a2budget Findings: Executive Summary

FY2021-FY2025 Analysis

Review Period: July 1, 2020 – June 30, 2025
Source Data: A2OpenBook Ledger
Population Basis: 125,000 residents, 55,000 households

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Key Findings

Finding 1: Total vs. Operating Revenue

The city's reported total revenue includes restricted and non-operating items that are not available for daily services:

Context: A significant portion of reported revenue ($444.7M) is Investment Income, primarily within pension trusts. This capital is legally restricted for retirement obligations and cannot be used to offset the operating deficit.

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Finding 2: The Growing Gap

Expenses are outpacing revenue at a rate that increases the structural deficit:

The trajectory:

The FY2025 operating deficit is 10 times larger than FY2021. If this trend continues, structural deficits may require revenue increases or service adjustments.

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Finding 3: The Retiree Burden

Personnel costs are 47% of operating expenses—and growing:

For every $2 spent on active employees, $1 goes to retirees.

Retiree costs are growing faster:

• Retiree Medical Insurance: +127% (FY21→FY25)
• Retirement Payments: +16%
• Personnel Services (active): +29%

At current benefit levels, estimated cost per active employee is $147,000/year including benefits—rising to $218,000/year when retiree costs are allocated.

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Finding 4: Capital vs. Operating Trade-off

Capital spending increased while operating funds were utilized to support it:

How it's funded:

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Finding 5: Vendor Concentration

A small number of vendors receive most city payments:

Top 5 Recipients:

Construction dominates: 10 construction companies in the top 25 received $167.8M (17% of all vendor payments).

Long tail: 83% of vendors (7,258) received less than $10,000 each—just 0.9% of total spending.

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Per-Household Impact

What Ann Arbor spent on your behalf (FY2021-2025):

Annual (FY2025 only):

• Total spending: $9,884/household ($4,349/resident)
• Personnel costs: $3,462/household ($1,523/resident)

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Methodology Notes

Data Validation Against Audited Financials

Our analysis uses the City of Ann Arbor's Openbook portal data, which is presented on a fund statement basis (pre-elimination), consistent with the adopted budget.

Comprehensive ACFR validation completed (FY2021-FY2024):

*Enterprise variance explained by Openbook including non-operating revenue (transfers, investment income) that ACFR reports separately.

ACFR Source: City of Ann Arbor FY2021-FY2024 ACFRs (Rehmann Robson LLC, Unmodified Opinion)

Internal Service Fund Treatment

Internal Service Funds (Fleet, IT, Risk, Central Stores) process $52M annually in internal billings. These do NOT affect our operating deficit calculation because:

1. ISF billings appear as both revenue (to ISF) and expense (from departments)
2. Eliminating ISF reduces BOTH sides equally
3. Net impact: $0

Our operating deficit of $60.1 million represents shortfall—expenses exceeding revenue from actual city operations—confirmed against audited financial statements.

Data Verification

• All calculations cross-verified against multiple source files
• 26 CSV files containing 52,808 rows of budget data
• Internal consistency confirmed: all summary files report matching totals
• FY2021-FY2024 totals validated against ACFRs within 1-2%

Validation Approach

• Internal consistency: All 26 Openbook CSV files reconcile to summary totals
• External validation: Cross-checked against FY2021-FY2024 ACFRs (audited by Rehmann Robson LLC)
• Pension investment income: Validated within 1.1% of audited figures ($312.6M vs $309.1M)
• Methodology confirmed: Both Openbook and ACFR use fair value basis for pension investments
• Fund-basis alignment: Openbook data matches ACFR fund statements (pre-elimination basis)

Revenue Adjustments

Operating revenue excludes:

• Investment Income from pension/retirement funds ($400.1M)
• Inter-fund Operating Transfers ($165.2M)
• Sale of Bonds proceeds ($36.1M)
• Total excluded: $601.5M (22.6% of reported revenue)

Operating interest income from non-pension funds ($44.6M) is retained as legitimate operating revenue.

