Ferguson, Missouri, which is recovering from riots following the August shooting death of an unarmed black teenager by a white policeman, plans to close a budget gap by boosting revenue from public-safety fines and tapping reserves.
The strategy by the St. Louis suburb, which suffered a second round of violent protests last month after a grand jury refused to indict the police officer, may risk worsening community relations with increased citations and weakening its credit standing by reducing a rainy-day fund.
To close a projected deficit for fiscal 2014, which ended June 30, the municipality will deplete a $10 million capital- projects reserve, Jeffrey Blume, Ferguson’s finance director, said in a telephone interview. For the current year, the city is budgeting for higher receipts from police-issued tickets.
“There are a number of things going on in 2014 and one is a revenue shortfall that we anticipate making up in 2015,” Blume said. “There’s about a million-dollar increase in public- safety fines to make up the difference.”
Revenue from violations, which already represents the city’s second-largest source of cash after sales taxes, will rise to 15.7 percent of receipts in fiscal 2015, from a projected 11.8 percent this year, he said. In 2013, fines brought in $2.2 million, or 11.8 percent of the city’s $18.62 million in annual revenue, according to budget documents.
Last Reserve
Even with the increased ticketing, a $4.09 million revenue shortfall will remain for fiscal 2015. The city will bridge that gap by drawing on its $10.3 million unassigned reserve, the last of its reserve funds, Blume said. Moody’s Investors Service cited an inability to maintain reserves at satisfactory levels as a potential downgrade trigger in a report from December 2012.
Howard Cure, head of municipal research at New York-based Evercore Wealth Management LLC, which oversees $5.2 billion, said Ferguson’s reliance on revenue from police citations may have contributed to public anger after officer Darren Wilson shot and killed 18-year-old Michael Brown.
“It leads to animosity and distrust that might have even spawned some of the unrest that we’re seeing,” Cure said.
Government dependence on police fines is a larger issue in surrounding St. Louis County, especially among its “poor” and “small” communities, Tim Fischesser, executive director of the St. Louis Municipal League, said in a telephone interview. The poverty rate in Ferguson was 22 percent in 2012, the latest year for which data is available, compared with a national average of 15 percent, according to U.S. Census Bureau data.
“They said they weren’t going to go after poor people, so to speak, to fund their budget, but I guess that’s changed, Fischesser said.
Proposed Limits
Two bills that were pre-filed last week in the State Senate would limit what municipalities can collect from public-safety fines.
‘‘For Ferguson to respond to all of this and say that increasing ticketing was a good idea is outrageous,” Scott Sifton, a Missouri state senator who sponsored one of the pieces of legislation, said in a telephone interview.
The bills will be reviewed and voted on after the legislature reconvenes on Jan. 7, he said. If approved, the measures would take effect in August at the earliest, Sifton said.
Missouri State Treasurer Clint Zweifel, who also opposes the use of law enforcement citations to raise revenue, supports the legislation seeking to limit the practice.
“Increasing reliance on such fines is the wrong way to go, period,” he said in an e-mail. “Residents and neighborhoods are safer when police can focus on public safety, not a municipality’s need to protect a revenue stream.”
Warning Sign
Reliance on a revenue stream like police fines was problematic from a purely credit perspective as well, said Joe Rosenblum, director of municipal credit research at New York- based AllianceBernstein LP.
“Any community that faces budget issuers with a whole series of financial and social challenges you have to approach with a skeptical mind,” he said. “I’d be fairly negative on the outlook from a credit perspective.”
Trading in Ferguson debt indicates that investors in the $3.7 trillion municipal market have started to take note of financial issues. Yields on the city’s 2013 certificates of participation maturing in 2032 exceded 4 percent last week from 3.5 percent as prices fell below 90 cents on the dollar for the first time since issuance, according to data compiled by Bloomberg.
Moody’s, the only rating company to evaluate Ferguson’s $23.9 million in bonds, ranked the city A1 as of January 2013, six levels above speculative grade.
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