Exeter balances one of 2-year budget, Lindsay treads budgetary waters
Lindsay and Exeter make cuts to balance general fund while enterprise funds are in need of capital for future projects
By Paul Myers @PaulM_SGN
EXETER, LINDSAY – While the economy is looking brighter around the state and nation, city budgets are still working on generating enough revenue to maintain the services they already provide. The City of Exeter was able to balance their 2018-2019 general fund while still trying to find savings for 2019-2020. Meanwhile The City of Lindsay had to forego some much anticipated debt payments from their general fund to make ends meet this year. And like Exeter they will have to make some decisions on their enterprise funds to keep them financially healthy as well.
Exeter’s 2018-2019, 2019-2020 budget
After months of hand wringing and budget cuts, Exeter finance director Chris Tavarez was able to present a balanced budget to the Exeter City Council. Tavarez’s presentation was the final rough draft before the Council officially votes for its passage next week.
Closer to the beginning of the year the City was still closing the projected budget deficit of $345,000 passed last June. With the help of difficult cuts to programs and personnel savings the City was able to close the deficit. In preparation of balancing the City’s 2018-2019 and 2019-2020 budget Tavarez and interim city manager Eric Frost began to formalize additional cuts and changes.
In April City staff went to Council with a projected $201,000 general fund deficit for the 2018-2019 fiscal year beginning on July 1. Staff recommended cuts to operational services and contract adjustment brought the deficit down to $109,095.
Part of the contract adjustments included discontinuing the Self-Help Enterprises (SHE) Loan Services portion of their contract and then contract with AmeriNat to administer remaining Community Development Block Grant and HOME fund loans. The expected cost savings for the upcoming fiscal year was projected to be a substantial $30,000. However, after SHE decided to drop the cost of their services and offered a plea to the Exeter City Council, that cut was reversed.
An additional $6,000 in savings will come from renegotiating or moving their Animal Control contract. The direct cost savings is approximately $2,000 but the package offered by the City of Visalia includes billing for the City’s licenses. Indirect cost savings come through efficiency because staff will no longer have to spend time sending out license notices. Instead the City can advertise the need for dog licensing through new utility bill inserts.
In addition City staff found $10,000 of additional savings in the budget by limiting tree trimming services to only high priority areas. They also project saving of $10,000 through reducing building maintenance costs from the general government fund and a $25,000 reduction in building maintenance from the Police Department, also in the general fund.
Lastly Tavarez and Frost say they revised their previous budget estimates to account for more accurate figures shrinking the deficit by $21,000.
By last Tuesday Tavarez relayed to the Council the budget was prepared to give council members their $40 per month stipend, $2,000 to the Chamber of Commerce and $2,000 to the Economic Development Corporation. Council members agreed unanimously to turnover their stipend to the Chamber in addition to giving them $2,000 on the year.
This is the first two year budget the City has produced in recent years. Tavarez writes in the budget the general fun for fiscal year 2018-2019 is in balance but the year 2019-2020 is still out of balance. But he notes staff will take measures to bring the second year general fund to balance. Tavarez said during the council meeting the general fund is not capable of meeting any of the City’s additional needs.
“While [this year’s] general fund is balanced and it takes care of our needs, there is a lot more [needs],” Tavarez said
The general fund is not likely able to tackle any more problems in the future until the City campaigns for an increased sales tax measure. As of now the two year budget doesn’t account for one, and the outgoing interim city manager said he is not going after one.
Frost said the City is more concerned with their enterprise funds – water, sewer and refuse – than the general fund. He added the City thought it was better to increase their recreation and impact fees, which are approved to increase in the proposed budget presented on Tuesday night. While increasing fees and some rates will help reduce the burden on the general fund to supplement those services, Exeter is still among the lowest sales tax in the County at 7.75%.
“We felt it was better to be a little fiscally hard on ourselves and see how things go,” Frost said. “I wanted to say we have done everything we could [to help with the general fund] and we couldn’t say that.”
