Arbor Update

Ann Arbor Area Community News

Greden Budget Letter #2

1. March 2005

From 3rd Ward City Councilperson Leigh Greden:

February 2005

Dear 3rd Ward Resident-

As you may recall, I sent to 3rd Ward residents in January the first in a series of messages regarding the City’s budget. The first message provided an overview of the City budget. In this message, I will describe recent efforts by the City to reduce spending without eliminating any major City services.

According to the Michigan Municipal League, cities and counties throughout Michigan are suffering the worst fiscal crisis since the Great Depression. 70 Michigan cities are on the verge of bankruptcy. Cities including Grand Rapids, Livonia, Plymouth, Ypsilanti, and Warren are closing senior centers and swimming pools, reducing solid waste services, and laying off police officers and firefighters.

Ann Arbor has avoided such draconian cuts. Indeed, we have not eliminated any major City services despite the ongoing budget crisis. We preserved City services by downsizing the City bureaucracy and implementing cost-saving program changes. We will continue to “trim the fat” wherever possible to avoid cutbacks in programs and/or tax increases, but those options remain limited. In this message, I will outline steps the City has taken in recent years to reduce spending without eliminating any major City services.

City staff
In 2000, the City employed over 1,000 FTEs (Full Time Equivalent positions). Today, the City employs approximately 827 FTEs, which amounts to an almost 18% reduction in the City workforce. The following statistics illustrate the success of this downsizing:

  • The City’s payroll expenses are $2.3 million less today than they were in 2000, despite five years of inflationary wage growth.
  • By downsizing the workforce, the City has saved over $20 million in cumulative payroll expenses since 2000.
  • This year alone, the City’s payroll costs would be over $8.2 million higher (due to annual wage increases required by union contracts) if the City had not downsized its workforce.

The City workforce was downsized primarily through an early retirement program. The early retirement program was criticized by the Ann Arbor News because of a few examples of excessive payouts that were required by union contracts. Nonetheless, the program was an overwhelming success because it reduced the workforce within the confines of the City’s union contracts, and the City’s pension fund remains over-funded despite the increase in the number of retirees.

Following the downsizing of the City workforce, the City was able to implement a comprehensive re-organization of the City workforce. Numerous departments were consolidated. Management positions were eliminated. Despite these changes, no major City services were eliminated. The following examples illustrate the efficiencies accomplished by the re-organization:

  • The Police Services Unit reduced the number of Deputy Police Chiefs from 5 to 2, and the number of sergeants from 25 to 23.
  • The City worked closely with its unions to re-design jobs performed by City employees. This job redesign reduced the number of clerical job classifications from 25 to 2. Clerical employees may now be assigned to different City departments to respond to changing workload demands.
  • Job classifications were also consolidated at the City’s Water Treatment facility, resulting in a reduction of four (4) FTEs without reducing the quality of our water treatment operations. In fact, Ann Arbor continues to win awards from state and national organizations praising the quality of our water.
  • The City consolidated the “call center” operations of the Solid Waste, Public Services, and Water Utilities departments. This consolidation resulted in a more user-friendly system for customers and eliminated one full-time position.
  • This spring, a new Customer Service Center will open in the City Center Building. Residents will be able to pay water and tax bills, obtain various licenses and permits, pay parking tickets, and perform other administrative functions at the Customer Service Center. This new system will create “one-stop shopping” for many City services, and will save taxpayers’ money by eliminating at least 2.0 FTEs.
  • The City recently combined the dispatch centers for Police & Fire Services. This new joint dispatch system will ensure a more efficient response to emergencies and better communication between safety service employees. This consolidation also saved money by eliminating at least 1.0 FTE.
  • The City and County recently consolidated their community development departments. The City and County community development employees now work together on regional projects, share expertise, and develop more efficient systems for non-profit organizations that receive community development funding. For example, this year the City and County – along with several private agencies – offer one consolidated on-line application for all non-profit groups seeking funding. This will reduce bureaucracy and streamline the application process for non-profit agencies.
  • The City consolidated its building, planning, inspection, and historic district functions into the new Planning & Development Services Unit. This consolidation has reduced staff while maintaining services. A single manager now supervises all building-related functions, which ensures coordination between employees performing similar work.
  • The new Community Standards Unit combined several departments into one department charged with enforcing City code violations. The Community Standards Unit handles parking enforcement, nuisance violations, sidewalk violations, trash violations, etc. The program has been an overwhelming success. For example, the Unit forced absentee landlords to sell unsightly abandoned properties and required negligent property owners to pick up trash in their yards. Simply put, fewer City employees now perform the same amount of work. The City’s employees have accomplished this task through innovation and hard work.

