City Council - Regular Meeting

Heat. Heat. Heat. Heat. Heat. Heat. lot to go over tonight. Uh, so I want to be prompt with with us getting started. So tonight we are going to um go over the financial condition assessment with with PFM. So I will quickly mic pass over to um the mayor if you want to jump in or you want to hand it right over.

I Dr. Titus, thank you so much. Uh I have nothing at this point to say other than to introduce Gordon Man from uh PFM. Gordon's managing director, managing partner. I don't know he'll tell you his correct title. Uh but he has been wonderful. I just want to say in presenting this information, this will be the third time he's presented it in two days. Um, so we're very grateful to have him here and I'll just ask him to dive in.

Thank you. Uh, thank you Dr. Titus and rest of council. Good to see some of you again. Uh, some of you were here the last time I was here and some of you were just here and we met this morning. Um, as we go through the presentation today, some of you have heard it. If you saw the press conference, you have heard it almost you could probably recite parts of it now at this point. Um, I want to make sure that we pause any time that there's something that I say that sounds weird, sounds off and give you a chance to ask questions. The first couple of presentations that I did uh for groups was was very expository, right? The person stands in front of the room and talks for 30 minutes and then sits down. You will be part of the solution. So, I want to make sure that we pause along the way to address things that sound weird or sound strange. And if they don't, if you just take it in and digest tonight, that's also entirely okay. It doesn't end with, you know, here are five questions you have to answer right now. Some of this will be not new for you, but some of this will be newer information, and it's okay to digest. This is a process that started a few months ago, and we're nowhere near the end of it yet, so we'll take some time to go through that. I also wanted to thank and recognize uh Mary Aean who is behind me here from DCD. Uh my name is is public my name is not public financial management. Bad start. My name is Gordon Man and I'm from public financial management. Uh we are consulting firm and we are supported financially uh by DCD. So awkward to have a consultant show up and say well wait why are we paying him to tell us that we don't have any money? Fortunately the state is picking up a large part of that. Um, so let me dive in and and tell you what we are doing. So the uh about five years or so ago, maybe closer to six now, uh we worked with the city on what was then called the early intervention program. Had kind of a

I'll click for you. Oh, sure. I'm sorry. I will. I don't want to make you do that. Did it work? Sometimes you have to point it this way. This way. All right. Uh oh. Angelo, come back. We'll get some tech help. All right. Minimal graphics on the first page or two. Anyway, uh you can start.

Okay. So, uh when we were here, we talked about the city's financial problems. And financial management is something that I'm passionate and interested in uh as you'll hopefully see and get a sense for, but we understand that it's not uh everybody's favorite topic. So, we tried to describe it in a way that would make it seem more real to people. And I talked about, you will remember this, the three-headed dragon that the city faced in in 2019. The three heads of that dragon, the first head was employee pension plans and contributions. City makes contributions into the employee pension plans every year. And at that point, the city was putting too little into the pension plans. And the problem with that is the same thing is if you get a bill for your credit card and it says you owe 50 bucks this month and you only pay 50 bucks or you owe or you pay 45. If you don't pay more than the balance, you never catch up.

City didn't have any rubrics or metrics to say that uh this is how much money that you need to deposit in here annually. So was that just a decision that was made to keep that annualized amount.

Really good question. So, the Pennsylvania law actually allows you to play with the rubrics. Your amount that you're supposed to contribute is set by an outside firm called an actuary. And the actuary does a calculation where they say this is how much money you have. This is how much you owe. Uh that part of it you can't play with. You can't make your money bigger or smaller than it is. But what you can play with are the assumptions that underly the benefits. How much do you think people make? How long do they live? Who gets married and how long? When do they leave? And so there are actually a set of tables called actuarial tables that are updated every couple of years to say people generally live till 75 or 76. People generally get married at this rate. People in people in Erie make this amount of money. If you freeze those in time and I never update those from the 70s or the 80s, I will understate my liability. And that's what was happening. The city was using an old rubric, a rubric that made sense 10 years prior and made it look as if they were putting the right amount of money into the plan.

So, how much is fun is it 80% funded at 80%. Yep. So, you'll you'll see that in a moment. It is funded at it is close to 80%. Nope. That's quite all right. No, I said you could ask questions, so I I will not Can we make sure that people's mics on? from that hearing councelor Horton when he's speaking.

Okay. So, uh, so we the the short answer is a lot better than it was before and I'll show you that in a second. So, that's the the pension head of the dragon. The second head was debt and that you'll see still remains. The city's debt was increasing to about $9 million a year. So, how much debt is too much, right? We would generally say we want to see your debt below 10%. So, at the time we were here, it was about a $90 million budget. So, $9 million is is pushing it, right? The third problem that, as you've heard me say a couple of times if you've been in these meetings, is the problem that every city, every township, every county, every school district struggles with in Pennsylvania. Pennsylvania governments are reliant on the real estate tax. Depending on which government you are depends on determines how reliable you are. So if you're a county government, you're extraordinarily reliant on it. The the real estate tax is the only thing, as you know from county council. The only revenue source you have, there is no county sales tax. There is no county income tax. If you are a school district, you are a little less reliant because you probably have the earned income tax, but the largest lever you have is the real estate tax. If you are a city, you are a little better off. You have a few more levers, but you are still very reliant on the real estate tax. You'll see in a in a little bit how much of the city's budget comes from the real estate tax. And the issue with that tax is that tax is based on the assessed value of your property, not the market value. So you buy a house, it's worth $200,000. 10, 15 years later, you sell it, it's now worth 300 or $400,000. You were still being taxed all along the way as if the house was worth $200,000. Why? Because it's the assessed value. And until somebody steps in and does a countywide assessment and says, "Okay, not just your house, but every house and every property is worth a different amount," the amount that you tax stays frozen in time. So, this is simple math.

