things we’re most proud of is the sobriety court, treatment program for drunk drivers,” Judge Longo said. Statewide the recidivism rate for drunk driving is 13%. But in Ferndale that number has been 0%, because of the care that is given to get people help beyond just fines and jail time.
Another program allows those with fines and costs to pay them back by working on DPW projects like painting tables, washing trucks, and shoveling snow. Some of those in the program have gone on to work for the city, or use their job experience to help them find other gainful employment.
“We find it to be a huge advantage,” the Judge said. “We didn’t have to provide this, but we think these are the kinds of programs Ferndale residents want to have.They work here because Ferndale believes these are worth paying for.”
Longo said one way the court has tightened it’s belt was by not replacing two full time staffers who retired. “Other people are picking up the slack,” he said.
DPW
The Department of Public Works handles a number of infrastructure tasks for the city, including local roads. Some roads, like Woodward, fall under Michigan Department of Transportation management. But there are local road projects on the horizon as well, including resurfacing Hilton Road between 9 Mile and Woodward Hts, resurfacing Wanda from 8 Mile to 9 Mile, and plans in the works to resurface W. 9 Mile in fye 2026.
Buildings and vehicles are also large expenses. For both buildings and vehicles, city leaders must weigh out the costs and benefits of deferred maintenance. Essentially, how much money should the city put into repairs of a failing vehicle or building or system, versus the cost of replacement.
The total recommended allocation is $2,027,482 for fleet purchasing and management. For facilities the allocation is $1,092,410 which includes electrical panel upgrade and HVAC heating water pump replacement at City Hall, door and limestone replacement at Fire Station 1, and screening replacement at the DPW yard.
The construction of an indoor/outdoor facility at Martin Road Park is in the works, with a $700,000 federal grant. The next step for that project is seeking out design proposals in fye 2024/2025. A facilities task force appointed by the city looked at city-owned properties as far as needs and expences, providing recommendations for the coming years.
PARKING SYSTEM
The parking fund has seen both an increase in expenses and a decrease in revenues since 2019. Not including the financials of the dot parking structure, there has been a 40% increase in expenses, and a 45% decrease in revenues. The 2022 audit showed a $478,000 operating deficit, with the pandemic receiving the blame. The dot will be bringing in revenue as the retail spaces are filling up, and the residential addition will be likely constructed in fye 2024-2025.
One upcoming expense is the replacement of pay stations along Woodward as part of the Woodward Moves project, costing $72,000. The plan is to pull out single space meters and replace them with multi-space kiosks. They are also switching from a numbered spot system, to pay by plate. They are also installing machines that do not take dollar bills – only quarters or credit cards – because the part that accepts dollar bills can easily jam or be damaged. Additionally the current machines are over ten years old, and parts are hard to find for them.
There are 1,300 parking spaces in the system.
POLICE
Ferndale Police patrol operations make up 12% of the general fund budget, with a total allocation of $2,992,979. This includes personnel costs as well as things like software licensing, office supplies, radio maintenance, and cellular service. They are also hoping that council will approve the purchase of three speed detection displays that are shown to reduce speeding as well as to gather information about traffic and speeds (though they are not used to issue tickets).
Fleet management is also an expense, with $205,674 allocated for vehicle maintenance and purchases. For example, $62,560 is set aside for motor fuel and lubricants (ie gas and oil changes). The purchases of a 2023 Chevy Traverse will replace a 2014 Ford Fusion, and two patrol vehicles will be 2023 Ford Explorer hybrids, replacing 2013 Dodge Chargers.
FIRE
The Ferndale Fire Department not only responds to fires, they handle EMS calls and ambulance runs. They serve Ferndale as well as Pleasant Ridge through contract. EMS and Incident Response requires an allocation of $2,561,913 and brings in $485,000 through EMS fees. Managing the fleet of ambulances and fire trucks has a $166,694 allocation. ARPA funds are covering the cost of an ambulance and a fire engine in 2023, and the Fire Marshal is in need of a vehicle replacement with a cost of $50,000 in fye 2024. The department spends $37,390 on fuel and oil. Fire Chief Theresa Robinson told council that the department had not been fully staffed since 2016, but will be this year. Overtime costs are reduced when there are enough employees to work a regular schedule. However training and education are an expense for both new hires an keeping established staffers up to date. The budget for training and education is $369,191.
CITY HALL
There are a number of administrative services that fall under City Hall expenses.
The City Clerk’s office is in charge of conducting elections and maintaining voting records. This comes at a cost of $235,245 which includes election workers, printing and publishing, clerk and elections staff, postage, and contracted services. The cost includes the work of increased absentee voting.
Parks and Recreation is an area where Ferndale has chosen to invest, with a mix of tax funding and grants making the improvements in the parks happen. Recent Wilson Park improvements have #311,000 in grant funding secured for reimbursement. At Martin Road Park $178,000 worth of improvements are offset by $68,000 in grant reimbursement. And $100,000 in grant funding has been secured through Oakland County for improvements to help seniors. Adult sports programs cost $58,055, but bring in $44,000 in revenue.
SPECIAL REVENUES
One increase being passed on to residents is an increase in sanitation fees. “What we’re seeing right now on the SOCRRA side of things, we’re experiencing a 5% increase on trash hauling associated with fuel costs,” explained Assistant City Manager Kyle Pollet. In 2020 the cost for a single family home was $169 for the year. In 2022 that went to $171. In 2024 it’s expected to be $172, and in 2025 it’s expected to be $180. There are other fee scales for apartments and commercial customers. Costs to waste management include a $73,802 personnel expense for a full time Zero Waste Coordinator position, as well as $50,000 in contractual services.
Water rates are another challenge for the community. For fye 2024 the rate for water is $5.612 per unit, for stormwater $8.46 per unit for a combined rate of $14.103 per unit.
In the Water/Sewer Fund costs include stormwater treatment, liability insurance, utilities, wholesale water purchase, debt service, interest, mail processing and postage, credit card feels and administration. Costs are $8,311,732 and revenue is $12,803,399. Lead service line replacements are a major project for the department, as are water main repairs. In fye 2024 the water main on Jewell will be replace, and in 2025 it will be Mapledale and Shevlin that see water main work.
TIMELINE
The first reading of the budget is expected to take place at the April 12 Ferndale City Council meeting, with the second reading/adoption anticipated for April 25. FYE 2024 begins July 1. In the fall there will be a 5 year plan annual update. Public comment is welcome at the meetings, and documents can be viewed on the City of Ferndale website.