Budget picture gets gloomier

The City of Omaha's financial problems just got worse.

Mayor Jim Suttle said Friday that Omaha faces an additional $7 million gap in its general fund budget this year. The new problems raise the total 2009 unresolved shortfall to $12 million.

The shortfall has grown mainly because of weak interest earnings, higher-than-expected health care payments for retirees and lower tax collections on gas and water usage, officials said.

“These latest numbers reinforce the depth of the financial crisis and point out the urgency in obtaining wage freezes from the city unions for both 2009 and 2010,” Suttle said.

Omaha has been struggling with its budget because of the weak economy, with revenues falling short of projections. Both Suttle and former Mayor Mike Fahey have scrambled to balance this year's budget, and Suttle also has proposed tax hikes and budget cuts for 2010.

So far this year, Omaha officials have cut $9 million from the budget passed last summer. Until now, they thought the goal was $14 million in cuts. Suttle had hoped to close the $5 million gap by negotiating wage freezes equaling that amount with city employee unions.

Now, even if the unions agree to those concessions, the city still faces a massive hole in its current budget.

“Ouch,” said City Council President Garry Gernandt. “It's the type of news we don't want to hear, now or ever.”

Suttle and his new finance director, Pam Spaccarotella, did not outline what additional cuts they will propose. Suttle pointed out that his proposed 2 percent entertainment tax, if implemented, would take effect Oct. 1 of this year. While the tax is mainly aimed at solving next year's budget problems, Suttle said it also would generate $2 million this year that could be applied to the current shortfall.

Councilman Chuck Sigerson was not swayed by that argument. He remains skeptical of the entertainment tax and said the latest numbers don't change his mind.

“I think we need to be very, very careful before we leap into an entertainment tax,” he said. “We need to let cooler heads prevail. I just won't be railroaded into doing it, just because of the latest emergency.”

Sigerson also said he hoped that the city would gain extra revenue later in the year. For example, he said, the federal “cash for clunkers” program is enticing more people to buy cars, which would boost sales tax revenue for the city.

Gernandt doubted whether the city would be able to start collecting the new entertainment tax by Oct. 1, even if the council did approve it. He said there would be many logistical challenges in implementing the tax.

But Gernandt also said he couldn't immediately say where the city might make enough cuts to balance the budget.

Spaccarotella said the latest projections for the shortfall are based on actual spending for the first half of the year. Earlier estimates were calculated from spending and revenues during the first three months.

Since then, a number of key things have changed, including:

Ÿ Estimated interest earnings declined about $1.5 million. Interest rates are lower, and the city has less money in its accounts than it had hoped. Ÿ Payments for retiree health benefits are expected to climb about $2.5 million from the earlier estimate. The city pays actual bills, not insurance premiums, and claims jumped this spring. Earlier this year, officials hoped that the city would end the year paying much less in benefits than the budgeted $18.2 million. Now, they fear that expenses will hit $19.8 million. Ÿ Payments from the Metropolitan Utilities District could be $1.4 million less than the city had anticipated. MUD collects a 2 percent “payment in lieu of taxes” on revenues within Omaha's city limits, and water and gas usage isn't as much as the city expected. Spaccarotella declined to rule out program cuts or layoffs.

“We're looking at all of the options,” she said. “We're in very difficult times.”

Contact the writer: 444-1114, paul.goodsell@owh.com

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