Expense Adjustments

Operating expenses exclude:

• Capital Outlay ($134.5M)
• Pass Throughs ($230.5M)

Per-Capita Basis

• Population: 125,000 residents
• Households: 55,000

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Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

FINDING: The Impact of Investment Income on Operating Results

The Role of Investment Income

The variance between the reported total and the operating result is primarily attributed to how revenue is classified:

• Restricted Capital: The analysis identifies $400.1 million in investment returns within retirement trusts (Pension, VEBA). While accounted for as revenue, these funds are legally restricted for retirement obligations and are not available for general operating expenses.
• Market Volatility: Because a large portion of reported revenue is tied to market performance, the city's bottom line fluctuates significantly regardless of tax collection rates.

Operational Analysis

By removing non-operating items (unrealized investment gains, bond proceeds, and inter-fund transfers), the analysis isolates the balance between recurring revenue and expenses.

Revenue Classification (FY2021–2025)

This breakdown details the components creating the difference between the reported surplus and the operating deficit.

Composition of FY2021 Results

FY2021 illustrates how investment activity influences reported totals. In that year, investment income accounted for the majority of the reported positive balance.

Methodology Notes

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Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

FINDING: Investment Income Verification - Pension vs Operating

The Number

The Context

This verification determines how much is:

• Pension fund paper gains (unrealized, cannot be spent on services)
• Operating fund interest (actual cash earnings, can be spent)

The distinction matters because operating funds DO earn legitimate interest on their cash balances. This analysis separates the two to refine the deficit calculation.

The Data

Investment Income by Fund Classification

PENSION/RETIREMENT FUNDS (90.0%)

OPERATING/OTHER FUNDS (10.0%)

Pension Fund Volatility by Year

Adjusted Revenue Calculation

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Conclusion

Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

Internal Service Fund Analysis

The Number

$257.6 million in internal billings flow through Internal Service Funds (ISFs) over 5 years, representing 9.7% of reported city revenue that is essentially counted twice—once as an expense in the paying department and once as revenue in the ISF.

The Context

Internal Service Funds (ISFs) are government accounting mechanisms where one department "sells" services to other departments. This creates internal transactions that:

1. Show as EXPENSE in the department buying the service
2. Show as REVENUE in the ISF providing the service

The Data

STEP 1: Internal Service Fund Identification

Four funds function as Internal Service Funds:

Yearly Trend (System-Wide)

STEP 2: Complete ISF Revenue and Expense Profile

STEP 3: Circuit Trace - Fleet Services

The largest ISF with explicit intragovernmental accounting.

A. Fleet Services Revenue Sources (by paying fund):

B. Fleet Services Expense Categories:

C. The Circuit Verified:

STEP 4: IT and Risk Fund Circuits

Information Technology (0014):

Revenue Source: $51.7M "Charges For Services"

Major Paying Departments:

Primary IT Expenses: Software licenses, IT equipment, personnel, contracted services, data processing.

Risk Fund (0057):

Revenue Source: $157.5M "Charges For Services"

How Departments Are Charged:

Major Paying Departments:

Double-Counting Impact

What's Being Counted Twice:

When the General Fund pays $11.4M to Fleet Services:

1. General Fund shows: $11.4M expense for Fleet charges
2. Fleet Services shows: $11.4M revenue from Intragovernmental Sales
3. Consolidated totals: Both the $11.4M expense AND $11.4M revenue are included

Total Internal Activity:

Adjustment Recommendation:

For true consolidated analysis, ISF transactions should be:

• Revenue side: Exclude $257.6M internal billings
• Expense side: Exclude corresponding ISF payments

Adjusted City Totals:

*Net impact is zero because both sides are reduced equally.

Per-Capita Impact

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Key Findings

1. Four ISFs handle $284M in activity (10.7% of city revenue): Fleet Services, Information Technology, Risk Fund, and Central Stores.

