What's different about the Mayor's proposed FY21 Budget?

Written By Richard Young

Quick Summary

  • The Mayor’s Proposed Budget makes significant cuts across city government because of a $40+M projected revenue shortfall. This revenue shortfall is a result of the economic impacts of the COVID-19 epidemic. This has lead to a number of cuts to internal and external programs in City Government 

  • Internally, the city has instituted a hiring freeze for all vacant positions, including 41 unfunded positions. It has cut over $12M across a number of divisions and departments, including $1.4M from the Department of Environmental Quality and Public Works and the elimination of many bonded projects.

  • Externally, the Mayor’s Proposed Budget cuts almost all funding to social service agencies, eliminates the funding of many economic development programs, reduces the Affordable Housing Fund by 90%, and cuts funding for Homelessness initiatives by almost 50%.

Why does this matter?

  • The city budget was not in good shape to begin with. Last year’s revenue growth rate was 0.5%, compared with 4-6% in previous years. The city’s revenue projections were already showing a $9M deficit for this budget year, and a $25+M budget deficit projected for FY22/23. The COVID-19 epidemic exacerbated this budget crisis.

  • The extreme revenue deficit caused the city to tap into many Restricted Funds to use non-recurring funds to pay for ongoing city costs. This is unsustainable because there is no mechanism to replenish those funds. 

  • 9% of this year’s revenue is non-recurring, including $13.6M from the city’s “Rainy Day" Fund (Economic Contingency Fund), which will only have $21M  remaining if the budget is accepted as proposed.

  • The cuts to internal and external social service programs are coming at a time when these services are needed by an increasingly large percentage of our population. Record unemployment has increased the burden on social services in Lexington and will also grow the demand for affordable housing. Without essential government assistance in these areas, there will be significantly fewer resources for residents in need.

  • Cuts to economic development entities also put the city in a difficult situation in the long term. A significant portion of the city’s revenue base comes from payroll taxes and business net profits. Without job growth, that revenue will not recover, depriving the city of the resources to keep programs funded.

Why does this matter?

  • The Mayor’s Proposed Budget avoids bankruptcy for the City of Lexington, a grave concern for many cities of all sizes across the US.

  • Some federal support for COVID-19 relief has come for states but direct budgetary relief is only available for cities above 500,000. Funding for cities and counties under that limit could significantly impact Lexington’s financial situation.

  • By state law, the City of Lexington must have a balanced budget. This means that the city cannot spend above its projected revenue. With little revenue growth, it has to cut expenses.

  • The city has set its debt ratio goal at 10%, the recommended ratio by bond rating agencies. However, bonding in recent years to cover capital investments like the Old Courthouse, Lexington Convention Center renovations, and the construction of Town Branch Trail have caused the city’s debt ratio to reach 13.4%. This means that any additional borrowing would jeopardize our current credit rating.

  • State law strictly governs what the city can do to diversify where its revenue comes from. Some council members, most notably Vice Mayor Steve Kay, have shown support for growing revenue streams where the city has the ability.

  • According to an Op-Ed by Vice Mayor Kay in the Lexington Herald-Leader, a .25% increase in the Occupational License Fee (Payroll Taxes) from 2.25% to 2.5% could raise an additional $24M in revenue for the City of Lexington. 

How can I get involved?

Richard Young
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What is in Lexington's proposed ADU legislation?