It’s funny how perspectives change as your view of the world changes.
Sometimes it’s you that’s changing – you get married, have kids, grow old — all those are life changers that influence your perspective on things. Other times the world changes around us and causes us to see things differently. Lately, the economy has done a lot of changing, mostly not for good, and out of necessity that’s forced us to look at things differently.
I’ve always tended to describe the City organization with phrases like innovative, engaged, action-oriented, goal-directed, and any number of other adjectives that implied progress towards fulfilling the Kent community’s aspirations. These words are all still true but as I’ve made done my speech-making tour at some of the local civic organizations I’ve noticed that I am tending to favor a slightly different set of words. Words like resilient, dependable, and resourceful are coming up much more frequently than they used to. I think it’s a sign of the times and an economy that has pushed us off center and into a less certain financial landscape.
It turns out that resilience is indeed my new favorite word, and its the word I’m most proud of when it comes to describing Kent City employees and all the work they find ways to do under the duress of resource cuts.
I find a strong resonance for what I see happening within the City organization with the way that Wikipedia defines resilience — “Resilience” is the positive capacity of people to cope with stress and adversity. This coping may result in the individual “bouncing back” to a previous state of normal functioning, or using the experience of exposure to adversity to produce a “steeling effect” and function better than expected.
With all the positive things happening in Kent you’d think we’d be feeling pretty good about where we’re at financially — and by comparison with many of our neighboring cities, we are estatic — but that doesn’t mean we’re out of the woods. In the last 25 years, there’s only been 3 years when City income taxes (which is the basis of all the good work that City employees are able to do) has decreased in size — those years were 2008, 2009 and 2010. Ouch.
However, I am optimistic (based on numbers not just hope alone) that 2011 is off to a much better start and we should see a reversal of this troubling trend. Plus, all the construction going on around town has definitely given us a nice shot in the arm in temporary income tax revenues which should help us bridge over and into the next period of economic growth that we expect to follow from the new jobs being created in the downtown revitalization project and all the ancilliary job growth that should spur.
That’s our plan and we’re sticking to it, but unfortunately we got a curveball from the State of Ohio. The biennial State budget is cutting about $750,000 of our revenues. That’s an unexpected and ill-timed hit that has definitely taken the steam out of whatever gains we’ve been able to achieve through the plan that I desribed above. But to quote myself, we’re resilient, and we’re committed to finding a way through these times and come out the other side stronger than ever as a community.
Here’s an excerpt from a letter I wrote that accompanies the submission of our comprehensive annual financial report for 2010 that gives you a sense of how our financial strategies worked in 2010.
FACTORS AFFECTING FINANCIAL CONDITION
The information presented in the financial statements is best understood when it is considered from the broader perspective of the specific economic environment within which the City of Kent operates.
Despite continued strain in the region’s economy, the City of Kent was able to maintain favorable reserve balances and sustain City services at existing levels without any new or increased taxes or fees in 2010. The City’s aggressive cost cutting over the last 5 years, combined with the revenue stabilization provided by Kent State University, enabled the City to continue to hold the line on its budget in 2010 and weather the financial storm better than most of the neighboring communities in Northeast Ohio.
Kent State University is the City’s largest employer, accounting for 40.8% of total municipal income tax revenues. Consequently, the City’s financial condition is heavily influenced by the financial performance of the University. As a public institution of higher education Kent State tends to not experience dramatic revenue swings, which buffers the City’s tax base from the more volatile highs and lows of private business cycles.
2010 marked Kent State University’s Centennial year and with it came the highest recorded enrollment in the university’s 100-year history, securing Kent State’s position as the second largest public university in Ohio. Kent State reported an 11.6% increase in enrollment for Spring 2010 and a 7.56 percent increase in enrollment for the Fall 2010. These enrollment figures include record levels of international students (up 25%) and graduate school enrollment. Kent State’s research funding reached record highs in 2010 ($26.8 million) and the University also reported record-breaking fundraising results (securing $39.9 million). The University’s net assets increased 7.4% in 2010 and are trending upwards.
To commemorate the university’s 2010 Centennial, Kent State commissioned a study to quantify the economic contribution of the University to the local economy. The report noted that in total, the average annual contribution of Kent State and its alumni in Northeast Ohio is $1.9 billion. The region benefits from $292.4 million in added income each year due to the payroll of Kent State faculty and staff, and the university’s spending for supplies and services. Student off campus spending also contributes an additional $45.3 million to the greater Kent economy.
The University’s achievements in 2010 enabled Kent State to continue to fund faculty and staff raises. These income increases helped to offset the recessionary effects evident in other sectors of the greater Kent economy. Despite the University derived gains, income tax receipts (not including the Franklin and Brimfield JEDD agreements explained below) in 2010 came in below the prior year by 0.28%. That is only the third time in 25 years that the City experienced a net loss in income tax and while the City’s single digit income tax drop is less precipitous than state and national declines, it remains a City concern and illustrates the depth of the troubles in the non-university sectors of the economy that have crippled some of Kent’s neighboring communities.
While the City has not been immune to the broader economic downturn, it has witnessed some positive early indicators of an emerging economic recovery. 2010 marked yet another record year for Kent State income tax contributions and total City revenues began to rebound in the second half of 2010 following back to back years of decline to post a net increase of 4.6% for the last six months of the year. Real income growth was lead by University-based sectors in 2010 but it was tempered by sluggishness in the traditional manufacturing and transportation sectors.
Investments in Kent
In 2010 Kent State University began the largest capital re-investment program ($250 million) in the history of the University, completing renovations of Risman Plaza (Phase I), main campus library, Roe Green Performance Center, and select residence halls. This level of investment will transform the campus and generate significant income taxes ($250,000 to $500,000/year) during the 2-3 year construction period.