2. $257.6M is internal billings (9.7% of revenue): This amount appears as both revenue AND expense in consolidated financials—a technical double-count.

3. Risk Fund dominates at $157.5M: Employee benefits (medical, dental, workers comp) are charged back to departments through the Risk Fund.

4. ISFs run a collective $20.3M surplus: Departments pay more than actual ISF costs, building ISF fund balances.

5. General Fund pays 33% of all ISF charges: As the largest fund, General Fund bears the largest ISF allocation burden.

6. Circuit verification confirms accurate allocation: Fleet Services revenue ($42.7M) matches Fleet charges in other funds ($42.1M), confirming the accounting system is internally consistent.

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Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

Expense Spike Analysis

The Number

$75.7 million (16.2%) expense increase in a single year (FY2024→FY2025), driven primarily by:

The Context

FY2025 expenses jumped from $467.9M to $543.6M while operating revenue grew only $30.1M (6.6%). This created a $56.8 million operating deficit—the largest in the 5-year period.

The Data

STEP 1: Expense Change by Category (FY2024→FY2025)

STEP 2: Top 5 Expense Drivers

STEP 3: Historical Context & Detailed Account Breakdown

Driver #1: Capital Outlay (+$42.5M, 56% of spike)

5-Year Trend:

Top Account-Level Drivers:

Driver #2: Other Services (+$21.8M, 29% of spike)

5-Year Trend:

Top Account-Level Drivers:

Driver #3: Personnel Services (+$11.0M, 15% of spike)

5-Year Trend:

Top Account-Level Drivers:

Summary: Accounting vs Real Spending

Per-Capita Impact

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Key Observations

1. ~72% of the spike is accounting timing, not new spending. Credits that reduced FY2024 expenses were absent or smaller in FY2025.

2. Contracted Services nearly doubled (+$18.2M). This requires investigation—what new contracts were signed?

3. Vehicle purchases tripled ($2.3M→$8.3M). Fleet replacement accelerated.

4. Pass Throughs decreased $6.6M, partially offsetting the increases.

5. If accounting adjustments normalize, the underlying expense growth rate is closer to $21.5M (4.6%), not $75.7M (16.2%).

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Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

True Personnel Cost Analysis

The Number

$829.4 million in total personnel-related costs over 5 years (FY2021-2025), representing:

The Context

Standard budget presentations often separate:

• Personnel Services (salaries)
• Payroll Fringes (benefits)
• Retiree pension/medical payments (buried in "Other Charges")

This analysis combines all personnel-related spending to show the true cost of the city's workforce—both active and retired.

The Data

STEP 1: All Personnel Cost Components

Personnel Services Breakdown (5-Year)

Payroll Fringes Breakdown (5-Year)

STEP 2: Total Personnel Costs by Year

Active vs. Retiree Costs

STEP 3: Personnel as % of Expenses

Operating Expenses = Total Expenses - Capital Outlay - Pass Throughs

STEP 4: Per-Employee Cost Estimate

Note: FTE counts are not available in the budget data. Estimates based on Permanent Time Worked divided by assumed average base salary.

FY2025 Estimates:

Per-Employee Breakdown (FY2025):

Per-Capita Impact

Annual (FY2025):

• Total Personnel: $1,523/resident ($3,462/household)
• Active Employees: $1,059/resident
• Retirees: $464/resident

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Key Findings

1. Personnel is 47% of operating costs. Nearly half of service delivery spending goes to current and former employees.

2. Retiree costs are 31.7% of personnel spending. $262.6 million over 5 years goes to pension payments and retiree medical—money that provides no current services.

