Transfers out of Mobile’s capital fund appear to be the rule over the past decade, not the exception, according to a recent analysis performed by the city’s Finance Department.
Between 2004-2013, city government spent less than 22 percent of funds initially budgeted for improvements to infrastructure or purchases of capital items. Instead, 78 percent, or roughly $247 million over the same 10 years, was transferred to other funds, used to pay outstanding debt and lease payments, or pushed into reserves.
At the same time, the city spent just $72.7 million on capital expenditures, a little more than $7.2 million per year.
“That’s a lot of money,” Finance Director Paul Wesch said about the transfers, which were exposed during a review of finances for the budget amendment process earlier this year. “It doesn’t solve all your problems, but it sure could help.”
The city’s capital fund is intended for use on major equipment and buildings as well as improvements to infrastructure like road paving, sidewalk installation and stormwater upgrades. Just last week, the council unanimously approved a $3.2 million allocation from the 2014 capital fund to purchase 93 new patrol cars for the police department.
But left untouched by Mayor Sandy Stimpson’s amended budget, the capital fund is also bleeding another $31.8 million in 2014, a trend Wesch said the administration is hoping to reverse in future budgets.
“There was no room to change it in the 2014 amended budget,” he said. “If you’re familiar with the amount the general fund was at risk prior to the amended budget, just trying to get it back to zero or close to zero left no room to redirect revenue back to the capital fund without having to address a few of the things the mayor avoided,” like layoffs or a sudden increase to the employee contribution as a part of the city’s health plan, Wesch said.
“What will happen in 2015 and beyond is we’re going to slowly but surely limit the amount of capital revenue we need going into the general fund budget and see if we can put that money to work as intended.”
Of the nearly quarter-billion dollars in transfers, about 37 percent landed in the general fund, which is used to pay the city’s operational expenses and payroll. Thirty-two percent was applied toward debt service and six percent was used for lease payments. Banking fees, reserve accounts and transfers to the convention center and WAVE transit system were also routinely financed from the capital fund.
In addition to exposing the meager amount that was actually spent for its intended purpose, the analysis also found that revenues initially earmarked for capital expenditures varied widely from year to year, from a low of $10 million in 2010 to a high of $46.5 million in 2006. Wesch said the swing was reflective of the fund’s reliance on revenue from sales tax, which is greatly dependent on a strong economy.
Regardless, no matter how much money the fund had at its disposal or had earmarked, the city spent no more than $18.5 million on capital expenditures in a single year since 2004 and in 2010, spent no money at all.
The analysis appears to substantiate previous, single-year studies undertaken by the Public Affairs Research Council of Alabama showing Mobile as the most frugal spender of capital expenditures among the state’s four largest cities. PARCA also found that while Birmingham, Huntsville and Montgomery earned an average of 15 percent of their total revenue from property tax, Mobile only earns about 6 percent.
Allocations to the capital fund rely almost exclusively on sales tax revenue.
“Mobile is out of the mainstream when it gets to a couple of the taxes and fees, and being overly dependent on sales taxes can get you into trouble,” Wesch said. “As a result, when times are lean consumer spending goes down a lot and Mobile suffers more than other cities,” leading to the apparent temptation to raid the capital fund rather than control expenses.
Limiting employee overtime and instituting a hiring freeze was the administration’s first step toward stabilizing transfers from the capital fund, Wesch said, but ultimately the administration may advocate amendments to the city’s tax structure.
“The concept is rather than getting there overnight we’d take a meat ax approach with slow management of the general fund budgeting process to get in line with our peer cities and rather than have $44 million nominally assigned to capital fund with half of that back to the general fund, eventually creating a more reliable revenue stream,” he said.
Councilman Joel Daves, chairman of the council Finance Committee, said he recognizes the new administration’s approach.
“What happens long-term is you aren’t spending money you need to spend on capital items and that’s why the roads fall apart and the lights don’t work and the cars have 200,000 miles on them,” he said. “My preference is to get to point where we’re not making any transfers and the general fund is able to get along on its own. I think the administration is working on that and getting to the next step will be tough. I feel and the administration feels long-term that if we are properly spending money designated for capital purposes we’d be in much better shape.”