Real estate tax is revenue time base times collection rate. Uh, I'm sorry, rate times base times collection rate. Collection rates don't change very much. If the base doesn't change, the only other way to get it to grow is the tax rate. This is why Pennsylvania school districts across the board and counties and townships and cities frequently have so many real estate taxes. So that part of the head, that third head of the dragon is not unusual and spoiler alert, it's still here because you're still in Pennsylvania. There has been some progress along the way and I will touch on those things because it is important to give you a measured analysis tonight. There are things, as you already heard from the press conference, where there's a need for action, but it is offset by some strengths that you have. So we don't want this to just be chicken little doom and gloom the sky is falling, right? There are some things and some assets and some strengths that you have. Okay, so let's start at the at the most basic type. This is slide three. The most basic assessment of your finances. Can you pay your bills? Right? This is your cash position. Cash is can I pay my bills? Can I pay them on full? And can I pay them on time? And the answer is yes, yes, and yes. Your cash situation here is stable. You can see from the chart that the total amount of cash has grown from 20 million in 2021 to 34 million in 2024. Uh one of the measures of your cash stability is do you have to borrow money early in the year to pay for your employees to keep the electricity to do all those things that that city government does before real estate taxes arrive. Unlike you know you get a paycheck you get every two weeks or whatever it is city government doesn't get a paycheck doesn't get tax revenues every two weeks it gets the real estate tax revenues in January or March and then that's it for the year and obviously your year doesn't started in March it starts in January so you have to be able to pay your employees for those three or four months here you have not needed to borrow money which is a common move in Pennsylvania because your

cash levels are strong and we want that to always remain the case we want to draw that line in the sand and say how will we know we're doing fine when we don't have to borrow to keep the lights on. Are cash are our cash levels strong because of in part because of $200 million? Yes, they are. Yeah, that was like a it's like a leading question. No, you're you're absolutely right. So, what has helped with the cash levels is uh is two things which leads into the next slide which means it's unsustainable. That's exactly right. This is good. You should give the

So, um so that's exactly right. So, this is a little different. Look at your financial performance. This isn't cash. Again, can you pay your bills? Can you pay them on time? Yes. Yes. And yes, you're not at danger to bounce checks. You're not at danger to run out of cash. I don't want that to be uh a concern that people take away from this from this meeting. This is revenues and expenses. This is the budget. I'm sure your favorite thing that you do every single year, revenues minus expenses. The blue bars show your results, which are all positive. They're surpluses. So, $16.7 million surplus. That means I collected $16.7 million more than I spent. Then a higher surplus than 6142. We'll know what your surplus is officially once the audit's done, which will be done in probably a couple of months. So this is this is the positive thing. Two warning signs, though. 0.1 is less than 4.2. 4.2 is less than six, and six is less than 22. That trend is going the wrong direction, right? I would want it to not necessarily be growing. You're not a private equity firm or a bank. You don't need to go from 22 to 25 to 35 to 40. You're not here to make money. But you also don't want to be in a position where your reserves are get or your margin is getting lower and lower and lower and lower. The second thing is exactly what you mentioned. Well, why are why were results in the teeth of the pandemic better than they are now? And it was because of two things. First, when the pandemic hit, the federal government adopted what's called the American Recovery, uh, the American Rescue Act of 2021 or ARPA. I missed a word. It's somewhere in there.

Rescue Plan Act.

Perfect. And that gave about $70 million to the city. And $70 million spread over two years. It arrived in 21 and 22. Sure makes it a lot easier to turn a surplus, right? So, that's that's thing number one. Thing number two that happened is the city loan or rents the system, leases the water system to the Eerie Waterworks. So they pay on an annual basis and what they did was they say, "Hey, instead of paying you X million every single year, I will give you this large amount upfront and we'll be done, right? We'll be done for 10 years, 20 years, 30 years, whatever was the the term of that agreement." So the upside for this city was they got all that money up front. The downside was they got all that money up front and upfront eventually ends. So, you'll see later on how the city used that money. A portion of it was just used just to pay operations, right? I have water lease money. I'll just use it to cover paychecks. But a large part of it was used to pay debt down, but temporarily. It doesn't last forever. To your point, this is what finance nerds like me and also credit rating agencies and bankers and state officials and all those sorts of fun people focus on. Yeah, they want to know that they have cash and yeah, they want to know that you have a balanced budget, but what they really want to know is this thing called fund balance. And fund balance is an accounting measure of your reserves. It's not just cash, although most of it is. Fund balance will include the taxes you expect to collect, but they haven't quite come in yet. And the trash fees that you expect to collect, but they haven't quite come in yet. And maybe the federal government owes you some grant that hasn't come across yet. It's a total measure of your assets, and then it subtracts out your liabilities. So maybe uh the boiler broke on December 31st and you got the bill on January 3rd. That gets accounted into as a liability. Maybe you have a bunch of people who acrew time off and they don't take it all. They have vacation, they have sick leave, whatever it is, and they bundle that all up and then they cash it out when they leave. That

liability is measured in here. So fund balance is not just cash. It's a more holistic review. And why it's so important is because it's a measure of your reserves and your stability, right? So this is the score. This is the win column. This is the winning percentage that accounting folks and credit agencies focus on. So how much is too much, right? You're not a bank. You're not trying to have $100 million in terms of fund balance. That would not be your goal. That would not be good policy. The goal is at least at least two months worth of expenses or revenues because you want to be able to cover your expenses or revenues. one, early in the year before the revenues arrive, and two, if something bad happens, if you have a big snowstorm, which I've heard you tend to have here in Erie, and you need to send a bunch of trucks out and it's on overtime, you need to pay contractors, you don't want to go, uh, I can't really afford that. You want to have the reserves to be able to do that.

So, Gatsby's best practices is that you should have maintained two months, a minimum of two months. That's exactly right. And and so and so prior to leaving the county because of the instability of the federal government and the state at times. Yes. We looked at possibly extending that out. We felt it prudent to increase more than two and a half months because then two months because of where we're at uh in this we're someplace we've never been.

Right. You're you're exactly right. So if two months in the is the minimum, it's the minimum for Summit Township and the minimum for Mil Creek and the minimum for Valley Forge and the minimum for the richest for Hollywood, you know, and for, you know, Silicon Valley. It's the minimum for everyone. If you are a place that is subject to weather events, if you are subject to the whims of the state of the federal government, as a county government, that is hugely true on the on the Commonwealth side. If you're in a place where just people tend to make less money and they need to be more service dependent, you want more than that. Not because you're trying to be hoarder or but because you need you you have there is more room for error. There is more room for problems and there is less ability to go to your population and say I need another million.

Prosperity. Yes. Yeah.

So where are you in your fund balance? It was at $21.8 $.8 million, which is 22%, 2 months would be 17%. So, anything above 17 good. So, 22 is above 17, 21's above 17, 23 is above 17, but 2024, which is the last completed audit we have, is 14. Now, that's obviously not above 17. And it's also a big drop. To go from 23 to 14%, to go from $22.3 million in unrestricted reserves, which is what we are focused on, to 14 a.5 is a big swing. uh it is not the only reserves that you have. You also have a portion that is set aside for your pension plan and we'll talk about that in a second. But what we are most interested in are the reserves that you can use flexibly because at I can't if I have money that is restricted and restricted means someone outside of city government has said you can't use it differently. Could be the state, it could be the feds, it could be a contract that you have. Somebody has said you could only use it for X and your X is employee pensions. So if you had a big snowstorm, you couldn't say, "Oh, let me go grab that money." Because you are not legally allowed to use it for those things. So while that is good that you have more money, it is restricted for a specific purpose. We're going to come back to that point later

before you go from that because since you pensions pension and I get it. So what happens if if we get a rash of uh of of retirements? Uh yeah, that because in my mind that could balloon very very rapidly.