Some argue that the re-organization hurt the City by reducing services. Certainly the reorganization experienced some “bumps” in the road. Change is never easy for either employees or the public. But our financial problems would be far worse if the City had not re-organized and downsized the workforce. I will describe in a future budget message how the problems we face in Ann Arbor and the changes we have undergone are mild compared to the problems facing most other cities in Michigan.

Program changes
The City also implemented numerous program changes to achieve additional long-term savings. For example:

  • The City re-financed much of its water bond debt to take advantage of lower interest rates, resulting in $200,000 in annual savings.
  • The City pooled its insurance programs through the Michigan Municipal League. This change led to a 66% downsizing of our Risk Management department and lower insurance premiums.
  • The City audited its vehicle fleet and discovered that many vehicles were underutilized. In response to this audit, the City started re-deploying vehicles and downsized our future purchase plans, which will save money.

Labor changes
I am a member of the City’s Labor Negotiation Committee, and we have implemented a comprehensive plan to reform the pay, benefit, and management structure for both union and non-union City employees. These changes are necessary to save money and bring the City’s compensation system in line with other public and private sector organizations. Consider the following:

  • The City began a new partnership with the Firefighters Union, and we recently approved a two-year retroactive labor contract with the Union that dramatically reformed the Fire Services Unit. The City may now call on neighboring townships for assistance in fighting fires (a process known as “mutual aid”). This practice had been forbidden in prior union contracts even though it can save lives by increasing the number of firefighters on-call to fight fires. The new union contract also reformed department work rules and compensatory time programs to save money and give the City more flexibility in managing the department. Similar changes were included in the union contract that was recently approved with the Police Officers’ Union.
  • Beginning July 1, 2004, all City employees and retirees who receive City-provided health insurance were moved from a Health Maintenance Organization (HMO) to a Preferred Provider Organization (PPO). This conversion has already saved the City hundreds of thousands of dollars.
  • Historically, City employees have not paid any portion of their health insurance premiums. Beginning July 1, 2004, all non-union City employees began paying a portion of their health insurance premiums. This new policy is consistent with most private sector employers and many public sector employers – including the University of Michigan – who charge employees for a share of their health insurance premiums.
  • In prior years, some non-union City employees received double-digit pay raises. Last year, the Council adopted a new merit pay plan to stop such large pay raises. All City employees are evaluated using a uniform system based on their job performance, and total citywide pay raises are limited to 3% of the payroll. Some people may argue that 3% pay raises are excessive considering the City’s budget crisis, and we plan to review whether we can continue pay raises at that level. However, average pay increases for private sector employers and many public sector employers in Washtenaw County in 2004 exceeded the City’s rate of 3.0%.
  • The City’s pension plan remains over-funded, but has suffered significant setbacks due to the stock market decline. Last year, the Council established a blue-ribbon panel to study the pension system’s governance and financing structure. These changes will save money and keep Ann Arbor competitive with private and public sector employers.

The City has done much to cut costs without eliminating any major City services. Thanks to these changes, we have avoided the draconian cuts implemented by other cities. These changes have also helped ensure the City’s long-term financial stability. For example, the City maintains 10% of its General Fund as a “rainy day” fund, and our bond rating remains strong. I am a member of the Council’s Budget & Finance Committee, and we are actively exploring other structural changes that will save money without reducing City services. Future budget messages will cover the various causes of the City’s ongoing structural budget deficit despite these budget reductions, and specific proposals to balance next year’s budget (only a few of which have been reported in the Ann Arbor News). Please e-mail me at if you have questions or comments. – Leigh Greden, Ann Arbor City Council (3rd Ward)