City Budget

City of Bethlehem 2018 Proposed Budget [PDF]

Mayor Donchez's 2018 Budget Address

Good morning and thank you for joining me this morning for the Annual Business Leaders Breakfast. I would like to take this opportunity to thank Moravian College for hosting this event, and a special thank you to the Philadelphia Trust Company, DeSales University MBA and the Historic Bethlehem Hotel for sponsoring this breakfast. Let me also thank the Greater Lehigh Valley Chamber of Commerce for sponsoring and organizing this morning’s breakfast.

The City of Bethlehem’s strength is a result of our community partnerships. We are strong because of our residents, our businesses, our institutions of higher learning, and our medical institutions. To that end, I would specifically like to thank Lehigh University, Moravian College, Northampton Community College, East Stroudsburg University, St. Luke’s University Health Network and Lehigh Valley Health Network for their continued support and investment in our community.
Before I begin, I would like to take a moment to thank my department heads, and all City employees for their hard work and dedication during the year.  In addition, I would like to thank city council for their support on many initiatives during 2017 and a special thank you to my Financial Advisory Committee for their ideas and expertise.

As my fourth year in office comes to a close, I want to say that I am proud of the continued progress we have made, with an emphasis on our streets, parks, downtowns, and improving the financial and operational stability of Bethlehem.

I would like to begin by providing you with an overview of some of the significant financial events of 2017.

In 2016, the City’s credit rating was adjusted upward two notches from BBB to (A-) with a positive outlook. In 2017, the City’s credit rating was again adjusted upward two notches from (A-) with a positive outlook to A with a continued positive outlook, to A+ with a stable outlook. “The stable outlook reflects S&P’s opinion, that the City will maintain its very strong budgetary flexibility and liquidity, as well as sustain its strong budgetary performance.”  So, in four years, we improved from BBB to A+.  I am very proud of that achievement.

This strong budgetary performance is the result of difficult internal decisions, both from a financial and an operational perspective. As we continue to improve our financial foundation, we become more attractive to investors, families will want to move here, and businesses will want to locate here.

You can’t have a strong community without a strong financial foundation.

This graph, shows the progress we’ve made in improving the city’s general fund balance. During my administration, the City’s audits have reflected a year over year improvement in our fund balance.  As this graph shows, in 2016, the unassigned fund balance grew to $12.7MM, which is a measure of fund value, not committed to any specific, restricted purpose.  The Government Finance Officers Association benchmark indicates, that this unassigned fund balance, should be a minimum of $12.5MM for an operation of our size.  The fact that we have now surpassed this recommendation was, in major part, the reason for the credit upgrade.  Our challenge is to ensure that this fund balance doesn’t erode.

My administration has undertaken several notable initiatives necessary to improve the City’s financial position. An advance refunding of the City’s 2011A bonds, a portion of the 2013A bonds, and the 2010C note resulted in $1,244,198 in savings in 2017.

An additional advance refunding during October of the Bethlehem Authority 2011A bonds, have resulted in a savings of $1,750,000 spread over the next three year period.
I feel it essential to mention the productivity of these two financial transactions.  Initial savings estimate, from our Financial Advisor for both transactions was $1,525,000.  The actual savings achieved was $3,000,000, nearly double.

When it comes to accessing the capital market, Bethlehem is now playing in a different league based on the improved credit rating.  This means that we can borrow at less cost, and invest more in our community. Very important!

The change in our banking relationship to TD Bank generated a $274,000 favorable swing in all accounts in 2017.  Our cash is now invested, and earning money!

We continue to operate all functions of the City with a workforce of 604.

The General Fund Expenses are budgeted at $76,200,000. Note that our personnel and benefit expense is the largest percentage of our budget at 73.3%.

Healthcare expenses continue to be one of our main cost drivers, and we expect these expenses to escalate. However, our professional staff, as well as our three bargaining units, most recently became subject to a deductible which enabled the City to avoid nearly $800,000 in healthcare expense in 2017. Also, we are in the process of making changes to our prescription plan that will result in an additional $300,000 in savings.

These ongoing healthcare changes will, have over a $1MM impact in 2018. Our strategy has been to provide an attractive healthcare benefit, that still exceeds, but more closely resembles, a benefit offered by the employment mainstream, and I want to thank all city employees for helping us achieve this reduction.

We have also worked hard to ensure that our pension funds are as completely funded as possible, to provide for the needs of our retirees.  Our funds, including Police, Fire, O&E, and PMRS are 88% funded.

Since the O&E pension was fully funded, we shed the risk to a third party in the form of a guaranteed pension annuity.

The budgeted General Fund Revenue is balanced with revenues, at $76,200,000.  Real Estate tax remains the largest revenue component. We continue to optimize Act 511 tax collection. The business privilege tax collection has continued to improve accounting for almost $2.3MM in 2017.