Yeah. So it it could and it's a it's a good point. That's another one of those actuarial assumptions where how long do you assume people work? The way it would work is you would see a hit to your cash flow from the pension plan where let's say your pension plan spends a million dollars a month on benefits. As you see more people cycle in, you would see that increase to one two or three or 14. The actuary then comes in and says money is coming out of the fund faster. So the next time you put in money, you have to put in more. But for pension plans, including yours, which is 80% funded, you have enough cash where you don't have to worry about uhoh, I didn't have that in the bank. It draws down the reserves, the assets, the investments that you have, but you do have time to put it back in. All right. So, all the way back to the beginning of what we are doing here is the numbers that you're going to see anytime you hear see the word projected or we try and avoid the word predicted because that's not really what we're trying to do or future. If you see numbers for 27, 28, 29, I don't have a crystal ball. They all come from the following methodology which is we say okay if the city spends and the city collects in the way it previously has if we account for what we know what is your debt schedule what do your labor contracts say if you have a long-term contract or I know you don't trash or whatever it is we account for all of that in here and you don't do anything else and that is a really important point if we all leave here tonight and go that was great we're never going back right if you make no corrective action this is where you would land. It is an artificial situation. You are not going to not pass a budget or just ignore everything that's happened earlier today and going forward. It is an artificial situation. But we intentionally take this path because we want to figure out do you have a deficit? Yes. How big is it? And how fast does it grow? This is a diagnostic tool. This is like when your doctor says, "Hey, get on the treadmill

and run for three minutes and then we're going to take test check your blood pressure and then we're going to take a blood tighter and we're going to do all that stuff." He doesn't then come say, "Wow, you're really unhealthy. Stinks to be you. Good luck." Right? He says, "Okay, these are your issues and now this is the corrective action that we have to take to to fix that." So, let's talk about and you we'll we'll hit this a little lighter because you know this and you live this every year through your budget process. So, I I don't want to bel labor stuff you already know. This is your revenue picture. In a very simplistic way, you are budgeted this year to bring in $110 million. Uh, in 2021, the city brought in $101 million. In 2025, the city brought in $104 million. That growth, that $3 million, $3 million sounds really nice. On a percentage basis is not very much, right? If it grows by three million which is less than 3% over five years, my revenues are effectively flat. So this would be a problem for any organization. If well I do run a business I if I ran a business and my revenues were flat and I had to give people wage increases and the cost of health insurance went up, I would eventually have to do with less employees, right? Or I would shut down. I wouldn't be a business anymore. If you were a nonprofit or a hospital or a school district, you would have those same challenges. Now, your mix of revenues has changed. It's a little hard to see here. The red bar is your grants. That's our ARPA money in 21 and 22. And because ARPA doesn't last forever, your amount of grant revenues in 25 and 26, they get lower. So, the blue bars, this is the real estate and the earned income tax, they increase, the red bar shrinks, and they kind of offset each other, but you end up back where you started effectively. Here's our first finding, and this is where if you heard me say today, you have a budget deficit yet, and you you have a budget deficit today, and you probably didn't even know it, although mayor has

known it now for at least a couple of weeks. Most of you, a large part of your revenue, about whatever this is, 28% is restricted to pensions. It's one of two things. It's either the distressed pension tax, which all of you pay because all of you work and obviously live here. You're council members, but even people who work here and don't live here pay this. Uh, and the people who live here pay it. It's a 0.65% earned income tax that the city enacted a couple of years. It generates a meaningful amount of money. Generates 26 billion this year. So that is you. The only reason you have the authority to increase your tax rate above 1%. There are two ways you can do it. One is home rule and the other is this distressed pension tax. Well, there's a third. You could be in state oversight, but we don't want that, right? That's the act 47 tax. So, that money must must must must by law go to the pension plan. It's restricted. The second thing, the smaller orange block is $6 million in state pension aid, which the state provides to most uh local governments. Counties don't get it, but most local governments where they say, "Hey, you have x amount of employees. We're levying this tax on insurance companies that are out of state. you know, State Farm, which is in Bloomington, Illinois, or whatever. We're taxing them for doing business here, and then we're taking a portion of that tax, and we're giving it to you for your pension plan. But within 60 days of me cutting you this check, you need to tell me that it's in one of your pension plans. It is restricted. You must must must use it for your pension. You can't use it for something else. So, you have $32 million out of your $110 million budget must go to the pension plan. Here's the problem. The outside ring is your revenues. That's the $32 million. That's what we just talked about. The inside ring, the orange, is what your ex what your budget shows you spending on the pension plan. That's $23 million. $23 million is what by law, the minimum amount you're required to put in your pension plan this year. To your point earlier, this is where the actuary says, this is the

number I came up with. This is the rubric. This is the measure. your MMO, your minimum municipal obligation this year is $23 million. Now, for most communities, that's the end of the story because they don't have a distressed pension tax. And of course, they're just going to put in the minimum required because they have other things that they're doing. But in your case, the combination of your tax and your state aid is more than the minimum. You have to put in 32 because that's the amount of restricted revenue you have. You only are putting in in your budget 23. That delta you cannot use on other things which is what your budget unintentionally shows right now. That delta that $8 to9 million you should have an additional $8 to9 million in pension costs. So the two orange bars align with each other but that would give you an $118 million budget and you don't have $118 million in revenue. So this is the deficit that this is the biggest part. It's a $12 million deficit at the end. Not going to bury the lead on it. twothirds of it comes from this thing. Now, there is a chance to deal with it this way this year, which goes all the way back to this. What if that $18.4 million in restricted pension money, which was restricted by an outside party, so we need permission or uh approval to do this, what if it wasn't? What if it wasn't restricted? What if it was considered unrestricted and you could use it for something else? Well, that would go a long way towards closing the $8 million gap. you have this year right at 8 million that amount of money doesn't self-regenerate once you spend it it's gone it's another version of ARPA but for this year it could be part of the answer will not fix next year or the year after that or the year after that but it is an option that the city particularly in the finance department is trying to work through for this year

can we I want to just ask a question this one mayor might be a little bit more for you um how was this presented in the budget before? Like how did like so this just and maybe you know this, maybe you don't. Maybe this is something we get we have to talk about more. I'm just curious like as we sat here with council with with a question that we got from the news. Um that's that's a that's just a big oversight. That's a big oversight and I'm just curious like how was this

