Wichita expects to have extra money the next two years. What will it do with the surplus?

Wichita city government expects to collect a $26.7 million surplus this year and next, more than enough to offset property tax revenue increases for 2023 and 2024.

The city expects a $12.6 million budget surplus for 2023 and a $14.1 million surplus in 2024. At the same time, it’s budgeting for $12.6 million more in property tax revenue for next year.

The city could have used this year’s surplus to lower the mill levy and offset next year’s property tax revenue increase. Instead, the City Council approved keeping the mill levy the same, which means property owners whose properties increased in value will pay more in taxes.

The city plans to bank more than half of the overall surplus — $14 million — in its rainy day fund as it braces for future revenue shortfalls. It plans to set aside $5 million to fight a multitude of lawsuits filed against the city in state and federal courts.

Another $1 million in surplus would go to the city’s economic development fund, which had an operating deficit of nearly $550,000 last year. That account pays for the city’s economic development services contracts, including a $400,000-a-year deal with Greater Wichita Partnership.

Discussions about the surplus have been dominated by arguments over whether the money should go into the rainy day fund or be spent on the police department.

Talks of keeping property taxes collections flat have been overshadowed by discussions about a looming deficit in 2025, 2026 and 2027. There has been little to no public discussion of the $5 millions for the torts fund or the $1 million for the economic development fund.

City Manager Robert Layton told the City Council this month that the rainy day fund, called the permanent reserve fund in the budget, needs to be increased to offset potential operating losses in 2025, 2026 and 2027.

The budget shows the city plans to dip into the permanent reserve for a combined $16.4 million to offset operating deficits in those years. Those deficits are expected to be caused by rising costs, increased wages and benefits for employees and projected declines in interest earnings on reserves.

Mayor Brandon Whipple has expressed support for Layton’s budget and has been an outspoken proponent on the campaign trail for budgeting conservatively and preparing for the worst with the city’s rainy day fund. City Council member Bryan Frye, who is running for mayor against Whipple, has laid out a plan to use that money for police recruiting and retention.

Both plans are expected to receive more detailed discussion during public hearings before the 2024 budget is approved. The hearings at City Hall in the City Council Chambers are at 6 p.m. Tuesday, July 25; 9 a.m. Tuesday, Aug. 15; and 9 a.m. Tuesday, Aug. 22.

“Reserves are necessary for many purposes,” City Treasurer Mark Manning said in a statement. “They are necessary for liquidity and cash flow purposes, they provide a buffer for unexpected events, they provide the ability to fund stable service levels during periodic downturns, they provide the ability to fund any one-time City Council priorities, they provide a reflection of financial strength to outside entities such as rating agencies. Increased reserves can lead to lower interest rates on City debt, which can reduce City expenditures from the Debt Service Fund.”

Banking on reserve funds

As part of the budget approval, the City Council would approve new reserve funding minimums that could affect the city budget for years to come. The change would raise the reserve limits for the General Fund Reserve, the Pension Reserve and the Permanent Reserve.

The new policy would require the City Council to fund the general fund reserves at 15% of general fund expenditure levels, an increase from 10% that is now required. Any money over 15% would be transferred to the permanent reserve, which can be spent only with council approval.

The minimum balance for the permanent reserve would be set at 5% of general fund expenditures — which are projected to be $306 million next year and $341 million by 2027. The city has just under $20 million in the permanent reserve right now, over 6% of the general fund operating budget.

The minimum balance for the pension reserve would be set at 3% of general fund wages.

“Reserves improve the City’s ability to provide consistent service levels to residents,” Manning said in an email. “During periods of diminished revenues, reserves can be used to avoid significant and disruptive service reductions. The outlook for 2025-2027 is cautious, since inflation continues to be a concern, particularly on wage and benefit costs, and since the City expects revenue from interest earnings on reserves to decline.

“Increasing reserves in 2023 and 2024 will improve the City’s ability to manage any potential challenges in 2025-2027.”

Legal costs

The $5 million transfer from the surplus to the legal, or tort, fund represents a massive increase.

For the past 20 years, the city has transferred $250,000 a year to that fund, with recent adjustments when needed.

“For several years, insurance costs, litigation costs and settlement costs have been increased significantly,” City spokesperson Megan Lovely said in an email. “ . . . Because of these cost pressures, the General Liability Sub-Fund often operates in a deficit position and is under-reserved on an actuarial basis. Increasing reserves provides flexibility to better absorb any future increases in costs.”

In the past three years, the city has settled more than $6 million in lawsuits stemming from police killings of Marquez Smart, Troy Lanning and Andrew Finch.

At the same time, the city did not renew its insurance policy with AIG in December, shortly before the $5 million Finch settlement. That policy provided an additional $10 million in excess liability coverage. Instead, the city purchased a new $5 million policy from Safety Nation and a $5 million policy from Kinsale that exclusively covers lawsuits related to law enforcement.

Pending federal lawsuits include a multimillion dollar suit filed by former Deputy Chiefs Wanda Parker-Givens and Chet Pinkston and Deputy Chief Jose Salcido against the city manager and several former employees; a discrimination and retaliation lawsuit filed by former Det. Lance Oldridge; a discrimination claim that is being appealed by Det. Kelly Mar; and a civil rights lawsuit filed against the city by firefighter Mark Jordan.

The city also faces potentially millions of dollars in claims in a lawsuit over the death of Cedric “CJ” Lofton, a 17-year-old foster child killed by county juvenile detention workers after Wichita police allegedly falsified answers to drop him off at the facility instead of taking him for a mental health evaluation. No trial date has been set; the city is seeking to have the lawsuit dismissed.

In state court, the city could go to trial as soon as September in the murder of Devin Cook, who died in 2019 after suffering more than 100 knife wounds. Two police officers could hear Cook being attacked inside a home and screaming, “You’re killing me,” but they refused to enter the residence. Instead, the officers stood outside and waited for more experienced back-up to arrive, according to court records that were recently unsealed in Sedgwick County District Court.

2023 surplus: $12.6 million

Where is the money going?

Rainy-day fund (permanent reserve): $6.5 million

Tort fund: $2 million

Pension reserve: $2 million

Economic development fund: $1 million

General fund reserve: Approximately $1.2 million

2024 surplus: $14.1 million

Rainy-day fund: $7.5 million

Pension reserve: $3.6 million

Tort fund: $3 million

This story was originally published July 25, 2023 at 7:37 PM.