Lindsay budget plans for the past and future
By Reggie Ellis
lindsay – The City of Lindsay delivered on its promise to answer all of the pre-election questions regarding Measure O after its citizens voted on the tax measure. At a special meeting on June 20, the Lindsay City Council reviewed Measure O expenditures, reviewed its draft budget for fiscal year 2017-18 and approved its 2015-16 audit as well as a repayment plan for millions owed to the General Fund from the McDermont Field House.
While not part of the packet or the draft budget on the City’s web site, a list of Measure O expenditures was finally presented at a public meeting two weeks after voters passed the district tax by a two-thirds margin. Finance Director Brett Harmen included the list as part of a slide show presentation at the June 20 meeting. Harmen projected that the City would collect about $600,000 in Measure O, a district tax, which is similar to a sales tax except that it is also assessed on the city of residence of the buyer even if the retailer is doing business outside of the city limits. The tax will take effect on Oct. 1, 2017 and the City should begin receiving tax revenue by Jan. 1, 2018.
All of the estimated $600,000 in year one of Measure O is earmarked for public safety. Harmen said the tax measure saved several public safety department positions including two police sergeants ($75,000 each), an officer ($64,000) and three dispatchers ($45,000, $45,000 and $59,000). The revenue will also add two officer positions one ($64,000) in the coming months and another ($32,000) for half the year beginning in January. Another $13,000 will be spent on “public safety reorganization”, which was not explained, $70,000 for a new fire truck, $33,000 for other public safety equipment and $25,000 for a part-time accountant. In 2018-19, the first full year that Measure O will be in effect, Harmen said an additional $300,000 will be spent on a new fire engine, a fire engineer, two firefighters, equipment and vehicles. Measure O is expected to bring in about $900,000 in additional revenue each year primarily for public safety. Among the future needs that Measure O will help address include a new fire truck ($500,000) and body cameras for officers ($250,000).
Prior to the budget presentation, the Council went into executive session regarding labor negotiations with the Service Employees International Union (SEIU) Local 521 and the Lindsay Police Officer’s Association, but Mayor Pam Kimball reported that there was no action during the closed session.
McDermont Field House
In his message to the Council, City Manager Bill Zigler stated that the 2017-18 fiscal year budget couldn’t have balanced the General Fund without Measure O “nor can it balance the McDermont Field House or Wellness Center in this budget.” He asked that the Council give staff another two months “to further explore alternatives” to reduce the shortfall at McDermont and improve long-term sustainability at the Wellness Center. “Whatever the solution, staff recognizes that the McDermont Field House and Wellness Center must find new models of operation for sustainability.”
While the new models were not presented, Harmen did say “staffing changes” and “operational changes” were coming in the new fiscal year beginning on July 1, 2017. Harmen also said he and Clint Ashcraft, director of the two facilities, are about $114,000 away from McDermont finishing in the positive for the first time since the 172,000-square foot sports and recreation facility opened in 2008.
“The revenue trajectory is very positive [for McDermont],” said Councilmember Brian Watson, who sat on the City’s budget committee with fellow Councilmember Laura Cortes.
While the city’s largest debt service is the remaining $5.7 million loan on its sewer plant, the City still owes $1.5 million on the McDermont Field House and $2.1 million on Wellness Center. But McDermont carries far more debt than the million and a half remaining on its loan.
The City Council was also presented with the City’s 2015-16 audit. According to audits conducted by Brown Armstrong Certified Public Accountants, a $210,000 advance from the general fund began the McDermont Sports Complex Fund. In fiscal year 2010-2011, advances from the general fund to McDermont amounted to $13.4 million. Audits going as far back as 2010-2011 indicate that McDermont’s profits were intended to be used to pay back the general fund.
“The advances from the general fund were used to help build the McDermont sports complex, and revenue earned at the complex will be used to pay back the advance,” stated the Brown Armstrong 2010-2011 audit.
In his response to the recurring finding, Harmen noted that profitability has been an issue for the facility due to its immense size and scope but that new marketing practices, streamlined expenses, and lower capital improvement costs have allowed McDermont to show “small profits.” He stated that McDermont’s revenues will “continue to supplement the City finances.” The budget projects McDermont will increase revenue by 183,900 in 2017-18.
Yet the City is still expected to transfer $300,000 from the General Fund to McDermont to supplement its operations and has only lowered expenses by $25,700 from the previous year. The facility typically loses between $300,000 and $630,000 per year. Harmen said if the City shut down McDermont it would still have to repay $191,800 in debt service on a loan used to build McDermont and contribute an estimated $500,000 for recreation programs.
“If we don’t contribute [the $300,000] we would have to fund recreation anyway,” Harmen said.
In an effort to rid the City’s budget of the finding, the City will begin repaying advances to McDermont from the General Fund in 2019. Harmen set up a zero percent loan equal to the $13.4 million in advances that subsidized McDermont dating back to 2008. The loan will be paid off over the course of the next 30 years beginning with a $100,000 payment on June 30, 2019. Annual payments increase by $50,000 until 2025 when payments will be set at $400,000 for the remainder of the loan.
In the City’s management response to the audit, Harmen said the City is working on a Proposition 218 proposal to raise fees that will increase revenues to the General Fund. Harmen stated that those increases, independent of Measure O, will then repay the $4.8 million that the General Fund owes to other funds.
The advances are one of only four findings remaining from the damning 2009-10 audit that found a total of 33 findings. The others, Harmen said, should be rectified by the 2018-19 audit. Those findings included a simple clerical mistake regarding missing initials, a lack of staff training in governmental accounting and dead water meters. The City has brought in Eric Frost, former Deputy City Manager for the City of Visalia, to do governmental accounting training with the staff, Harmen said. City Services Director Mike Camarena told the Council that the replacement of the non-functioning water meters is about 75% complete.
Harmen said the City received a “clean audit” meaning that the City’s accounting practices conform to Generally Accepted Accounting Principles and were “fairly presented.”
The Wellness Center is expected to at least break even and end the year with a net gain of $3,400. This would be the second time in the last five years that the Wellness Center has shown an end-of-the-year surplus. The facility’s primary source of funding is $233,000 per year from the Lindsay Hospital District, whose mission is to support health and wellness activities and programs in the community.
All other enterprise funds, including water, sewer and refuse, are projected to finish the 2017-18 fiscal year with a slight surplus.
“The budget accomplishes what we set out to do with the exception of McDermont,” Harmen said. “I think the City is in a good spot.”
The City is projecting to finish the 2017-18 fiscal year with a surplus ($19,100 overall and $69,900 in the General Fund) for the first time in at least five years. As part of the $14.6 million budget, General Fund expenditures increased by 7% to $4.9 million, with most of the increase ($300,00) coming in transfers out to other funds for capital improvement projects, streets and debt service.
The budget proposes $2.3 million in capital improvements to streets, sewer and water projects. In 2017-18, the City plans to spend $1.3 million on roads including $175,000 to rehab Mirage Avenue and $250,000 to rehab the Linda Vista Loop and $37,000 for alleyway improvements.
The City has budgeted $1.1 million in water projects, including $540,000 for constructing a pipeline for and renovating of Well 15, $225,000 to begin phase 1 of a constructing a filtration system for Well 14, and $275,000 to test two new wells.
The City Council was expected to approve the final 2017-18 budget at its June 27 meeting, which happened after press time.