Well, I I will tell you what I think and then I I I know Gordon can also help. So, you know, the expense number is budgeted and to Gordon's point, the MMO, the number that the actuaries told us we owed was that 23 million. And so, that was the expense number that was used. I think you have to understand it's it's rare for there to be more than you have to pay. And so, this only started happening within the last 2 years. This wasn't something that had always been happening. So, I know that the finance department was trying to get some clarity and some guidance on exactly how to handle that. So they put in the MMO because truly that's what we were required to pay just you know understanding then that the larger number you know that there was that mismatch. So I think it was just presented to you as an expense and I'm not sure you would have known the difference. You would have seen the MMO you wouldn't have any any reason to question it and you would have understood that to be your pension expense. I don't know Gordon if you have anything to add. No, I mean that's I I have encountered this in other communities. Other another community that we work with, a finance director who's been doing this for probably as long as maybe I've been alive. He's a very someone I respect and someone I would trust to run uh to help my community out of financial distress. There's a guy named Rich Troutman. He runs finances for the city of Chester, which is in bankruptcy, and he and I work very closely together. So, it doesn't get any tighter or tougher than that. and he did the budget and he missed it because it just doesn't exist because he was in Coatsville for years and Coatsville does this and it we caught it early enough in the process where I say wait you got X and we need Y again and I would trust Rich to you know budget my children's college savings. It just it's it's hard sometimes. It takes an extra set of eyes to catch this sort of thing. And especially look 5 years ago we were talking about pension being the head of the dragon that was going to eat eerie and swallow you and spit you out into the sea. It's strange that 5 years later you have this your pension funding level went from 60 to almost 80 in fire and in police and it's stable in

OE for reasons we can discuss. But the other thing that's happening is this. So this year you are contributing I'm sorry the little red dot. Uh, look at the table at the bottom of the page. Before you go on, because I'm still trying to wrap my mind Sure. around what the the conversation with um Dr. Titus. Yeah. And yourself and the mayor. And so I just want to slow down because I'm a little Sure. No, that's okay. And this is important. Very much so. uh so much important that I can't gloss over how that we would not know or why that wasn't there. Yeah. Because here it is made now. Yeah.

And so in October that shouldn't be again. It should be create a field should be created on the spreadsheet. Yes. That says our actuary cost is this. Right. And I think that's like real real simple because I did it I I ran our retirement pension board for like six years, right? And I worked real close with the actuary. Yeah. And that's just shouldn't happen. I I take your point. And and it and uh and it ought not happen again. Right.

And if I could say, Councelor Horton, I think we all know that the budget process this year needs to look different. You've raised some concerns and questions other counselors have. We know that the budget process needs to be I think slower, more open, giving you more information and we will commit to that moving forward. I can't explain the past to you and I think yes I hear your question but we have to move forward. I'm just asking that we put a pen in that absolutely and say right listen we're not going to wait till the budget to fix this. We should know that okay when that stuff comes down there's a field screen in the you know

right? So the one advantage that you'll have this year is I already did your budget. Pretend, right? Pretend. We went line by line and said in 2027 this is what the city will spend if nothing changes. And in 28 and in 29 and in 30 and in 31. So you'll be able to take and we have that higher contribution in there because we've seen this before. So you'll be able to take my numbers and the budget numbers and go wait what's missing? Why is it different? Now there may be reasons. You may have 10 more or less positions and I didn't account for that. But you will have a line by line mock budget to compare line by line with what you have to say, wait, that guy from PFM told me the number was supposed to be X and you're giving me Y.

I'm glad you kind of cleared this whole thing up because in my mind I should be able to leave here loaded with more information and pick up the budget as it currently exists. Yeah. And say this occurred Y and this is where it occurred. And so what you're telling me is I won't be able to say this show where that portion of should have occurred is just non-existent. Yeah. What you what you will see what you should see in the budget is you should you should still budget see it in yours budget. Yes,

you will definitely see it in mine and what you should see in yours is the MMO payment and then an additional contribution. You can call it whatever you want that gets you to the legal that gets you to whatever you're budgeting to come in. What comes in must go out to the pension and those two numbers must Sorry, colleagues for good. I'm just got another text. Yeah, I'm sorry. I I'm just trying to I'm sorry. I'm just trying to really wrap my mind around it and understand it. One the last thing I ever want to do is just meet for the sake of meeting. I don't want a sizzle session and and while you're here, uh we should we should you absolutely utilize your your experience no matter how long it takes.

Right. Agreed. So the one silver lining here is if what is the benefit of the pension fund going from 60 to 80%. What's the benefit of cutting this head of the dragon down to size? The benefit is the more the better funded your pension is the less you have to put into it. Now it will never be zero. You will never have a pension contribution of zero. That just doesn't mathematically happen in places like this. But whereas this year it's 26 and next year it should be 26 plus that additional amount right so 32 33 whatever that ends up being eventually the amount you have to put into your budget or into the pension will come down to 25 to 22. Now look, if the stock market blows up or a bunch of things we can't predict happen, it could happen on a different schedule. But because you are catching up, the benefit of having higher pension fund, and this is something we talked about back in 2019, the benefit of taking the medicine now, the benefit of putting more money into the pension now is you have to put in less later because you get ahead of the game. It's like paying again the credit card thing or your mortgage. If you pay more than the principal, the minimal amount, you pay the mortgage off faster. It works exactly the same way. Uh for the pension plan, we hit this one pretty hard already. Uh that the city has uh use uh uses money that is from ARPA. That's if you're looking at the table, the the uh first row in the table, again, 12 to$13 million flowing into the general fund in those early years. Lesser amounts. Uh more recently, this year's budget only has 1.4. And this is not that doesn't just mean the city will only spend 1.4 on ARPA. This is the city spending ARPA money on itself, right? So programs that are funded through ARPA that go out into the community, that's not accounted for here. The water lease payments, this is the water lease money that just supported operations. We'll talk about the way the lease was used to pay down

debt in a in a moment, but the bottom line here is you have about $3.6 million in revenue in this year's budget that will not last forever. ARPA is designed and intended to be over this year, right? So even if you had used the money differently and you wanted to uh hindsight is 2020 or Monday morning quarterback and go back in time and saying oh we should have used the ARPA money differently. You had to use it by the end of this year anyway. So it was never going to be a part of your 2028 or 29 budget picture. The water lease payments we'll talk about in a second but this a little more fully in a second where the impact really is. But you have $3.6 million in revenue that you can't count on forever. The ARPA money has again you will can't count on it next year. You do, I think, still have some of the water prepayment lease money set aside, but not a huge amount. And again, it doesn't last forever because once you sell your car and you get the money and you use the money, you don't have another car to sell, right? You don't magically grow one in the in your in your parking lot.

