Inflation over the past 18 months has led to higher costs of goods and services. It has caused households and businesses to tighten their budgets, put projects on hold and make difficult decisions about what and where to spend their money.
The current 4.98% United States inflation rate as of March 31, while down from 6.04% in February and a 40-year high of 9.06% in June 2022, is still significantly higher than 2019 and 2020 levels that hovered between 0.12 and 2%, affecting purchasing power.
Increased prices of food, travel, fuel and other essential items are felt by consumers of all types. The City of Oviedo is no different.
The spike in inflation over the past two years has had significant effects on local government functions.
Utility chemicals, which, prior to the spike in inflation cost the city between $500,000 and $1 million per year, have seen a 25% increase in price, according to Oviedo Finance Director Jerry Boop. Additional increases in the cost of asphalt, cement and other construction materials have put a dent in the available budget. Shrewd planning, however, has helped keep Oviedo in a relatively strong position with its spending ability.
“You plan for the worst and hope for the best,” Oviedo Mayor Megan Sladek said.
Planning for the worst helped the city retain a general fund balance of $14.9 million as of Sept. 30, according to Boop’s presentation at the April 17 City Council meeting. The general fund is how the city pays for basic daily and long-term services, such as operations and parks and recreation, and is funded through tax dollars. Boop expects a balance of nearly $9 million at the end of the fiscal year in Sept., significantly higher than the originally targeted $5.9 million, according to his presentation in the April 24 City Council working session. Work sessions are intended to inform the governing body. No votes are casted. The decline in the overall balance is due in part to continued Hurricane Ian relief funding and a legal hold, which could alter the total if the hold comes off the books.
The city kept a healthy general fund balance through a multitude of efforts, including increasing wages of city employees, cutting spending on certain events and paying off debt.
“One of the things that we found out about 18 months ago was that our wage structure was no longer competitive,” Boop said. “We couldn’t even get people to apply for positions because folks who are really desperate out there in the private industry, they were offering just tremendous hourly wage rate increases just to attract people to apply for open positions.”
Those wage differences led to the city losing 45 employees in fiscal year 2021 and an additional 40 in 2022. Following the wage increases, which were between 4% and 13% depending on the position, the city has lost only 12 people this fiscal year. The raises were able to be given following approval of a nearly 4% increase in the tax rate in September.
“We really fixed the bleeding hole of turnover in employees by doing that millage increase,” Councilmember Natalie Teuchert said. “It also helped stabilize our budget, where we’re trying to maintain things more sustainably.
“With keeping the employees, we have actually saved us money here because turnover costs money,” Teuchert said. “That’s good for the city.”
In addition to the employee retention, the city also aimed to cut back on some of its expenditures, especially regarding events. By eliminating the annual Festival of Frights and Mardi Gras celebrations, consolidating the Twelve Days of Christmas celebration and re-aligning the special event calendar for the current fiscal year, Oviedo was able to lower its losses on events from $36,500 in 2021-22 to just $13,200 year-over-year.
“Overall, we’re being more efficient on what we’re doing with the events and programs,” Recreation and Parks Director Paul Belden said at the working session. “I was just shocked with the results. Staff did a great job putting together their brains on always looking for ways to offer greater events for the public and the community.”
Reducing debt has been among the most important moves the city has taken to prepare for the rise in inflation and a possible recession.
While the city currently holds $54.6 million in debt, it has reduced it by more than $5.7 million over the last fiscal year, which spans Oct. to Sept., with projections to have it below $40 million by fiscal year 2026-27.
“Bringing that general government debt down is what’s going to help us slay the dragon associated with government inflation,” Boop said. “That is absolutely critical, and I’m excited to see how that number drops off over the next five years.”
While incurring new debts is inevitable for the city, Boop’s strategy is to be careful with how it is taken on.
“I’m debt-averse, so I don’t like committing to new debt unless we have a dedicated revenue source for it,” he said. “We had these unintended savings taking place on our budget, and we used that money to wisely pay off outstanding debt. [That’s] just been huge for us, to be able to deal with the additional cash requirements that we’re currently incurring.”
With an uncertain economy, how will the city of Oviedo continue to stay on a solid path financially as it prepares its 2023-24 budget? By continuing to prepare for the worst and hoping for the best.
“My biggest concern,” Boop said, “is not to overestimate revenues, and create recurring expenditures greater than the revenues we’re taking in.”
“We did our darndest to prepare ourselves for this. We saw it coming,” he said. “We came to the conclusion that no matter how hard we try to work to get this right, we’re not going to get it right. So the fear was how far off are we going to be? Fortunately, we were off in a good way, and not off in a bad way, just the way the economy behaved.”
