Raleigh may not have enough money to cover its expenses next fiscal year, according to the city’s budget director Sadia Sattar, who gave a presentation to the city council earlier this week.
The city’s expenses are projected to climb by about 3 percent, while revenues are slowing, with a projected increase of only 1 percent during FY 2024-25, Sattar said.
That could result in a “budget gap” of anywhere between half a million and $6.4 million, she added. That gap could continue to increase in future years, with the city potentially coming up short $36.2 million in FY 2028-29.
The slowdown is driven mostly by “$5 million [federal] ARPA funding being removed, as well as the removal of other one-time revenues,” she said.
At the same time, expenses are increasing as inflation continues. Most of the money the city spends is used for employee pay and benefits, but operational expenses, like the cost of gas and the purchase of additional city vehicles, are also part of that pot.
But the situation is far from dire—the city’s current budget is over $1 billion.
“At the moment, these are all preliminary numbers,” Sattar said, careful to emphasize that point. “I’m just gonna keep saying that, so you all know this is just an overview. We’ll come up with really strong numbers on May 16, knock on wood, when we come up with a balanced budget.”
But she added: “We try to be transparent and say, this is where we are right now and unfortunately our revenues are not covering our expenses.”
Still, the budget gap could limit the city’s ability to raise employee salaries, maintain existing employee benefits, or give the same kind of “merit” pay increases they usually provide each year. Employee pay and benefits “take up about 27 percent of the budget, just a little over $309 million,” said Susan Steed, the city’s interim human resources director. “So, it is a pretty big impact.”
In FY 2024, Steed is proposing the city continue its recent legacy of providing a “living wage” and performance-based bonuses for employees. Raleigh uses a living wage calculation pulled from the U.S. Department of Housing and Urban Development, which says that no more than 30 percent of a person’s income should be spent on housing. This year, that means minimum salaries for city employees will move from $37,850 to $40,860.
Steed claims the $40,860 annual salary is enough to cover the cost of renting a one-bedroom apartment in Raleigh. The salary is calculated based on HUD’s estimation of “fair market rent,” which this year is $1,250 per month.
Council member Christina Jones challenged Steed’s assertion, saying that 30 percent of the $40,860 salary is only enough to cover rent of about $1,000 per month (which is accurate). Steed responded by saying that the HR department would take another look at the calculations to ensure that the “living wage” lives up to its name. Part of the shortfall could be due to the fact that the city uses the four-year average of fair market rent in its calculations, rather than just the most recent year.
On a positive note, Steed proposed changing the retirement plan for city employees.
Instead of requiring Raleigh employees to contribute at least 1.5 percent of their pay to receive the city’s 3 percent match, the city would simply pitch in with a flat rate of 3 percent, regardless of how much employees reserve from their paychecks.
“We believe this will really benefit our employees,” Steed said. “It gives them the potential to save more for retirement and it aligns with the best practices of our peer [cities]. This really impacts our employees that are in lower paid categories. So those who are making less than $55,000 a year, this will impact 353 employees, so that’s 57 percent.”
Also during the budget work session, assistant city manager Nyki Hill proposed significant changes to employee health insurance. As healthcare costs go up, the city is forced to increase some costs for employees.
Although they will continue to offer a basic medical plan with a $0 premium, the premiums for their more comprehensive medical insurance are expected to go up by 5 percent—or less than $2 a month for employee-only coverage up to $17 for family coverage.
City staff is also proposing increases to deductible and out-of-pocket maximums and the cost of teladoc visits next year.
In the future, the city may also have to raise deductibles or limit the number of healthcare facilities employees can visit to continue offering a $0 premium plan, Hill said.
Proposed Health Insurance Changes
- 5% increase in medical plan premiums, except for Employee Only Plan B
- Maximum deductible raised by $500-1,000, depending on medical plan
- Maximum out-of-pocket raised by $500-1,000, depending on medical plan (employees not currently meeting cap, per Hill)
- Cost of teledoc visit raised from $10 to $12 for employees (increased overall cost still shared between city and employee)
- Expanded services for medical plan A
- $0 premium cost plan still available (could turn into high deductible or narrow network in future years)
- Addition of a stand-alone vision plan
- Cost of specialty drugs reduced by $25-75 per prescription
- Spouse surcharge eliminated (rates could go up in future)
- Employees offered up to $1,200 discount if they complete wellness and preventative screenings
The HR department is continuing to study employee trends as the city creates its FY 2024 budget. There are a few issues they’re hoping to address, including a high turnover rate among executive staff, as well as “leapfrogging” and “wage compression” among law enforcement.
In 2022, nearly 30 percent of the city’s executive staff, including department heads, assistant department heads, and senior office managers, left their jobs, Steed said. Some retired, but many resigned for other jobs, either for personal reasons or because they saw better career opportunities. The city has also noticed a decline in qualified applicants for executive positions and an increase in candidates declining offers, Steed said.
“They have other choices out there,” she said. “They’re often interviewing for more than one position and they’ll take the choice they feel is best for them.”
Currently, the city has some 600 vacancies across the board, not just in executive positions. Council member Megan Patton, a former teacher, suggested the city invest in a working conditions survey, to perhaps learn more about why people are leaving. Raleigh is currently developing a survey that would be sent to employees at different stages in their careers, asking them why they stay with the city, Steed said.
When it comes to law enforcement, Raleigh is dealing with similar issues of employee vacancies. In the past few years, facing a shortage of fire and police officers, the city has raised pay for some positions in an effort to attract and retain employees. New employees have received higher starting pay, while pay for some other officers has been adjusted to stay competitive. Unfortunately, that means pay for other fire and police employees has stagnated.
“We’ve had a practice of changing pay only for employees whose pay falls below the minimum,” Steed said.
That means new, less experienced hires are sometimes earning nearly the same amount of money as long-term, experienced employees (wage compression). Some junior employees have even leaped over senior employees in pay (leapfrogging).
It’s unclear what the city plans to do about this issue. The Raleigh police and firefighter associations, both large employee organizations similar to unions, have been lobbying for years for the city to raise employee pay across the board. On the other hand, racial justice advocates have protested the city’s continued increases to the city’s police budget, saying they should instead cut the budget and reinvest the money in community services.
Ultimately, only time will tell.
The city will continue to hold budget workshops through March and April before the city manager presents a proposed budget on May 16. A public hearing is expected to take place in June.
The city council’s deadline to approve a budget is July 1.
Finally, Sattar gave a short presentation on how the city is spending its federal ARPA funding. So far, the city has earmarked $50.6 million for economic recovery, housing/homelessness, community health, transit, and infrastructure. They have $22.6 million left, which must be budgeted by the end of 2024 and spent by 2026. People can give their two cents in an online survey here.
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