Elsewhere in the Kent community new construction values were trending in opposite directions in 2010.
Single family residential construction hit record lows but interest in new multi-family properties were at all time highs with over 3,000 new units in the pipeline for construction over the next 1-3 years. The proposed multi-family units will produce $50-$75 million in new investments with corresponding new construction related income taxes.
Likewise, the commercial construction rebound that began in 2009 continued in 2010, accelerating Kent’s economic recovery. Over a dozen new businesses opened or expanded in Kent in 2010, including the ground breaking for Phase III of the Downtown Phoenix Project ($10 million), grand opening of a new Sheetz store, Klaben Quick Lane Car Repair opening, the new Buzz Barber Shop, announcement of the new Record Courier headquarters to be built in Kent, Lucky Penny Farm and Creamery, Kent Yoga Center, Crooked River Canoe/Kayak Rental, Five Guys Burgers and Fries, Montrose Mazda Auto Dealership and the Dancing Beta Sushi Restaurant.
On the public side, the City continued to aggressively pursue Federal, State and Regional grant funds for infrastructure improvements with great success. As a result, the City is repairing more bridges, streets and sidewalks than it has in decades. Over the last 3 years the City was awarded (or was a partner in grant awards) amounting to over $40 million in stimulus/grant funds, which has enabled the City to leverage grant funds to City funds at an impressive 5:1 ratio.
The Fairchild Avenue Bridge project construction was well underway by the end of 2010, with the new bridge superstructure constructed and the decking under construction. The adjoining roadway approaches to the bridge had been realigned to match the location and elevation of the new bridge, and the hike and bike trail connections had been graded for paving in a later phase of the project. The bulk of the remaining work relates to raising the adjacent railroad lines and building the new pedestrian/bike bridge. The project remains on budget and on schedule for completion in 2012.
Investment was not limited to new construction in 2010; it also included the continued demolition of blighted and non-productive properties that will be replaced with new residential and commercial properties as appropriate. For the residential properties, the City accessed Federal grant funds to take down three condemned structures and replace them affordable housing to help to stabilize distressed City neighborhoods. The commercial properties were removed as part of the larger downtown revitalization effort and included City, University and privately funded site preparation efforts.
Phases 1 and 2 of the Phoenix Project were completed and fully tenanted in downtown Kent by the end of 2009. This popular project offers an eclectic mix of small, local retail and restaurants, and office space; including the first off campus University business enterprise, the Tannery, a professional marketing, advertising and media services company that is staffed by students. Phase III, which includes the extension of Acorn Alley and the construction of another 50,000 square feet of office, retail and condominiums, began in late 2010 and is scheduled to be completed by Fall 2011.
The success of the Phoenix Project reaffirmed the City and Kent State’s commitment to proceed with a mixed use redevelopment project that will include 56,000 square feet of new retail and restaurants, a 95 room hotel, a 15,000 square foot conference center, 75,000 square feet of office space, and 18 residential units strategically located at the edge of central business district and the expanded edge of the University campus in downtown Kent. Two major corporate tenants, Davey Tree and Ametek Corporation, began lease negotiations in 2010 (finalized and signed in 2011) to occupy 60,000 square feet of office space and bring 100 to 150 professional jobs into downtown Kent in 2012 when the first phases of construction are expected to be complete. During 2010 the City and University finalized land acquisition for the project, signed Development Agreements with the project partners, signed an Agreement with the Portage Area Regional Transit Agency (PARTA) for the new multi-modal facility, and completed the majority of the site demolition and mass grading.
In 2010 the City continued to work with Franklin and Brimfield townships to recruit new businesses and expand business development opportunities within the JEDD boundaries. As a result of these partnerships, the City received $201,625 as its combined share of JEDD income taxes in 2010.
As part of the City’s neighborhood enrichment initiatives, the City and Kent State University agreed in 2010 to jointly fund a new Community-University Liaison position. The purpose of the new position is to improve communications in the edge of campus neighborhoods and to facilitate new programs to improve the quality of life enjoyed by students and residents living in those neighborhoods.
Long-term Financial Planning
During 2010, the City continued to update and implement the five-year capital improvement program that ensures the City’s ability to meet the infrastructure needs of the community in future years. In addition to the capital plan, City Council continued to support strategic land acquisitions in 2010 that advanced critical economic development priorities. City staff also continued to pursue efficiency and productivity improvements resulting in budget cuts and savings amounting to $400,000 in 2010.
Cash Management Policies and Practices
The City’s investment policy is to manage and invest the public’s funds with regard to the following criteria: Safety of principal is the foremost objective for the City. All investments are executed in a manner that seeks to ensure preservation of capital in the overall portfolio. Liquidity is the second objective, and the City’s investment portfolio maturities are structured in such a manner so as to meet all of its operating requirements that can be reasonably anticipated. Finally, the City’s investment portfolio is managed so as to achieve a competitive yield that is compatible with the risk and cash flow requirements of the portfolio. The Director of Budget and Finance is authorized by City Council to invest interim and active monies not in excess of $10 million. Investments may be in certificates of deposit or repurchase agreements for a period not to exceed six months with an eligible institution designated as a depository in the State of Ohio. While these are considered uncollateralized for financial reporting purposes, the institutions are required by state statute to maintain a collateral pool of assets whose carrying value exceeds their total public deposits by at least 5%. Investments in excess of $10 million or beyond six months require the authorization of the City’s Treasury Investment Board. The Treasury Investment Board is comprised of the City Manager, the Director of Budget and Finance and the Director of Law. The total interest earned during 2010 was $308,817.