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Budget basics: Springfield leaders are already working on 2025 budget

Springfield, Missouri's Busch Municipal Building, photographed on Aug. 9, 2022.
Gregory Holman/KSMU
Springfield, Missouri's Busch Municipal Building, photographed on Aug. 9, 2022.

City Finance Director David Holtmann presented a budget overview for City Council members at their lunchtime study session on Tuesday.

Missouri's third-largest city has a $495.6 million budget.

What is a budget, anyway?

Holtmann defined the city’s annual budget as “a plan — a financial proposal that directs the provision of public services and facilities.”

Services provided to residents by Springfield city government are based on the money available from sources like sales taxes and service fees.

The general fund makes up 22.2 percent of the current year’s budget, and it’s the part of the budget most flexible for City Council decision-making. The general fund pays for most police and fire staff, plus numerous other city departments including planning and development and economic vitality.

General fund resources make up more than $110 million in the current-year budget, according to Holtmann’s Tuesday presentation. $69.1 million of that total is provided by sales and use tax. More on why that’s important comes later in this article.

Springfield's conservative outlook

When it comes to the Springfield budget, fiscal conservatism is key. City charter mandates that Springfield can’t spend more money than the estimated income of the city. The charter also doesn’t allow city officials to fund ongoing expenses with reserves or one-time windfalls.

Making sure service fees cover actual service costs, and optimizing spending compared to revenue, are also parts of official city policy.

The international credit rating company Moody’s says Springfield enjoys “very strong creditworthiness,” according to Holtmann’s presentation. Last year, Moody’s gave Springfield an Aa1 bond rating, the second-highest score possible. A high bond rating helps Springfield borrow money, when needed, at relatively low interest rates.

“Healthy reserves” and “conservative budgeting practices” are important aspects of Springfield’s “strong” financial profile, Moody’s said on March 1, 2023. Moody’s also noted that Springfield managed to grow its revenues despite the COVID-19 pandemic.

Springfield maintains 15 to 20 percent of its revenues as “stabilization fund reserve,” also known as the “rainy day fund,” covering more than two months’ worth of operating expenses, Holtmann said Tuesday.

Springfield has also received more than 10 industry awards for fiscal management and excellence in government in recent years.

Where Springfield gets its money

Many variables affect how much money Springfield can spend on behalf of its resident population.

Springfield’s budget is written “with the knowledge that we are very reliant on sales tax, an elastic revenue source,” according to finance director Holtmann’s presentation from Tuesday.

Sales taxes brought in $61.1 million for the general fund in 2023 fiscal year, and they’re projected to account for $61.6 million in the current year.

A decade ago, sales tax accounted for $40.5 million in the general fund.

Moody’s calls sales tax revenue “economically sensitive” and says that Springfield faces a challenge because it’s dependent on that type of tax.

This is somewhat unusual when Springfield is compared with peer cities. Sales tax makes up roughly three-fourths of the money in Springfield’s general fund — again, the general fund is the portion of the budget where spending is most flexible for City Council priorities.

In recent times, nearby Joplin relied on sales tax for roughly 60 percent of its general fund. But Kansas City and St. Louis, which have local income taxes, only use sales tax for about 10 percent of their budgets.

Sales taxes are often considered a form of “regressive tax” because households with smaller incomes spend a bigger proportion of their income paying sales taxes on living expense purchases, compared to households with bigger incomes. Income taxes are often viewed as more “progressive” because in the U.S., smaller incomes are typically taxed at lower rates than bigger incomes.

Springfield city leaders generally oppose local income taxes. At Tuesday’s financial presentation meeting, Mayor Pro Tem Matt Simpson said “we’re not ever going to have” a local income tax.

City Manager Jason Gage, an appointed official who reports to the council, said “we’re in big trouble” if the city ever had to impose an earnings tax like the ones assessed in Kansas City and St. Louis, because it would suggest a slump in sales tax here in Springfield — and thus, problems with the local economy.

