City economy could weather a recession

·4 min read

May 27—A financial crisis caused by Congress failing to raise the federal debt ceiling would have little immediate impact on the city of Owensboro, the city's finance director said Friday.

Angela Waninger, city finance director, said the city is also better suited to handle an economic downturn that would lead to a recession, due to the city's broad economic base.

"We are pretty insulated from those hiccups, because our economy is so diverse" and doesn't rely on one or two large businesses to sustain it, Waninger said Friday.

If there were a downturn, the city would be able to use its budget surplus to shore up the budget, which would prevent officials from having to resort to a tax increase, Waninger said.

The budget presentation city commissioners received in early May included a multi-year forecast of the city's finances for the next several fiscal years. The forecast, on paper, suggests the city will begin spending more than it collects in fiscal year 2024-25, which will eat into its $32 million general fund balance.

Using the city's forecast methods, the budget surplus could fall to $24.566 million in fiscal year 2027-28.

But for that to happen, the city would have to have to pay planned every expense in its budget — which does not happen — while receiving less revenue than the city typically receives.

"At the end of the day, you have to make a lot of assumptions" about future city revenue and expenses when forecasting years ahead, City Manager Nate Pagan said.

Waninger said the city finance department always anticipates conservative revenue and maximum spending for necessities, although those projections are unlikely to be true.

For example, Waninger said, when the city is preparing a forecast, officials anticipate the city will be 100% staffed, with positions in every department filled.

"In those (later) years, we budget 100% of salaries, and we are never at 100%," Waninger said. "There are always vacancies."

Open positions are difficult for agencies, but create a cost savings for the city. For the current fiscal year, as of April, the city had spent $975,000 less on salaries than had been budgeted.

In preparing forecasts, the city also budgets increases in expenses that might not come to pass, such as for fuel. The forecast also anticipates "conservative" revenue, Waninger said.

"We have to make sure we budget for everything we think we need, because it could happen," Waninger said.

"Typically, since I have been here, the out-years (forecasts) reflect deficits, because there's no way to know where things will be three years from now," Waninger said. "But by the time we get there, we develop a balanced budget."

Revenues are typically higher than the finance department estimates in its forecasts. For example, as of April, the city had collected $710,000 more in occupational tax revenue than officials had budgeted for the fiscal year, Waninger said.

If city officials are faced with a budget that had more expenses than revenue, officials could postpone projects until another fiscal year, Waninger said.

"When we get to that point, there are compromises to be made, and not everything you budget that year gets done," Waninger said.

Or, alternatively, city departments "find cheaper ways to do things," Waninger said.

The city's general fund balance was bolstered by federal CARES and ARPA dollars, which cities and counties received during the COVID-19 pandemic.

"With our fund balance, we have been fortunate with CARES and ARPA money," Waninger said. Later, Waninger said, the city's general fund "could absorb some shocks if we had any."

If all of the assumptions in the budget forecast come true each year for the next five fiscal years, the city's general fund reserve would decrease from $32 million currently to $24.566 million by fiscal year 2027-28. However, the city's reserve fund would still be higher than $13.590 million reserve recommended for that year by the Government Finance Officers Association.

Waninger said if the economy were to take a blow from Congress not raising the federal debt ceiling, there would be little immediate impact on Owensboro.

The city could weather the recession better than other cities, because of its wide range of businesses, Waninger said.

"Some cities have big manufacturer that is their end-all" that holds up their economy, Waninger said.

"Owensboro is a good place. It's steady. It's stable," Waninger said.