Meanwhile, cities like Lindsay, Woodlake and Farmersville have seen significant gains in their general fund revenue from a sales tax increase last year which brought their sales tax rate to 8.75%. The difference is projected to bring in an additional $300,000 to Farmersville, $400,000 to Woodlake and $908,000 to Lindsay. Each of the cities were forced to call for a fiscal emergency to get the measure on the ballot on an off year election. Exeter’s next best chance to put a sales tax measure on the ballot is the year 2020, unless they call for a fiscal emergency to put it on a ballot next year.
While the general fund is already expected to shed some funding for the year 2019-2020, the enterprise funds are currently out of balance and need changes. Tavarez notified the council, and pointed out in his proposed budget, most of the deficits are due to expensive capital improvement projects that may have to wait.
“This situation cannot continue forever, however, it is appropriate to accumulate money in some years to be spent later on larger projects,” the budget analysis section reported.
Lindsay’s budget woes continue into 2018-2019
The City of Lindsay has managed to quell their budgetary woes in the general fund through a 1% sales tax increase and shedding the McDermont Field House from their books. But problems are still looming on the horizon in the general fund and some of the enterprise funds.
Lindsay finance director Bret Harmon said last week while presenting Lindsay’s 2018-2019 fiscal year budget the City is focusing on providing civil services. He noted the City’s narrow focus is largely due to the state of the general fund’s balance. As of last Tuesday, the City had $18,600 in surplus. However, when they passed last year’s budget at the end of June 2017 the City was expected to have a fund balance of $83,000.
“Measure O was not as much as we thought when we got going,” Harmon said to the council.
Harmon added that throughout the year there were additional costs to the Wellness Center that the general fund subsidized. As well, the City took a half million dollar loss subsidizing McDermont before jettisoning it from their books in January of 2018. He said the losses would have likely been greater had they kept McDermont as a part of the City’s finances through the second half of the fiscal year.
As a result the City has already announced it will postpone their 43 year debt payment plan by five years, in order to balance the general fund and create a reserve.
Lindsay’s 2016-2017 fiscal year audit was recently completed by Badawi and Associates, who was hired as their new auditing firm last year, and then presented their findings to Council last Tuesday. Ahmed Badawi from the firm noted the problems previous management had created including borrowing from restricted funds by the general fund, home loans that did not meet specified criteria and McDermont. Badawi mentioned the problems, while they were created under previous management are nonetheless putting the City in a bind today.
“We have concerns for the City’s financial health and its abilities to pay bills uninterrupted,” Badawi said.
Badawi mentioned other findings included an older accounting system that makes it difficult to locate past reports, and inappropriate accounting practices that lacked detail. He mentioned McDermont specifically having reported $300,000 in fitness equipment but did not specify what that equipment was. Badawi said the amount was not enough to warrant an investigation but that type of accounting should be corrected in the future.
Badawi said Lindsay is a unique case with only one other city in similar straits.
“Those are significant findings. We audit many cities in California and I only have two cities with findings like that…for these two cities I don’t think management realized the severity of the situation, but Lindsay is the opposite. They realize the severity of the problems and that they happened in the past,” Badawi said.
Lindsay’s newest auditor went on to say the City is working to move in the right direction. Already the City has proposed a balance general fund with the benefit of a full year of Measure O dollars, but enterprise funds will continue to be a mixed bag.
Harmon said the Wellness Center and water fund will be positive, but sewer rates are expected to operate at a deficit. Meanwhile, the City’s refuse fund will continue their downward trend bringing up the need for Proposition 218 process for sewer and refuse.
“Prop. 218s were something on our radar and we’ve been holding off for just a little bit,” city manager Bill Zigler said to the council.
Zigler did not give any indication how soon the City would initiate a Prop 218 process, where the City proposes raising utility rates to a self-sustaining level, but he said he wanted it done quickly. When the City opts to raise the rates, all property owners will be given at least 45 days to formally protest the increase. If 50% plus 1 of all property owners in Lindsay protest, the increase would be defeated.
City attorney Mario Zamora reminded the Council enterprise funds have to be self-sustaining and run at cost. Rates can be set for five years out, leading to a predetermined annual increase for either water, sewer or refuse.
“If it costs us $10,000 we have to have $10,000 coming in,” said vice mayor Danny Salinas.
The City will vote to pass a final 2018-2019 budget next Tuesday, June 26.