Oops, they did it again

City faces budget shortfall as large as $100 million

Shortly after Shirley Franklin took office in early 2002, she discovered the city was facing a crippling $82 million budget shortfall left over from the Bill Campbell administration. The new mayor responded by slashing nearly 1,000 city jobs, raising taxes and even cutting her own salary by $40,000.

Get ready for a dose of déjà vu.

Earlier this month, a cryptic memo warning that the city could expect "certain financial challenges" in coming months was sent by Greg Giornelli, the city's chief operating officer, to Council President Lisa Borders and Councilman Howard Shook, who chairs the Council's Finance Committee.

In the memo, Giornelli said he was ordering an immediate citywide hiring freeze and cutting the administration's discretionary spending by half.

What the memo didn't say was how large a deficit the city is anticipating. And in a Council finance hearing last week, neither Giornelli nor Chief Financial Officer Janice Davis was willing to publicly discuss any numbers.

But Shook says he's been briefed on the estimated figures, and they're big. Scary big. The volume of red ink could even exceed the 2002 shortfall.

While city accountants are still poring over balance sheets, Shook says, the final deficit figure appears to be in the range of $75 million to perhaps more than $100 million.

"We aren't going to be able to finesse our way out of this hole by reusing paper clips," he says. "We're going to need to cut positions by the hundreds. This may prevent us from really putting a dent in the police attrition rate."

When contacted by CL, Giornelli would not discuss the situation in any detail.

Some of the causes of Atlanta's potential shortfall are the same ones afflicting other governments: skyrocketing fuel costs, sharply rising employee health-care expenses and a downturn in revenue due to a flagging economy.

But Davis and city finance officials also told Council members that a sizable chunk of the deficit is due to accounting blunders. For starters, it seems someone forgot to figure into the budget the city's $8 million annual subsidy to Underground Atlanta. Other errors came about because some items that should have been listed in the expense column were instead placed under reserves, says Councilwoman Clair Muller, another member of the Finance Committee.

"I know it doesn't sound good to say the city made good, honest mistakes, but at least there's no evidence of fraud," Shook quips.

Another contributing factor to the budget mess could be the city's antiquated bookkeeping methods. While nearly every other major city and large business switched to accrual-basis accounting decades ago, Atlanta is only now changing over from cash-basis accounting – an outmoded system that doesn't track anticipated costs and revenues. Transitioning between the two systems likely has made it more difficult to spot accounting errors in a timely manner, Muller says.

The Finance Committee is scheduled to get a full report on the budget at its Jan. 30 meeting, but Shook doesn't plan to wait that long. This week, he says, he'll call for the city's independent auditing board to launch an internal investigation into how the mistakes were made and how big the shortfall is. He's pushing city finance officials to provide him with ongoing updates.

"Nobody's served by not putting the figure out there," he says. "The sooner we can get going on this, the better for everybody. Right now, we've got a whole lot more questions than answers."

There's an urgency to getting the numbers because the city is in the early stages of preparing the 2009 budget, which must be approved by June and goes into effect July 1. Shook says he's not sure where cuts could be made because all city departments – save for police, fire and parks – already trimmed their budgets 10 percent this past year when Atlanta needed to come up with extra millions to inject into its pension fund.

Many of those departments likely eliminated unfilled positions, Shook says, meaning there may be little cushion left.

"I assume we'll need to cut some live bodies," he adds.

While Atlanta has been criticized for having more city employees than most other cities of similar size – more than 9,000 at last count – Shook says city salaries are lower here because fewer workers belong to unions.

Even if the final shortfall figure is around $100 million, the resulting fiscal crunch wouldn't be as bad as the 2002 crisis, Shook explains, because that year's $82 million deficit represented nearly 25 percent of the total $350 million budget. In the six years since, the city budget has grown to $650 million, of which $100 million represents about 15 percent.

Still, the current budget situation is likely to focus attention on finance director Davis, who came to Atlanta in 2004 from the same position in Philadelphia. She had jumped ship there just as fraud and corruption indictments were handed up to several city employees, including Davis' handpicked city treasurer, who was later convicted on 27 counts. Davis reportedly was never a suspect in that city's corruption probe.

For years, City Hall has gotten poor marks for its lousy bookkeeping. In late 2004, Ernst & Young delivered a scathing report after an intensive audit of the previous year's budget. The firm said the city had made itself vulnerable to fraud and accounting errors through its pitiful financial oversight.

"We thought we were making progress," Muller says, "so this news is very disappointing."