CAPE CORAL, Fla. - Initial revenue projections for the City of Cape Coral's FY 2012 General Fund indicate the potential for a further deterioration in the City's fiscal condition. Based on planning assumptions ranging from a 4 percent to an 8 percent decline in ad valorem taxable value in 2011, it is estimated that the City's revenue shortfall next year could range from $6.9 million to $9.6 million, or more. This estimate includes the full-year effect of the 10 percent increase in employee health insurance costs that are paid by the City, effective this coming January. It does not include the potential negative impact of the recent grievance of the Professional Fire Fighters Union that calls for a step-level salary increase of more than 3 percent for its members, retroactive to October 1.
This potential budget shortfall would follow closely behind the challenges associated with this year's recently adopted FY 2011 budget that used $4.3 million of undesignated reserves to balance the budget. As directed by City Council, the use of reserves was necessitated to maintain service levels while achieving our dual objectives of avoiding staff layoffs and not increasing the property tax rate in this difficult economy.
Based on the above planning assumptions, the decline in taxable value would require further use of undesignated reserves to balance the FY 2012 budget to again avoid both staff layoffs and tax rate increases. In this case, the undesignated cash reserve balance would be reduced to as little as $9.4 million - the equivalent of less than one month's operating expenses. This would accelerate a decline in reserves that would violate the City policy, which states we are required to maintain a minimum of two months of operating expenses. The financial policies also state that reserves are not to be used to fund recurring expenses. Of additional concern is the fact that these planning assumptions do not address the growing budget problems related to escalating pension costs and Other Post-Employment Benefits (OPEB) liabilities that increased by more than $13 million this year alone.
In light of these emerging factors, the City Council directed the City Manager and its lead union negotiator, John Hament, to address the City's projected budget shortfall by negotiating financial concessions with the eight collective bargaining units with the goal of preserving core service levels and existing property tax rates while maintaining two months of reserves and avoiding staff layoffs in FY 2012. Approximately 75 percent of the General Fund budget is comprised of personnel-related costs, and unions represent more than 90 percent of the City's employees.
The Council is hopeful that the unions and affected employees will work collaboratively with management to address the City's financial challenges in partnership, as we move forward together to meet the City's needs.