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Kalamazoo, Muskegon make tough calls, rise in fiscal ratings

A gritty, blue-collar city on Lake Michigan, Muskegon faces headwinds similar to many Michigan communities: factory closings, job losses, an eroding tax base.

But in the past few years, it has managed to turn a dicey fiscal picture into one of relative health. In 2011, according to an analysis by Munetrix, an Auburn Hills-based financial consultant, it earned a fiscal rating of 1 – on a 0-to-10 scale where 10 is the worst. It was rated 3 in 2010, 2 in 2009 and 3 in 2008.

The upgrade has not come without sacrifice. Officials cut general fund expenditures from $26.1 million in 2008 to $23.6 million in 2011. (Adjusted for inflation, that’s a reduction of nearly $4 million.) Its 2010 budget included elimination of 23 staff positions. It cut city curbside recycling and a summer youth program. The city also reached agreement with the firefighters union to allow use of part-time, non-union firefighters.

Its next budget increased property taxes by 1 mill and cut more than $600,000 in program and staff. In 2012, officials voted to privatize building inspection services.

In addition, the city benefited from a one-time cash infusion from its change from a calendar-year budget to a July-June fiscal year. Its fund balance went from $2.2 million in 2008 to $4.4 million in 2011.

Kathy Roy, a consultant at Munetrix, said Muskegon’s multi-pronged approach is one cities need to maintain fiscal stability. She formerly served as finance director for Novi for 13 years and as controller for eight years.

“It has to be a combination of factors. It has to be a total look at their financial position,” she said.

She noted that Muskegon's fiscal picture is brightened by new development, a key for communities that suffered from loss of taxable value in recent years. She pointed to expansion in 2011 of the Betten Chevrolet Cadillac dealership, a $10 million investment in a new Betten Hyundai dealership and a $14 million residential development planned along Lake Muskegon.

“It's a significant factor. You're not going to be able to cut your expenses enough to make up for the revenue decrease.”

City officials believe they had no choice but to take strong measures. The city lost a major employer when the Sappi Fine Paper mill closed in 2009, costing $300,000 a year in revenues. The potential closing of Consumers Energy’s B.C. Cobb generating plant after 2015 could spell the loss of another $800,000. It also absorbed population loss, from  40,105 in 2000 to 38,401 in 2010.

“We have faced reality,” said City Manager Bryon Mazade. “We  haven't stuck our heads in the sand.”

As a result, he said, “We think we are in a decent position.”

Kalamazoo gains staff concessions

Kalamazoo also improved in the Munetrix index, moving to a 3 in 2011 after a score of 6 in 2010.

Roy credits the city with several steps toward fiscal stability, including benefit concessions by employees and an early retirement plan designed to trim staffing. Its 2013 budget has 674 employees, compared to more than 900 in 2001.

A city budget report noted the city saved $4 million in fiscal 2009 through fiscal 2011 through health care and workers compensation benefits and another $1.2 million in structural health-care savings.

Officials also calculate savings of nearly $8 million by fiscal 2014 as the result of an early retirement plan accepted by 219 employees. The city plans to fill only 129 of those vacancies. Salary costs for new hires are lower because their pay is based on negotiated rates that have been reduced 5 percent and because their seniority is lower.

On the development side, city officials point to projects like the Metropolitan Center, an $11.3 million redevelopment of four historic downtown buildings for retail and residential use completed in 2012.

Financing hinged on a complex layer of funding, including federal New Markets tax credits, federal and state historic tax credits, state brownfield tax credits, funding from the city's Brownfield Redevelopment Authority and Downtown Development Authority.

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