The car is gone. The the remaining ARPA money that you're conversating about, the 3.5, where is that bucket? What was that money intended for? So, the ARPA money is 1.4 and that is what's that is in your budget. that is built into your budget. There is a larger ARP allocation that funds things that aren't you, you know, whatever it is you've allocated the money for. That part I don't know. That would not be part of your I'm just saying I know that we still have um over $3 million for parks and recreation. And I'm not going to be in favor of voting for anything to move that money for anything other than parks and recreation.

Jasmine, just so you know, that money is allocated. That's different from this money that Gordon's talking about. This is basically the money that's that's not been allocated. that's left in the general budget. It's not the allocated stuff like you're talking about. Okay. Thank you. Yep.

All right. We talked about this one before, but we'll hit it from a little different angle. Uh the fact that your real estate tax revenues here are are are flat. So, you can think of your real estate tax revenues I know everyone loves the real estate tax as the product of three things. It's a product of my tax base. What is again the assessed value of the buildings and the land that are in town? That's what we tax here in Pennsylvania. We don't tax the stuff that's inside the building. We don't have a we don't tax your car. They do in other parts of the country. But here it's the dirt and it's the building and the value of the dirt and the building is assessed by the county. You don't get to determine what that is. If you sell the dirt in the building for more money, it's still valued at whatever the assessment was for a taxing purpose. And that is $3.2 billion. And that has basically not changed over the last 5 years. You can see the growth the mathematical growth rate kagger is compound annual growth rate. It's 0.2 or 0.6 which is another way of saying nothing right. So your tax base isn't growing. Your collection rate that dances around 90% and that's pretty common for cities for cities end of sentence right reading is 91 Lancaster is 92. Most of the most cities are in the 90s. Yes, you get the remaining 10% eventually. It's not that people never pay their taxes, but they pay it two or three years later down the road. Your current year collection rate is about 90%. So, all right, I got three parts of my formula. One doesn't change. The other one doesn't change very much. The last one is the tax rate. And from 2022 to 2025, that didn't change either. So, if I've got one thing that doesn't change and I got another thing that doesn't change and I got another thing that doesn't change, guess what doesn't change? The thing at the end, right? 1* 1* 1 is always one. It never changes to something else. So, your revenues here on the real estate until this come this here where you this body went through it

so you know it. You adopted the 1 mil which is about a 7% tax increase. That will take your revenues from around the 3738 to $40 million. But for four years, that thing that accounts for a very large part of your budget was flat every single year. The good news is your earned income tax revenues are not. Those are growing at about 4 to 5%. Uh we from based on what we look at because right now you tax your residents and your non-residents. The non-residents pay the the distress pension tax. It looks like incomes are growing a little faster in the city than they are outside. That does not mean people inside the city make more than outside the city. But the growth rate, it looks a little faster, which by the way, not unusual. We see that in other other places where I'm not sure what it is because it's starting from a lower spot or whatever it is. It looks like you have pretty good earned income tax base growth. And that's really important because you've got kind of two horses connected to your wagon that make it move. You've got the real estate tax horse and you got the earned income tax horse. And the real estate tax horse, he doesn't move. He just he stays in one place unless you increase the tax rate and you whip him in the butt and then he starts and moves however far you've hit him. The earned income tax does move. If neither one moved, we'd have a really serious problem because I'd be here telling you you're basically on a fixed income and now we have to figure out how we live off of cuts. You don't have that specific story because you do have some earned income tax growth. But if I got two horses and only one's pulling, I'm obviously not going to get as fast as I would if both were going somewhere. I love your analog.

Thank you. Try and make this a little more accessible and interesting. So, we've talked about your revenue side. Let's talk about where you spend your money. And this is not a surprise. You spend it on your people. That's what you are. State government, just like education, local education, it's local education is teachers and superintendent and people in the buildings. County government is corrections officers and social workers. City government is police officers, firefighters, code enforcement officers. It's people. You don't build aircraft carriers or missiles here. You're not the federal government. You have people. And most of your expenses are salaries, pension, health insurance. The blue bars that all kind of blue mesh into a blue blob there, that's all of your personnel expenses. Everything else yellow and you have some transfers that are the orange. That yellow, that's that's everything that's not a person. That's the lights, that's the water through the fire hoses, that's the cars, and that's a really small portion of your budget. So, most of your budget is people. Uh, and again, that's not unusual. What is a little bit unusual is how you've been spending that money on the people. So, there are two ways your personnel costs can grow. You can pay each person who works here a little more, or they can cost a little more if their health insurance goes up, right? Cost per capita. I could give you a five or a six or a 7% wage increase. Your health insurance costs grow by five or 10 or whatever it is percentage. So that's one way for your health for your cost to grow. The other way for your cost to grow is for you to have more people, right? You might be paying them the same or you might even be paying them a little less, but if you add on top of them, you get a total increase. Your story has been mostly the second. It's not that you haven't paid anybody here a wage increase in 5 years. That's not the case. Although there was some years where some of the wage increases were zero. But they've been gener generally in the 0ero to 3% range which think about inflation that's not crazy. Definitely not the highest I've seen. It probably trends a little bit towards the one of the lower patterns that I've seen. But the issue is that you've added

people. So from 20 when I was here in 2020 at that point the city's headcount had been pretty stable. 515 517 511 512 512. 2021 the city added 10 positions for code enforcement and administrative functions. Administrative functions is going to be basically everything else. HR, IT, the mayor's office. It's everything that's not one of those other bars. In 2022, you added 21 police officers partially covered by grant funding, but grants one don't last forever. Two, don't cover your health insurance benefits. In that case, they only pay for salaries. And three, only pay for the salaries for when they get here. So, if a police officer when he gets here or she gets here makes $60,000 and the next year they get a 5% increase, your grant gives you $60,000. And if it grows to $70,000 the next year, your grant gives you $60,000. And if your grant go if the I mean, you get the point, right? So, you have this gap. Grants are great. Grants are not free money. We'll come back to that point later on. So, now at 2022, you have an additional 21 police officers. your headcount's 543. 2023, we grow it a little more. Codes in admin, now we're up to 550. 2024, we grow it a little more. Now we're up to 556. And there it kind of stabilizes. But if you go from when we I when uh over the last few years, it's about a 40 or 50% increase. So Erie has decided to spend money not more money on the employees it has, which some communities did, but more employees overall. The challenge with that is there is a portion of their expenses that you can't budget and you can't predict and that's their health insurance costs. I can count a person and I can say you get a 2% wage increase and you get a 2% wage increase and I know what your wages are so I have X. But I can't predict when you'll get sick.