The Local Share Assessment or “Host Fee” has been reinstated retroactive to January 1, 2017. This will result in the City being made whole in 2017 ($9.8MM). Additionally, based upon the correction, I am allotting for $9.8MM in the 2018 budget.

One of the most important changes to the way that we manage, is the addition of the five-year planning process.  During this process, we evaluate likely trends as well as the effect of planned initiatives.  Each year, we have quantified the value of our five-year cumulative deficit.  If you recall in 2014, we measured this five-year deficit as over $40MM.
Thus far, we have made incremental progress each year reducing the five year deficit to 12.8MM in 2017. You will notice that this is not the case for the 2018-2022 projections. But there is a reason. Due to the increase of $1.4MM in our minimum municipal obligation to the Police and Fire pensions or MMO beginning in 2019, the five year projected deficit has increased to $19.8MM. We will continue our efforts to reduce the five year deficit.

Since the beginning of my administration, we have been honest regarding our financial challenges.  I have said in the past, that our actions will impact all city stakeholders, including property owners, business owners, non-profits, employees, and suppliers.

The following slide is a four year running total of those actions, and financial impacts.  This is a very important point:  The changes to revenue of $6,430,000 are minimal compared to expense reductions of $23,331,000.

We didn’t merely raise taxes and reap the benefits of an improving economy. This took a great deal of hard work, the product of tough, sometimes unpopular decisions.

We have faced the challenges head on, and have made significant progress, but even with our most recent accomplishments, I am releasing the 2018 proposed budget, with a modest tax increase of .4 Mills or 2.3%.

Internally, we have made significant progress in achieving many of our financial goals.  Externally, we continuously strive to make improvements that impact the quality of life of our residents.

One of the more pressing issues of 2017 was the City’s ability to improve the condition of our streets. I challenged the Department of Public Works to pave more miles and fill more potholes than ever before.

To do this, we upgraded our equipment to meet this goal, including a milling machine, tack machine, large dump truck and a spray patch truck.  In 2016, they accepted the challenge and paved more than 6 miles using cost-effective, in-house labor, and filling more than 10,000 potholes on our 520 lane miles of City streets.

This year, they again met the goal of paving over 17 lane miles including Macada Road from Center Street to Linden Street and Union Boulevard from Main Street to Center Street despite many mechanical breakdowns and uncooperative weather.

In 2017, we saw the completion of several, much needed bridge projects including the $5 million dollar replacement of the Lynn Avenue Bridge which was funded through a Smart Transportation Fund grant, and the $1.2 million replacement of the High Street Bridge funded in part by a $400,000 DCNR grant and a $350,000 contribution from Norfolk Southern. I am pleased to say that the Lynn Avenue Bridge will be open to traffic within the next few weeks and the High Street Bridge was rededicated September 1st.

In addition, it is anticipated that the Fahy Bridge reconstruction will be completed on schedule in late November.

As we approach the holidays, we continue to evaluate and enhance our efforts to ensure that Bethlehem will continue to be known as the Christmas City.

In 2017, we continued our investment in artificial trees and LED lighting for both our live and artificial trees.

In 2016 we placed emphasis on improving our parks, cleaning them up and providing new playground equipment. In 2017 we delivered: new playground equipment was installed at Bayard Park, Centenial Park (on Sand Island) Elmwood Park and Martin Luther King Park.

Evaluation of Memorial Pool continues with an expectation of a complete overhaul of that pool in late 2018 and early 2019. Look for an announcement regarding our plans early next year.

Phase IV of the South Bethlehem Greenway extending the trail southward to Saucon Park was dedicated September 12th. Phase V is in the planning stages, and should be finalized in 2018, bringing us closer than ever before, to connecting to the Hellertown/Lower Saucon Rail Trail.

Over the last four years, I have focused my energies on improving the downtown  business districts.  In the Moravian Historic District, we have made parking easier and added spaces, made significant improvements to the infrastructure through sidewalk replacement and street overlays, and improved amenities such as underground wiring, new trees, planters and benches.

In the Southside Arts District, we completed a public parking garage and are seeing more than $70MM in private investment.

In both downtowns, we looked closer at our retail environment and hired a business development specialist to attract business to our City.

In 2018, we will be investing more than $120,000 in projects and maintenance for our downtowns, including the neighborhood district, Northside 2027.

The South Bethlehem Keystone Innovation Zone, which last month was named the most successful KIZ program in the Commonwealth by PA DCED, has assisted more than 90 companies, securing $6 million dollars of investment through the state tax credit programs.

These investments have led to 400 new jobs, many tucked away in the second and third floors of our downtown, 116 new patents and 121 new products. As Mayor, I will continue to focus on economic development and job creation using incentives like the KIZ, NPP, LERTA, KSDZ and CRIZ.

