Santa Paula Fiscal Year 2015-2016 Budget Analysis

By Sheryl Hamlin

This analysis will look first at the budget for the last five years and where there are red flags for future sustainability

Salary and Benefits Growth Disproportionate to Revenue Growth

The data below taken from the Adopted FY15/16 Budget summarizes citywide ‘Salaries’ and ‘Benefits’ for the last four fiscal years along with the projection for FY 2015/2016 which starts July 1, 2015. The column marked ‘estimate’ assumes a value for the year ending 6/30/2015, but the books have not yet been closed. The column CAGR is a ‘Compound Annual Growth Rate’ which says that from the first period FY-11-12 to the last period shown FY-15-16 the CAGR is 5.1% for salaries and 7.7% for benefits. Note that the headcount has been essentially FLAT during this period. Salaries have increased at a rate of 5.1% but benefits have increased at a rate of 7.7%. A CAGR of 7% means that a number will DOUBLE in ten years, so at this rate the city could expect the FY-20-21 costs of benefits to be over $8 million dollars.

data_graph_growth

 

The budget document shows a percentage change which is a simple year-over-year change between the year just ending and the year just starting. It does not compute compounding which is important for forecasting and sustainability measurement.

On the Revenue side of the budget, the General Funds CAGR is just barely keeping up with the salary increases, while the City Wide Revenue CAGR is just barely 4% which falls short of the salary increases, benefits increases and other expenses which are required to run the city.

revenue_growth_data

The one anomaly in the above chart is the line item “Development Impact Fees” which show a CAGR of 59.9%. Development projects occur in unpredictable intervals, so should never be considered an on-going source of income. Dr. Gartner, the city’s financial consultant, reminded the new council of this in December 2014.


The city approved new development fees in 2010. A detailed report is available here. This part of the budget will be recalculated when the consulting group who did this detailed study incorporates the changes into the accounting process.

 

Drilling Down to the General Fund

In a simplistic way, the General Fund can be viewed as Revenues minus Expenses, which for the proposed FY 2015-2016 equals $14,086,725 minus $14,277,521 or ($190,976), which means expenses exceed revenue by $190,976.

The budget is not balanced on a cash flow basis. It is balanced on an accounting basis, whereby “funds” from the preceding fiscal year are carried over. Such a fund balance in a municipal budget may be cash, receivables or other assets, like a potential, carry-overs from other funds.

 

Other Notable Budgetary Items

  • Property taxes show a slight decrease from $6,673,494 in FY 2014-15 estimate to  $6,490,218 in the FY2015-2016 budget.
  • Sales tax shows a slight increase from $1,744,995 to $1,950,000 in the same time period.
  • While the sewer charges decreased $990,365 due to the new agreement with the Water Water Treatment facility, the water budget shows a budgeted loss of ($719,062), presumably from water conservation efforts, which means that drought rates will have to be enacted, a condition mentioned in the previous rate study.
  • There is no provision for the loss of the SAFER Grant, although most feel the city will receive the grant. Some cities have implemented fire districts, imposing a nominal annual fee on each property to remove the fire department from the General Fund, which is another study session the council could pursue.
  • The Capital Improvement Program (CIP) is funded from the previous bond sales. However, the city decided to defease $27 million of 2003 bond debt with 2010 bond proceeds, which means that $27 million was taken from the 2010 funds and set aside in a trust fund to pay the 2003 bond debt. Cities take this route to reduce the size of their balance sheet debt, but it effectively raises the interest rate on the 2010 bonds and reduces the amount of capital for CIP projects. Although a legally approved process, defeasance has negative connotations in academia.
  • The city has incorporated the Limoneira Public Safety Grant into the budget, but there are no provisions for long-term sustainability of this grant.

 

Remedies

There is no city in the country immune to this type of budget maneuvering. Two factors creating the most budgetary havoc are growing employee benefits and demographics, where an aging, retired population is not consuming as much as they did when they were younger and working.

 A subsequent article will review options taken by other cash-strapped cities and states.

=================================================

Sheryl Hamlin: With an MS in Industrial Engineering, Sheryl Hamlin spent years in technology with stints at Motorola, Tandem Computers and various startups. She has been on the boards of neighborhood organizations both in San Francisco and Palm Springs where planning issues were her specialty. She now resides in Santa Paula and loves the historic fabric of the city.  Ms. Hamlin’s blog Stealth Fashion  and  technology product ‘ Plug and Play Webmaster’.

Get Citizensjournal.us Headlines free  SUBSCRIPTION. Keep us publishing – DONATE

*Scroll down to post a comment

Leave a Reply

Your email address will not be published. Required fields are marked *