Also at Tuesday’s meeting, Councilman Craig Hosmer said he wouldn’t suggest a local earnings tax at this time. But he said he could see a future scenario when Springfield might need one: If the Queen City becomes “boxed in” from annexing new territory because of the expansion of nearby suburban towns, it wouldn’t be able to rely on new sales tax money due to new businesses located in those annexed land areas.

Hosmer emphasized that Springfield government needs to diversify its money sources. A telecommunications tax used to be a strong source of revenue for Springfield 15 to 20 years ago, but the flow of that money has declined in the digital era.

Since Missouri voters approved marijuana legalization, Springfield has opened up new avenues for taxation. An additional 3 percent sales tax on recreational marijuana was approved by roughly 70 percent of city voters in August. The tax is projected to add $1 million to city coffers for the last six months of the current budget year, with another $2.25 million projected for the next budget year.

It’s a sign that some $70 million in recreational cannabis sales are expected in Springfield next year, Holtmann acknowledged after being asked by Councilman Hosmer.

On Tuesday, at least some Council members seemed uneasy with the long-term presence of fully legal cannabis in Springfield. But last year, they voted to dedicate the new 3-percent marijuana tax funding for spending toward several purposes. Those include public safety, housing, mental health services and substance abuse services.

Local economy affects the Springfield budget

Springfield has several notable strengths and weaknesses when it comes to the local economy, and thus, the city budget, according to Holtmann's Tuesday presentation.

The population is growing, meaning there’s potential for more people to work in the labor force, or start businesses, or both. The five-county metro Springfield area now has roughly 485,000 residents and counting. Meanwhile, that five-county metro population is growing roughly 60 percent faster than population in the city limits area.

The economy is “highly diversified,” relying especially on “major medical, manufacturing, retail and educational institutions.”

According to the federal Bureau of Labor Statistics, the biggest employment sector is “office and administrative support” followed by “transportation and material moving” and “sales and related” jobs. “Food preparation and serving related” as well as “healthcare practitioners and technical” jobs round out the top five categories.

But Springfield residents earn relatively low incomes. City residents’ median household earnings — $45,400 per year — are significantly lower than U.S. residents in general, whose households earn a median of $74,755.

This disparity is enough for Moody’s to call it “below average resident income indices” and for the city finance director to acknowledge it’s “one of the challenges that we have as a community.”

Missouri’s low cost of living and Springfield’s very low unemployment rate (2.3 percent as of December) are considered advantages, and Holtmann said attracting new employers — like the big Buc-ee's travel plaza sand Springfield’s second Target store — are ways the city is working on the problem.

Budget timeline

City charter requires the city manager to submit a proposed budget to City Council at least 60 days before the beginning of each budget year on July 1.

Budget "prep worksheets" went out to city departments back in early December, and the departments had until Jan. 30 to present their budget requests to the finance department.

In February, staff in the city manager’s office met with departments to go over the budget requests, a process that’s “finishing up,” Holtmann told Council Tuesday.

Meanwhile, the finance department spent February creating projections for city revenues, debt service and salaries.

In March, the city manager’s office is expected to review those projections, and by April 5, that office will send proposed priority choices to the finance department.

Then the highest elected leaders of the city begin playing a more active role. City Council budget workshops began Tuesday, with more of them coming between April 30 through May 14.

The public will be able to take a look at the proposed budget by checking springfieldmo.gov/budget and springfieldmo.gov/opendata.

Curious about the details? Holtmann said residents can “drill down” to line-item budget level through these websites.

A finalized budget is expected to go before City Council for its public hearing — when residents may address Council about the budget — on May 20. A second reading of the bill (with no public comment) and a vote to approve the budget, is expected June 10, three weeks before fiscal 2025 begins.

You can keep up with the City Council meeting calendar, as well as other city meetings, through the city's meeting agenda website.

Gregory Holman is a KSMU reporter and editor focusing on public affairs.