Santa Paula: Creative Budget FY 2018-2019

By Sheryl Hamlin

While the Santa Paula council was celebrating a slightly higher reserve ($60,000 increase in Fund 101), there was no discussion about the creative budgeting and speculative nature of the proposed budget.

Here are three creative techniques deployed in the budget:

15% of the General Fund budgeted revenue is derived by transferring costs or services rendered to the Enterprise Funds. (Fund 100)

The $600,000 fee to United Water Conservation District was not budgeted entirely to the Water Fund, rather $100,000 to Water and $500,000 to the Water-in-lieu (developer) fees, thus misrepresenting the actual cost to deliver water. The Enterprise funds were not discussed in detail at the council meeting except to note the use of the Water-in-lieu fund, which according to City Manager Rock will be replenished eventually. There was no discussion for the rationale in the use of the Water In-lieu fund. (Funds 620 and 621)

The Measure T budget included $1 million carryover from FY 2017-2018, which was used as a source for the SPPD station renovation. The total in the budget is $2,150,000 for the SPPD station renovation. The use of this carryover aggrandizes the Measure T effect which is a one-time event. (Fund 104)

General Fund Revenue Distribution

The following pie chart is derived from the staff report showing the distribution of income of the General Fund.

The $3,484,832 in Property taxes (26% of the General Fund revenue) is actually $2,700,000 in the VLF swap and $759,285 for Secured Property taxes. See previous article on VLF swap.

A factor in the sales tax increase was automobile sales. The city uses a consultant to provide the forecast. Presumably the consultant has a complex model to determine the forecast. However, the California Controller recently reported that May 2018 sales taxes were below forecast, so the June 2018 California number will be important. Additionally, auto sales are forecast down 1% in the coming sales season, so dealers will raise prices to compensate for lost sales. Will these price increases slow sales? Sales tax receipts should be monitored quarterly and the budget adjusted. With the Fed raising interest rates which will affect credit cards, sales taxes could be adversely affected. Note that the pie chart does not include the Measure T sales tax, which is accounted separately for transparency purposes.

The Overhead (Transfers) at 15% represent time city employees spend on Enterprise activities. In the Case Moore v. City of Lemon Grove, citizens filed a Prop 218 suit against such transfers from the Enterprise Funds to the General Fund. The judge ruled the transfers were acceptable because “the fees were not spent for unrelated revenue purposes”, a point difficult to prove without an expensive audit. The court required the city to show all calculations and justifications for transfers. What was not discussed is the effect of the $2 million in transfers on the Water and Sewer Funds, which will become apparent in 2019 when the new ratepayer study is released.

Departmental fees for services are 26% of the General Fund revenue. These fees were recently increased so this number will change as the economic activity changes within the city.

Employee Costs

The chart below shows employee costs compared to General Fund Revenue with the blue line representing General Fund revenue and the red bars employee costs fully loaded.

While indeed the chart shows employee costs hovering between $8 and $11 million, the forecast includes a 5% annual increase for employee salaries. The compounding of a number at 5% annually over 14 years yields 1.97, which means that the salaries will essentially double in 14 years, so the challenge is to find compensating revenue. It was stated in the staff report that employees will pay 100% of their portion of the CalPERS fee, but the city will still have its portion, which will be increasing dramatically. Remember the revenue line includes transfers from enterprise funds, so this line can be adjusted through accounting.

Five Year Forecast

The forecast through FY 22/23 indicates a negative for FY 20/21, FY 21/22 and FY 22/23. These years include a certain amount for East Area 1 fees and expenses in addition to the 5% salary increases mentioned previously. There was no discussion about how to address the future year shortfalls via additional or new revenue sources.

Voting

A roll call vote was taken with four ‘yes’ and one ‘abstain’ from Council Member Crosswhite.

Future Financial Discussions

Mayor Gherardi asked for a report on the sewer plant. Council Member Crosswhite requested information on the unfunded CalPERS liability with the new, reduced amortization schedules, to which City Manager Rock said this would be part of the CAFR (Comprehensive Audited Financial Report).

To watch the meeting,and download the reports click here.

For more information on author click sherylhamlin dot com


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One Response to Santa Paula: Creative Budget FY 2018-2019

  1. Bruce Boyer June 26, 2018 at 2:07 pm

    A good view of how deep in trouble SP and most cities are.

    Reply

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