3. Retiree costs are growing faster than active costs:

   • Retiree Medical grew 127% (FY21: $5.2M → FY25: $11.8M)
   • Retirement Payments grew 16% (FY21: $39.9M → FY25: $46.2M)
   • Personnel Services grew 29% (FY21: $66.9M → FY25: $86.6M)

4. Benefits cost 92% of base salary. For every $1 in base pay, the city pays $0.92 in benefits.

5. Total cost per employee: ~$147K/year (active only), rising to ~$218K when retiree costs are allocated.

6. FY2022 anomaly: Personnel Services dropped 12% ($66.9M→$59.1M) due to a $28.8M negative pension adjustment, then rebounded.

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Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

Vendor Concentration Analysis

The Number

Top 100 vendors received 86% of all payments ($850.6M of $988.6M) over 5 years.

The Context

Understanding vendor concentration reveals:

1. Where city money actually goes
2. Dependency risks on key vendors
3. Categories that dominate spending
4. The "long tail" of small vendors

The Data

STEP 1: Top 25 Vendors by 5-Year Total

Total Vendor Payments (5-Year): $988,579,818
Total Unique Vendors: 8,752

TOP 25 TOTAL: $620,439,631 (62.8%)

STEP 2: Vendor Concentration Ratios

Long Tail Analysis

STEP 3: Vendor Classification by Type

Top 25 Vendors by Category:

Construction Vendor Detail

The 10 construction companies in the top 25:

Notable Non-Construction Recipients

Per-Capita Impact

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Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

Dedicated Funds Review - Where did the money go?

Executive Summary

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1. Methodology

Funds Analyzed (9 Dedicated Funds)

What We Looked For

• Transfers Out: Money leaving the dedicated fund to other city funds or external agencies
• Spending Categories: Is money going to the stated purpose?
• Administrative Overhead: Personnel, IT, professional services costs
• Recipient Identification: Who ultimately receives the millage funds?

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2. Open Space & Park Acquisition Millage

Purpose: Acquire open space and parkland for preservation

Where the Money Actually Goes

Critical Finding: Transfer Spike in FY2023

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3. Park Maintenance & Capital Improvement Millage

Purpose: Maintain parks and fund capital improvements

Where the Money Goes

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4. County Mental Health Millage

Purpose: Fund mental health services (county pass-through)

Where the Money Goes

Critical Finding: 60% Goes to Transfers

Equipment Spike

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5. Affordable Housing Millage

Purpose: Fund affordable housing initiatives

Where the Money Goes

Recipient Analysis

Spending by Year

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6. Climate Action Millage

Purpose: Fund climate action initiatives (first collections FY2024)

Where the Money Goes (2 Years Only)

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7. Street, Bridge & Sidewalk Millage

Purpose: Maintain and improve streets, bridges, sidewalks

Where the Money Goes

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8. Sustainability Office Deep Dive

5-Year Spending Analysis

The Sustainability & Innovations unit receives funding from multiple millages:

Top Expense Categories

Equipment Spending Trend

Transfers to Other Agencies

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9. Transfer Analysis Summary

Where Protected Fund Money Goes When It Leaves

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Sources: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years & Audited ACFRs

ACFR Validation Report

Executive Summary

This report validates our Openbook budget audit findings against the City of Ann Arbor's audited Annual Comprehensive Financial Reports (ACFRs) for FY2021-FY2024.

Overall Validation: PASS

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Validation A: Pension Investment Income

Result: VALIDATED (1.1% variance)

ACFR Source Detail

From Statement of Changes in Fiduciary Net Position:

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Validation B: Internal Service Fund Revenue

Result: VALIDATED (1.3% variance)

ISF Funds Compared:

• Central Stores (0011)
• Fleet Services (0012)
• Information Technology (0014)
• Risk Fund (0057)
• Project Management (0049)
• Wheeler Center (0058)

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Validation C: Enterprise Fund Revenue

Result: EXPLAINED VARIANCE (24.7%)

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Validation completed: December 2, 2025

ACFR Source: City of Ann Arbor FY2021-FY2024 ACFRs (Rehmann Robson LLC)

Data: A2OpenBook Revenue & Expenses 2021 to 2025 Fiscal Years