City of Erie Calls Out Inaccurate Statements about the City’s Finances
Inaccurate statements that were recently made by the Mayor’s opponent regarding the City’s finances require a correction. The Mayor and City Council, along with Department Directors, have worked hard together over the last eight years to stabilize the City’s finances and have made great progress. Statements warning residents of “Act 47” and “state takeovers” are not only inaccurate but also irresponsible. Contending that City officials have had “no honest conversations about this and with the public about what’s coming” reflect a lack of knowledge on behalf of the Mayor’s opponent regarding meetings happening inside City Hall and also the transparency with which these issues have consistently been addressed these last eight years.
Statements by the Mayor’s opponent, trying to scare residents into thinking that there will be “decreased city services” and that this will “jeopardize the City’s future” are false. The statement of the Mayor’s opponent demonstrates nothing but a clear lack of understanding about municipal budgeting and how far the City has come in the last eight years.
By law, the City is required to balance the budget every year. In 2018, when Mayor Schember took office, the administration drafted the City’s first five-year budget to get a sense of the direction in which the City was headed. The administration discovered that the City was projected to have shortfalls of $11 million in 2019, followed by deficits of $5 million, $7 million, $13 million, $17 million, and $23 million from 2020 to 2024. These forward-looking projections indicate what needs to be done to course correct. A five-year budget forecasts what would happen if the City did nothing and enables staff to assess options and take action.
In an effort to address these structural deficits, the City applied to the Commonwealth of Pennsylvania for funding to undertake a five-year financial management plan. As a result of that planning process, which was conducted by consultant Public Financial Management (PFM), the City identified three critical issues related to pensions, long-term debt, and structural deficits. Working together, the Mayor, City Council, and Department Directors have implemented several short-term fixes and long-term strategies to eliminate those deficits. The City:
- Established LERTA, resulting in $380 million being invested in homes and businesses which will expand the tax base
- Invested tens of millions of dollars in more than 500 businesses to create jobs and increase revenue from earned income tax and local services tax
- Took a prepayment of the Erie Water Works lease in the amount of $96,694,250
- Paid down half the city’s long-term debt with $78,671,836 of the water lease funding, saving taxpayers $86.3 million in principal and interest
- Transferred $8,795,917 to the general fund from 2020 to 2022 to cover structural deficits of $3.5M in 2020, $2M in 2021, $3.3M In 2022 (cost-cutting measures and alternative sources of revenue had reduced these deficits from the projected $5 million, $7 million, and $13 million)
- Turned the 2023 projected deficit of $17 million into a $243,000 surplus and the 2024 projected deficit of $23 million into a $2 million net surplus (both while using no funding from the water lease prepayment; the City still has $6.5 million of the water lease prepayment available)
- Earned additional investment income in the City’s General Fund from $129,306 in 2022 to $992,600 in 2023 and $1.4M in 2024
- Secured $120 million in grants from Harrisburg and Washington, D.C. for equipment, technology, salaries, infrastructure, and community projects and initiatives.
The City did this without raising property taxes the last six years or earned income tax the last seven years.
Statements that were made also indicated that the City was using refuse and sewer fees and one-time funding to cover the City’s structural deficits. This is an inaccurate statement.
First, the City has not had to use the water lease funding for the last two years. That funding has lasted far longer than originally anticipated.
Second, many cities used American Rescue Plan (ARP) funding to replace lost revenue and are now facing a fiscal cliff, but the City of Erie did not use any ARP funding to plug deficits. Rather, staff invested in businesses, shored up infrastructure, increased public safety, and created revolving loan funds that will continue to revolve and grow into the future to fund housing, economic, and community development projects. As a result, the City is being recognized by the Federal Reserve for implementing innovative strategies.
Third, the Refuse and Sewer funds are standalone enterprise funds. The fees that are collected do not go into the General Fund.
One of the action steps that was outlined in the PFM Report was that the City should stop taking transfers from Refuse and Sewers. For decades, previous Mayors would transfer millions of dollars in funding from Refuse and Sewers each year to cover shortfalls in the General Fund Budget. To put Public Works on a stronger footing, the Mayor and City Council successfully weaned the City off of these transfers so that the City can put that funding back into equipment, capital, infrastructure, salaries, and new positions. The administration has also been successful at separating enterprise funds from the General Fund. As costs for materials, chemicals, fuel, utilities, and salaries increase, the City MUST incrementally increase sewer and refuse fees to keep pace with costs so that these funds can be self-sustaining. It’s also important to build up a balance for equipment and capital improvements. As a part of the five-year budgeting, the administration also developed a five-year capital improvement plan each year, which the City had not done previously. This enables each department to share their needs so the administration can prioritize capital improvements and equipment each year and then budget accordingly.
The statement also indicated that the City was in danger of being taken over by “Harrisburg politicians”. This could not be further from the truth. First, it’s not Harrisburg politicians that would take over the City’s finances, as an elected school board member should know, it would be an appointed state overseer like the one that was appointed to control the finances of Erie’s Public Schools. Second, there are 11 criteria that must be met for the Commonwealth to take a city into Act 47, and the City does not meet even one.
As a result of these efforts, the City of Erie sits in its strongest financial position in decades with an improved “A stable” investment grade bond rating. There is still work to be done, but classifying the City’s financial status as a “crisis” is false.