I am very proud of our efforts to put the first CRIZ project, Social Still, into the marketplace, and even prouder to have additional projects, such as Greenway Commons and, Gateway at Greenway Park (Benner project) anchored by Lehigh University and St. Luke’s at 3rd & New Streets underway. It took more than two years of analysis and lobbying to get the changes to the CRIZ legislation that we needed, but it was well worth the effort.

I recently announced three additional projects that I support for CRIZ designation, the Wilbur Mansion, the former Dempsey’s at Westgate Mall and the historic Hotel Bethlehem expansion project.

These projects will help to create jobs, increase personal income, grow local and state tax revenues, and improve the overall quality of living for residents.

The strength of our commercial district does not just rely on business development alone.  There are currently more than 250 apartment units planned or under construction in the City and another 100 more in pre-development, many located in our downtown.

It is these residential units that will add more people to the streets and help drive the success of our business community for years to come.

Bethlehem continues to make many “Best place to…” lists. Money Magazine named Bethlehem as the best place to retire in the Northeast; Forbes placed Bethlehem in its top 25 places to retire list and Huffington Post named the City one of the 10 most beautiful places to visit in the fall.

To top it off, Bethlehem was just named by the travel site Expedia, as one of the top cities in the nation that have a lot going on. That’s right, there is something called FOMO, or the Fear of Missing Out, and apparently, Bethlehem is viewed as one of those cities along with Boston, Breckenridge and San Diego.

The bedrock of these goals is public safety. Police, Fire and EMS are of primary importance and this year has been no different. It is my belief that public safety serves as an invaluable catalyst in promoting the city’s livability and its ability to attract further economic growth.

A safe Bethlehem attracts millions of visitors to enjoy our great city each year; draws families to settle down; allows individuals to invest in, or relocate their business to our city. In furtherance of this, City Police will open a new substation in the recently opened garage on New Street

And that is why the City of Bethlehem continues to be named one of the safest Cities in the Commonwealth of Pennsylvania.

This year we saw the completion of the new Mounted Unit Stable, a modern facility for use by both the horses and the officers. The re-deployment of the Mounted Unit to additional areas of the City where they can work alongside our Beat Officers and Bike Patrols creates a highly visible police presence in the business districts, the Greenway and other areas of the City.

In 2018, we will see full implementation of video dash cameras in all City patrol vehicles and the training of all police personnel on their usage.

Testing and analysis of comparable Police Body cameras, capable of interfacing with our in-dash cameras, will be undertaken. We hope, by the start of 2019, to have all patrol officers equipped with both in-dash and body cameras. This investment will bring the police department back in line with nationally accepted and recommended standards from the Department of Justice.

With the aid of a FEMA grant, in 2018, the fire department will completely replace their self-contained breathing apparatus and supporting equipment.

This upgrade will not only affect the Bethlehem Fire Department and the Hazmat Team, but the Police Swat Team and Bethlehem Water Bureau as well.

As I discussed during last year’s Budget and State of the City addresses, the Commonwealth has mandated that the City of Bethlehem consolidate its 911 center with Northampton County. We are meeting monthly with representatives from Northampton County to ensure that Bethlehem continues to benefit from a consolidated 911 service provided by Northampton County.

Concurrent to planning for the 2019 transition of the 911 enterprise, we are also planning the creation of an emergency management center.

The new EMC is intended to provide real time control, coordination, and management of all large scale operations in the City that require coordination of multiple City departments for special events, major weather incidents and emergency operations of varying size.

In addition, the resulting smaller and leaner enterprise will provide central coordination for all non-emergency calls to the city.  It will be appointed with technology to facilitate communications from the community, concerning non-emergencies, using means other than just a telephone.  

My goal is to provide new capability, as well as enhance existing service, in a financially responsible manner.

In conjunction with Council President Reynolds, we expect to roll-out the City’s open data platform in several weeks.  This project awaits the completion of an interface to our Superion ERP system, within which includes the vast majority of pertinent data.

This platform will provide current data to the community in an environment where the data can be viewed or analyzed.  Additionally, city management will have improved analytical capability in order to run operations.  While significantly improving transparency, this exciting new environment will improve the manner in which we all communicate.

As you are probably aware, Dave Brong, Business Administrator, will be retiring on December 31, 2017, after 13.5 years with the City of Bethlehem. Dave has served the City with integrity and professionalism in his current role as Business Administrator and as the former Director of Water and Sewer Resources. I want to personally thank him for his dedication and hard work to righting the financial and operational position of the City.

In closing, as you can see we have been busy. Over the last four years we have made difficult decisions and have made significant progress. While we have more work to do, this budget, will allow us to continue to provide a high level of essential City services to all Bethlehem stakeholders. We have an aggressive agenda for 2018, and I am confident that with Council and the community’s support, we will achieve our goals.

Thank you, I will take questions.