Rob Douglas' column appears Fridays in the Steamboat Today. He can be reached at rdouglas@SteamboatToday.com.
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If you were listening closely Tuesday, you heard alarm bells emanating from Citizens Hall in Steamboat Springs. The alarm was triggered by a report presented to the Steamboat Springs City Council showing that city employee costs may soon consume more than 90 cents of every sales tax dollar collected by the city.
In spite of questions raised by the report that should have caused the city’s elected fiduciaries to hit the pause button before granting raises to city workers, a bare majority of the council — Kenny Reisman, Walter Magill, Kevin Kaminski and Sonja Macys — authorized more than $1 million in “compression” raises during the next 18 months. And, on July 3, the council might authorize “market” raises that will add millions more to employee compensation during the next five years.
This was done even though starting next year the city will begin to draw down its reserve fund in order to cover millions of dollars in Iron Horse Inn debt payments and transfers to the capital projects fund during the next several years.
Let’s back up a moment.
During the past three years, the City Council as well as the city’s management team and employees have done a good job of maintaining services while building the city’s financial reserves in order to be prepared for the possibility of an extended period of minimal economic growth or another recession — possibilities that now are probabilities given a deteriorating global economy.
Truth be told, because of a series of irresponsible, profligate city councils that never saw an Iron Horse they wouldn’t mount, spending was out of control long before the onset of the recession. The spending binges of those previous councils cemented financial burdens that already have reduced the economic freedom of Steamboat. Fortunately, those spending junkies were cast into the shadows of the Great Recession with the bootprints of voters on their buttocks.
With a few exceptions, those spendthrifts were replaced by fiscally prudent council members who cast out the old management team and brought in a new team that can read a spreadsheet. Since those changes, our little micropolitan has been doing better than most across the nation.
However, since the Frankensteinian recession may yet rise again, this is no time for the council and management team to go wobbly by increasing employee compensation before examining why increases in employee costs are outpacing sales tax revenue and what steps — if any — need to be taken to address this reality.
In 1992, 65 percent of city sales tax revenue was needed to cover employee costs (sales tax revenue makes up approximately 70 percent of all city revenue and was chosen by the management team as the yardstick to measure employee costs). By 2011, it was 86 percent. If the council authorizes the full employee compensation package that the management team has recommended, upwards of 92 percent of sales tax revenue will be consumed by employee costs starting next year.
By way of partial explanation, the management team pointed out that workers compensation insurance jumped 40 percent last year. The council also was reminded that city employees pay nothing toward their health and dental insurance and can cover their family for $200 per month.
Still, even though rising insurance costs, the shift to a paid fire department, and reduced sales tax revenue during the recession probably are at the heart of employee costs rising faster than city revenue during the past decade, a full inquiry as to why those costs are just a hop, skip and a jump from equaling total sales tax revenue is warranted — especially because the management team admitted they were not prepared to supply a detailed answer last Tuesday.
That is why the City Council — even faced with a room full of city employees hanging on their every word — should have deferred any decision to increase employee outlays until they have a complete handle on why employee costs are consuming a larger and larger portion of available funds. Instead, the majority of the council that voted to release funds for compression raises acted rashly, emotionally and unwisely.
Before that error is compounded by authorizing additional millions in raises, the council must ensure that escalating employee costs will not consume revenue to the degree that the economic future of the city is endangered by the use of reserves that may yet be needed if a deteriorating global economy comes sweeping down Rabbit Ears Pass.
Since 1998, Douglas has been a commentator on local, state and national politics in Washington, D.C., Maryland and Colorado. To reach Rob Douglas, email rdouglas@SteamboatToday.com.