I can't predict when I'll have children.

I can't predict when you'll have children either. No, that's exactly right. I can't predict when your children will get sick. Can't predict when you'll get married either. Health insurance are all is a variable cost that grows much much faster than compensation. And we've seen this in your numbers. And the more people you add, even if you can cover the salary increases, you're adding more and more of an unpredictable mix to your formula. So remember the orange bar who I said it wasn't very big, but it's growing. Well, it's growing and it's it's actually growing pretty fast. So this operating expenses again is everything that's not a person that's in your operating budget. We went through a period of time with pretty high inflation. Sure. Everybody remembers that. We're actually headed back into one right now. It appears over the five years we had inflation of about 15.5% on a on a national basis. This isn't specific to year, but Erie's spending on these types of things has grown by twice the rate. So, if I'm spending twice as much in an area as I was before, that at twice as much as the price was increasing, that tells me it's not just inflation that's pushing this number, I'm not just buying the same thing and paying more for it. I'm buying more of something. Right now, the something might be good. We talked a little bit this morning about police technology. I don't want people to take away from this. Aha, the city is spending, you know, $500 on junkets to Aruba and, you know, $600 lunches. the the stuff here that you're buying, some of it was frankly probably necessary because you went through a long period where you couldn't invest in the building, the cars, the streets, and those are all things that are important. If you have an immaculately paid, wonderfully compensated police officer with no car, he's not getting very much done. If you have a firefighter who's got 100% funded pension and the greatest health insurance benefits of the world with no truck, you're not getting a lot of benefits out of that. So, you do have to spend something in this area, but you

added this year, you royal, you not you personally, but you added $3 million in operating expenses in this budget. That was 9 to 12. That's 33% increase in one year. Even if we're talking about a little number, that's growing fast. All right. Remember our second head of the dragon? And we are almost almost to the end, I promise. remember the second head of the dragon which was the debt head and the water leases. So this chart here will show you where the water lease proceeds were used. The brown bar uh in the chart is what the city's debt schedule was pretty much when we left at the time uh that we finished our report. So it was scheduled to be $5.4 4 million in 21 and then 96 in 22 and then kind of flatten out at 93 till it dropped to 9 to 42 in 2039 and went away not forever but went away from the schedule that you had. That's a big jump. I don't remember what the 2020 number was. I don't think it was five but this think of this as two giant steps up where the first step is four feet in the air and the next step is 5t in the air. Really hard to climb those stairs. And we and this is why this was we we called this out in the plan and we said look the city needs to do something. The something that the city did was it got that prepayment from the water lease and then used it to pay down this debt and really squash it down. So instead of paying five in 2021, the city effectively paid nothing. That little 0.2 that's money that the that's debt that the sewer fund pays for you. You just sewer fund hands you money and then you hand it over to the debt. So, it really went from 54 to nothing and 96 to nothing and 93 to nothing and 93 to nothing again and again. But now we've at a point where that water lease proceeds go away. It doesn't last forever. So this year you're still getting a lot of benefit from it. It's from 93, but it's to 20. And next year it's from 93 to 31 and the year after

that to 35 and two years after that to four and then to five and then back to 10. Now that we are not trying to solve if you look at 2033 your debt struct jumping and doubling that is a really big jump you know how I said the four step five you know five foot step five foot step that's like a sixoot step thrown in but we're not trying to fix 2033 on whatever it is 2026 but we need to be thoughtful about that right now because it the lesson if you take away a lesson from how the water lease proceeds were used it's that you have to look more than four or five years down the line because the funny thing is eventually you'll get there and you have to make decisions and you have to live in that reality. So let's be thoughtful about that reality right now. The other part of the debt is oh I whiffed again. There we go. The other part of the debt is you did add some debt. You did add debt last year borrowed money to do the Miller brothers project. Right? So that is this the different colors here. Each one of these is a year or a bond or a bank loan that you did. This is by chunks of debt. So the green chunk is the newest amount. And you can see it's not zero up front. It's I don't know, it's a small amount this year and a slightly larger amount next year. But where it really hits you is after 2039. Remember the last chart showed all of your debt going away by 2039, which by the way is never necessarily to the go the goal. You don't shouldn't the goal is never have any debt. Never. That's not the lesson to take away from this. But you want it to be manageable and you want it to be flat. Those are the two things you want it to be. What I can afford and even over time. And right now you have the first thing. You can afford this year's debt, but you don't have the second thing. You have this ramp up. So while the Miller Brothers uh borrowing did add to your total, the little green bar is, you know, there's there's green on on top of every bar here. Where it really hits you is farther out. So is

the Miller brothers set aside the operations stuff for a second. Is the Miller Brothers borrowing part of the part of the debt? Yes. Is it the main cause of this problem? No, not close. The Miller Brothers debt hits after this debt cliff that we're talking about. Yes. Sorry. Can you just go back to the to the debt to show? So, I just want to to for council to explain with the with the use of the water prepayment that you know, you and I had talked about the fact that the debt could have been paid differently. So instead of paying all of the nine million in those early years could have been paid half which of course would have been more pain in those years but would have given us longer benefit of that money.

Yeah. I mean without so with with with the caveat that you have to pay your debt off as it comes and there are caveats on what you can prepay. the ideal, the financial nerd and the person who knows that you're going to have to live in the reality that exists five years later would say, "Let's let's pay a little more upfront so that we don't have that giant hook at the end." In fact, Pennsylvania standard is level debt service. If you tried to go out and create this debt service, I'll borrow something and I'll pay all of it off. I'll have this balloon debt. The state the local government unit debt act wouldn't let you do that, right? So, you didn't do this on purpose. This happened through a number of things. But we would want that to be, I don't know, three million a year, four million a year, whatever it is to avoid that giant step at the end.

And not only that, it allows us to draw interest on the balance of the money instead of just it.

