By SCOTT SMITH, Kokomo Tribune staff writer
scott.smith@kokomotribune.com
The clock is ticking on local government in Howard County, with officials scrambling to decide how to deal with what amounts to a $12 million bill, dropped in their collective lap.
Monday, the Kokomo Common Council received a crash course in what the non-payment of Chrysler's property taxes might mean to an already strapped city government.
Kokomo Common Councilman Mike Karickhoff, R-At Large, came armed with not only numbers, but also a message: Do something quickly.
Karickhoff said the city administration has no choice but to embark "on a second round of cost-cutting measures."
Realistically, he said, those cuts will have to come from personnel.
"The sooner we act, the less severe those cuts will have to be," Karickhoff said. "We need to address this shortfall sooner rather than later."
The closure of the Kokomo Early Learning Center, the layoffs of 16 city firefighters, total reductions in the full-time work force of more than 80 employees and numerous small cost-savings measures have saved the city some money.
Karickhoff, chairman of the council's Finance Committee, estimated the city has saved about $3 million through the job cuts and belt-tightening.
But city officials are struggling with the sudden news that Chrysler won't be paying personal property taxes due in 2009 and 2010. All told, that decision, which Karickhoff called "unconscionable" Monday, will cost the city close to $12 million in unpaid taxes.
Karickhoff's suggestion Monday was that the city administration prepare another round of job cuts, perhaps borrow up to half of what Chrysler isn't paying, and immediately set up an escrow account to begin paying back the money.
The councilman even came with specific numbers on how much the administration might have to cut out of operations.
If the city borrows $5.9 million at 0 percent interest, Karickhoff estimated the city would have to cut spending by $300,000 a month for 17 months to counter the effect of the Chrysler non-payment.
Monday, however, city officials received more bad news from the state.
According to Kokomo Mayor Greg Goodnight, Indiana Department of Finance officials said any money borrowed from the state would likely have to be paid back at market interest.
"Obviously, if it's market rates, it doesn't make it any more attractive than going through a private bank," Goodnight said.
He said the city doesn't have to make a decision immediately because of the prior cost-cutting moves.
"It's because we've been proactive throughout the year," he said. "We've made a lot of decisions already."
Karickhoff said the city will probably have to set aside at least $830,000 a year for debt service if it goes ahead and borrows half the money Chrysler isn't paying.
"Whether this comes in the form of days without pay, across-the-board pay reductions, reductions in staff, layoffs, fewer benefits, or some combination ... changes must occur even with a loan," Karickhoff said.
The councilman's comments came as the city officially began the 2010 budget process.
Monday, council held first reading on the annual ordinance establishing salaries for city workers.
As expected, every employee covered by the salary ordinance won't be seeing any pay increase in 2010.
The same goes for elected officials.
Monday, council members passed a second ordinance, companion to the salary ordinance, fixing salaries for city elected officials. In that ordinance, council members froze salaries for themselves, the mayor and the city clerk at the current level for 2010 and 2011.