In
my January 28th opinion piece ("Budget Situation: Tough but
Survivable"), I reported that I'd received some criticism for being too
optimistic about the City's fiscal situation.

I'm guilty as
charged, especially when it comes to our short-term budgeting. Let me
add a note of caution, however, by being more specific: FY2009 –
current budget year that ends June 30th – is going to be tight, but I
am confident we can cope without major structural adjustments. On the
other hand, FY2010 will require some very tough choices and a
willingness to embrace creative solutions, both one-time and permanent.
Our goal will continue to be avoiding cuts in core services. Over the
past five years, we've made real progress in improving service quality
and delivery, and it would be a shame to undercut that those
achievements by rolling back programs and personnel, especially in
public safety, education, public works or parks.

But, between
now and June 30th, we have to absorb nearly $3 million in state aid
cuts while coping with the added costs of a heavier-than-average winter
storm season and escalating health insurance costs. But the steps we
have already put in place – leaving some positions vacant; freezing
salaries; saving money where we can on energy and materials; delaying
or deferring some capital projects – will allow use to close the gap. I
want make special note of the fact that we have been working closely
with the School Committee and Superintendent Pierantozzi to put
together a similar austerity program for the School budget. I also want
to thank the Board of Aldermen for taking a proactive and collaborative
approach to revising this year's budget: they've paid close attention
to the details and helped make possible a year without layoffs,
furloughs or other major disruptions.

In fact, if we were
facing just one bad year, we'd be fine, which is more than you can say
for many other communities in Massachusetts. Some cities and towns have
already begun to lay off personnel and close facilities. If it seems as
if Somerville has been slower to take similarly harsh action, it's
because we really don't have to in this fiscal year. One big reason is
that we're careful to use conservative fiscal assumptions. So far in
FY2009, our revenues have been running two percent higher than
projected; and we have underspent our budget to date by two percent.
That gives us a little more room to maneuver than is available to many
cities and towns.

But as we start the planning process for the
new budget that will go into place on July 1, 2009, we are facing a
much more challenging situation. In addition to more local aid cuts,
the state budget will see reductions in other areas of spending that
directly support cities and towns, including library aid, police career
incentive salary supports, and more. To help compensate for the added
strain that all these changes will put on municipal budgets, Governor
Patrick has proposed local-option hotel and meal taxes, as well as the
closure of the 1913 telecommunications property tax loophole. The state
estimates that these changes could bring Somerville another $3.4
million per year – but these proposals have not yet been approved by
the legislature and, even if they become law, they will take time to
implement. Cities and towns will not see the added revenue until well
after the new fiscal year is underway.

And then there is the
problem of escalating health care costs. We are working hard to control
our health care expenditures, but restrictive state rules require us to
negotiate changes in plan design and co-pays with our collective
bargaining units. If current trends remain unchanged, the result will
be that, in FY2010, our projected increase in health care costs ($3.1
million) will – for the first time in our history – exceed the total
projected increase of our property tax revenues as allowed by
Proposition 2¬Ω ($2.3 million).

Even with added local option
revenues from the state, it's likely that we'll have to come up with
over $8.5 million in combined cuts and new revenues for FY2010. That's
equivalent to over seven percent of the city's non-School budget. $8.5
million is more than half the combined personnel budgets for our police
and firefighters: it's too much of a hit to be absorbed by cuts alone.

Of
course, budget cuts will be part of the solution, but a gap of that
size means that everything else is on the table. We'll need both to cut
costs and enhance revenues if we want to maintain our core services.

On
the cost-cutting side, we have to be ready to look at layoffs, wage
freezes, furloughs, hiring and overtime restrictions, added health care
contributions from union workers (non-union workers already pay 20
percent). It will also mean reducing consumption of energy and
materials, and any additional savings we can wring out of pooled or
restricted purchasing policies. And it will require us to look at our
work practices to become ever more efficient and cost-effective.

On
the revenue side, it means looking at every fee and fine in our books
to see if there's a better way to enforce and collect the charges we
impose – and whether or not any of them need to be increased.

The
budget discussion this year will be very public and very open, and we
will be seeking input not only from our Board of Aldermen, but from
residents and fiscal experts alike. Over the next few weeks, I will be
bringing a budget presentation to local ResiStat meetings, and we will
be setting up an online budget form to take comments and suggestions
from the public.

Can we get through FY2010 without major cuts to
core services? I continue to believe that the answer is "yes," – but
we'll need the help of the legislature, the cooperation of our unions,
at least some stabilization of the regional economy – and a
disciplined, unified approach to managing our finances. And – as my
critics will tell you – I'm an optimist. So stay tuned.