Well, I don't want to vilify anybody, but it wasn't the smartest use of borrow. And it allows you to borrow money again because the other thing that you can't freeze in time is buildings get older, vehicles break down, streets need to be paved, parks need to be redone. This just shows what your debt is right now today. I can't guarantee you a lot, but I can guarantee you we'll have to borrow money sometime between now and 2046, which is when this table ends, right? So leaving that capacity to do things as thing comes up is is equally as important. All right, put all the ugly pieces together and this is what we get. And this is the number you heard this morning. And this will not happen. Right? I realize these are big scary numbers. You will not run a $12.3 million deficit next year followed by a $15 million deficit in 2028 followed by an $18 million deficit in 2029. One, you're not allowed to run that. You have to pass balance budgets. Two, the state would step in and you'd have bigger problems before that. But three, you're all smarter and more committed than that, right? You've shown that you have the fact that you stood behind the mayor this morning or a number of you did shows that you're engaging that we're having this meeting that you're not doing this and going, "Oh, I can't wait for it to go away and for PFM to go away with it." You're going to you're going to make decisions, but we have to know the size of the hole before we start to fill it. So, next year's hole is projected at $12.3 million. Where does that number come from? Eight of it is from the budget thing that we talked about with not having the pension revenues matched to the to the expenses. Three of it comes from the expiration or the water lease or the the ARPA money, the non-recurring money goes away. So 8 plus 3 is 11. And the rest is that one head of the dragon that everybody has that expenses grow slow grow faster than revenues, right? We are not going to fix. And then if you look out, why does it grow from 123 to 147 to 175? That's that structural deficit. And even if we

got you all the way back, if the thing that fixed this was someone magically gave you $12.3 million this year and every year going forward, you'd still have that deficit, right? Because that's just the fact of that's just the facts of life in Pennsylvania. But the last time we did this, the first year deficit when we did this in 2020 was $2 million. It's 12 now. That's not to say that nothing good happened in the intervening five years, but the urgency is much higher here. I ask a question. I asked it many times in the prior administration, but you had a five-year plan and then CO hit. Did they call you back to give them any pointers at that time? A couple of times along the way. I mean, honestly, the way

they never saw you. Yeah. Honestly, the way these work is you write the plan and then you have one of two options. You keep the consultant around or you don't. Uh, and you're not required to keep the consultant around. I did hear from the administration on occasion often in the case of hey this idea came up what do you think is it totally crazy uh but no we were we did not sit alongside of the city and and do that and again that's that's not really unusual but that is what happened

and and I will say too don't forget that we got this this process is part of a grant so the state is helping us pay for PFM to be here once that grant is done once they leave I'm not sure that the state money continues. I'm not sure that we could continue. I know at the school district, for example, we had PFM's expertise while we were under oversight, but once that oversight ended, the school district had to make a decision whether or not to continue to pay PFM, which we did because we found it to be beneficial. But part of that I have to in defense is the cost of keeping them on is, you know, not nothing,

right? Once again, my point was prior, again, we're talking about ghosts now, but they used you as the reasons due to things they were doing, but they never talked to you. Interesting. You just assumed it. Now, we're sitting here that we're sitting in.

Yeah. So, look, there were things that were in the plan that I know the admin the prior administration did that were were in the plan. Um, but that's not the exact same thing as saying that uh they were done exactly as in the plan or that you that plan was written by a fallible mortal human being, me and it was written at a point in time, right? It was not written by God on the side of a mountain with a finger. It was not infallible. And so you have to kind of it did not predict COVID which happened four weeks after I left. Wasn't even that good. Um but uh it it sets strategies and patterns and says okay this is the general trend you should take and now you should revisit it and and make the adaptation. And that's candidly where a lot of places fall apart is they get the plan it looks great hopefully everyone's excited about it usually and everyone's committed to do it for about six months and then something else comes up and then something else and then something else and then you've forgotten about it. I mean, that's that's just human nature, unfortunately.

So, I'm going to be a little bit more direct. I'm actually um pretty angry. Not at you. Not at you. Yeah. Um I have sat here with my colleagues and we This is be coming into my third budget season and we have asked these questions. Yeah. And had asked these questions repeatedly. Sure. And we were given information that was inaccurate. I don't know intentional, but honestly, I think some I I do think intentionally we were misled in some directions, right? Um and so it's very hard for me to to to to not let that anger convey because we are we are responsible to our constituents. Yes.

And I completely understand why people are angry at us because we do look like we've let people down with our fiduciary oversight. Um, and so I'm I'm angry that I feel like I lied to the people that I was elected to represent. And I that's not on you. That is something I need to state out loud because I I sat here and I've listened to all of my colleagues ask many of these questions repeatedly and over and over and and say like these these numbers, this doesn't quite make sense. Um, these positions, this doesn't quite make sense. Where's that money coming from? How are we going to continue this? Right. Um, and and and given quite frank gaslit uh with many of the answers that we received. And so my anger is going to come across because I feel like I've let people down.

That um that is honorable. Let me start with that. Um and understandable because easy for me. I left for 5 years and I didn't do nothing. I was doing other things. But I didn't live here and I didn't live through what you went through. Um and I don't for better or worse I don't carry that I don't carry that experience. Uh but you do and it's lived in experience and it where hopefully that anger and frustration eventually becomes constructive is in working differently with this administration. Absolutely right.

That is a commitment from all that story I just told you about the plan and the numbers man that story exists a thousand different times. That's not unique to individuals and it's not unique to place. That's human nature right? And unless you do something deliberate to work better and more closely together, and the the phrase that I've heard the mayor use here is uh radical cander or brutal honesty or that sort of thing. That needs to continue. And that's really really hard. It's hard to be brutally honest with someone unless you already trust them.

So council, you know, I know it's coming up on the hour here. I I would like to just say a couple things about what comes next because I think there are some questions. Um you know what do we do now essentially? So PFM will now return to do a management audit. So they've identified some drivers of these costs. You've seen them in department you know in headcounts. You've seen them in some of the operating expense numbers. So PFM will come back and do deep dive management audits. They'll sit with our department heads. They'll sit in the departments and really understand why do you have these people? Why did you need them? Why did you hire them? What are they doing? What's your efficiencies? So they'll be working on that over the next couple of months to work toward this comprehensive plan. If we talk about this is this is the diagnosis, this is how sick we are, they're going to come back with some ideas for medicine, right? So we hope that'll come in about August so that we can use that plan to craft our 2027 budget with some of the other improvements that we've talked about. In the meantime, we're not sitting here waiting. My number in my head is $3 million. That's the number the PFM has said, your operating budget is $3 million more this year than it was last year. That's the number I think we need to work on us together now while we wait for them to do their work. That means some real tightening of belts. My we met with our department heads as soon as we had this information. Everyone is combing through budgets. Everyone is looking to where we can save money. The finance department has been incredible in combing through every single line item. We're going to continue to do that. We are probably going to have to eliminate some positions. So, I'll be coming to you with that. We're going to start, and I'm going to say this to you, as I said it to our to our labor uh partners yesterday, we're going to start with management and non-bargaining positions. We are not going to start with our blue collar workers. We're not going to start with our union workers. We just honestly, it's we can't. It's more difficult. And we owe it to everyone to start at management and on bargaining because I really believe that's where a lot of our additions have been made. So, that's where we're going to start. I'll keep you updated on where we are with that. We're going to focus together on the 3 million. I want you to know that Gordon was kind enough to present this afternoon to about 35 of our nonprofit and business leaders. We

invited them to a meeting where he did this exact same presentation and we talked to them about how they can help us. One of the drivers of that increase in operating costs is police technology. It's the Axon contract which some of you have heard about. This is critical stuff. It's body cameras and servers and all the technology that goes into keeping our people safe. And I made the pitch today to our community that they need to help us cover those costs because whether you pay taxes in the city of Erie or you don't, you benefit from the public safety that we provide and we've got to find ways to be supported in that. So, I'm going to be having follow-up meetings with them to really make specific asks. And I felt that there was some understanding and recognition today. So, we're going to work together on that $3 million number, whether that's through revenue. We have other sources, councelor Horton, like the parking authority. We're going to work on the revenue and the expenses to try to fix that $3 million number while Gordon and his team come back to us with some of the bigger things. That's my plan for how we what we do immediately beginning today.

Uh two things uh two things. Thank you everyone. Technology costs and and it goes up every year. Um the Axiom system uh the ROI on it is pays it's for what we paid out in litigation over the years. Uh we cannot afford to not have it. That's the first thing. And the second thing is for immediiacy. We should immediately start lobbying Erie County and speak and in conversations with county executive uh Christina Vogle and county council and ask for a countywide reassessment. Uh I don't think that I think the last one was done in 2013. Uh and I think it doesn't just hurt um the city of Erie, it hurts all 37 municipalities within Erie County. Uh those are some of the immediate things that we could do. And the third thing is and she alluded to it uh uh we have to not be always appear with our hat in our hand. I understand the nonprofit, particularly the larger nonprofits, uh, but but a large large large portion of our city is tax exempt and I would think that they would want to be a good neighbor. We offer up a number of tax abatements. Uh but the condition that our people are living in and now we're looking at possibly cutting personnel and services, I think it's time for them to pony up and we should lobby the governor uh um and our and the both houses uh to give us some relief from the convention center authority act uh because it's unsustainable uh what they're extracting from our community uh versus what they're giving. Any other questions or comments? Um,

I think one of the things that we should keep in mind, you mentioned that the tax rates was been level. That was by design. But at the same time, when they didn't hit the poor people, they hit them harder because they hit them with a garbage fee. They hit them with a sewer fee. They hit him with a is that water storm water fee? Water fee. Uh I have a water retention area in my backyard. I'm paying for it anyway. Joke. Uh I guess what I'm saying is you got to remember the people that built this city are now a large number of them are retired on a fixed income, right?

You know, they're putting out one bag, a country fair bag for garbage. Yeah. and they're paying the same amount that all of us do with bigger families, right? Putting out seven garbage cans sometimes. The other part the other part of this is someone who goes, "What does this guy keep talking about with flat taxes? My taxes go up every year. Your people don't just pay city taxes. In fact, that's the smallest slice that they pay county and school district taxes." And I don't I don't know the county pattern, but I know the school pattern, and it's not flat, right? So, if someone is sitting at home and saying, "What do you mean my taxes go up every year?" They're right. We're talking about the city taxes here, but to your point of someone who's pay what do they care? It's money out of their wallet.

And something we could consider and I think we should consider is I think we need to sit with the other taxing bodies and have this conversation with them so that they know where we are and what we need and have a conversation about whether there could at least be some collaboration around who's raising taxes when if we at least spoke about that. And maybe we can't and maybe everybody has immediate needs and everybody's going to do it. But I think we at least owe it to the taxpayers to talk to each other to say, "What are you doing? What are we doing? How can we try to minimize every year's impact on our taxpayers?" I think that's a that's something we really need to consider. I know council Horton, you've mentioned that before as well.

When the school board moved to September, that was a big help to the folks. Gave them time to get the money together. Well, the good news is after we we ripped now that we ripped off the band-aid is that uh I just left a body where there was no cooperation, a inner body or with the administration and and the legislature. So, the good thing is not to minimize it is that we can fix it. We can fix. And so, I'm not running from it. I'm not, you know, I'm not here to point the finger or vilify how it how it got here or any of that. I'm encouraged by the people who are sitting around this table, uh, and the and the amount of transparency that we're able to provide the public with it. And I look forward to rolling up my sleeves, getting to work on it. So, I'm not I I'm no, I don't feel any way dismayed by it.

So, I'm not generally the voice of optimism. I do what I do and it's not people don't usually hire me to come and tell them good news. Uh you don't usually go to the doctor if you're feeling healthy. But I'm going to end with something uh that I think should be encouraging. There's a government that had uh some of the same problems went all the way into state oversight. Right? I said you're not a candidate for act 47. This place was and it didn't matter if they wanted to be or not. Most of their revenue picture was not in their control because most of their revenue comes from the state. They got a real estate tax. That's what they have. They deliver absolutely crucial services. The services that people cite more than anything when you talk about why people move into a city. And they fell into oversight and eventually by hard work and tough decisions and doing the same boring hard thing over and over and over again to your point about having a plan and then you know not sticking to it. And things got better and they're not in overset anymore. next year or the year after that they'll be one of the first governments of their type to leave to leave oversight. That place isn't far from here. In fact, it is here. It's your school district. Your school district went into distress. It had all of those things that I talked about and you as a community, Royal U, figured it out. That's what gives me encouragement here that you'll do it again. It's not just proof of concept. It's not a cool story. It's happened here before. And there were two of us who were there while that happened. Something like that.

Don't look so glum, everybody.

It's been a glum day. So, well, I want to say I certainly want to thank Gordon uh and his team. They've been amazing. And I think you can all agree the thing about PFM is they somehow un explain this very complicated stuff in ways that people like us can understand. And I think that that's what really makes them unique and and special and helpful. So grateful to Gordon for spending two days with us here. and and doing all these presentations know council that we are taking this extremely seriously but the work of government continues. We still have work to do like our rental registration program and all the things we've talked about. We still have to do those things. We just have to find a way to do them smarter and try to find a way to cut some of these costs. So, we'll have a lot of conversations moving forward. I think tonight is just an opportunity for you to digest. This presentation will go on our website tonight. We were waiting to have this conversation with you. This will be posted tonight so the public can see it. We are going to have some employee town halls. I'll invite you all to those so the employees can ask questions and then opportunities with the public as well. So obviously this is just the beginning. So we look forward to many more conversations and I agree with councelor Horton. We will fix this. We have to. We don't have a choice.

All right. Does anybody else have any questions? Thank you Gordon Man. Thank you Mayor Daria. Really appreciate it. And um historically we don't give up the ship.

All right. All right. We'll go ahead and conclude tonight's study session then. Thank you. Heat. Heat.