The Cottonwood City Council this week dug deep into its in-depth review of the proposed fiscal year budget to take effect beginning in July.
Administrative General Manager Rudy Rodriguez explained the budget to the council Monday and Tuesday. The document is now public on the city website.
Two public hearings will be held June 7 and June 21.
This year's total approved budget is $72.8 million including all estimated reserves, potential grants and financing options. That figure is down from last year by an overall decrease of over $1 million -not just last fiscal year's approved budget -- but the current revised budget of $73.8 million, which did not contain reserves or financing options and grants that did not come to fruition.
Rodriguez showed the outcome of budgets for the past nine years; the reality of which is inflated proposed budgets rarely match up to eventualy expenditures. The resulting decrease is typically between $10 million to $43 million.
The largest planned single increase is in the Enterprise Fund and includes the construction of the new Riverfront Reclamation Facility. The construction comes just as Cottonwood's main plant on south Mingus Avenue is approaching capacity. The city has planned for this construction for years and maintained a reserve to construct infrastructure, though supporting expenses, such as constructing a new road last year have increased overall costs.
There are five additional staff positions included in the budget for FY 2017 plus one reclassification approved, totaling only $29,972.
Three of the positions serve the transit operation, an administrative assistant for the planning department a full-time IT tech. A number of new personnel requests were rejected, including a deputy fire chief, a police records clerk and two library clerks.
In re-evaluating community needs, Rodriguez said that one unfilled police officer position was eliminated.
Rodriguez said there have been complaints that Cottonwood spends too much on its payroll. Rodriguez said salaries of about $20 million amount to 57 percent of Cottonwood's budget for operation and maintenance but only account for 26 percent of Cottonwood's overall budget.
Two other communities, which Rodriguez was able to find comparable numbers, included Flagstaff, where staff salaries were 58 percent of the budget and Camp Verde at 70 percent.
The merit program has been budgeted for FY 2017, however there is no Cost of Living Adjustment budgeted for FY 2017 based on the Social Security Administration model. The longevity bonus was also eliminated.
The Public Safety Personnel Retirement contributions saw a substantial increase for FY 2016 due to the large unfunded liability that the retirement system has developed. The other public employees' retirement system, the Arizona State Retirement System, showed only a marginal increase. Health care costs will increase by 2 percent.
Why budget decline?
Rodriguez blamed the flat and struggling budget on several factors including:
The slow economy: After nearly six years of declining revenues, the City has begun to see slow revenue growth ranging from 2 to 5 percent. Though not a significant number, it is an improvement from prior year's double-digit declines. The local economy is still the single largest challenge Cottonwood is facing.
Taxes: The city has prided itself on single reliance on local sales tax. Though successful for many years, Rodriguez said it is a fallacy that the sales tax by itself can continue to provide quality services based on a major revenue source that is at the mercy of the economy. The City Council passed an .8-percent sales tax increase that went into effect in November 2008 to counter the declining economy. This increase brought the total Cottonwood local sales tax rate to 3. Cottonwood does not collect a property tax for services. Recent research reveals that even with rising sales tax numbers due to increases in the sales tax rate, actual taxable sales are still lagging behind when compared to pre-great recession numbers.
Underfunded Pension Liabilities: The Public Safety Personnel Retirement System is about 50 percent underfunded, which amounts to a shortfall of $6.6 billion for the entire system. The City of Cottonwood's portion of the underfunding is approximately $9.1 million. Cottonwood is looking for ways to pay down this liability by prepaying its estimated annual contribution at the beginning of the fiscal year and contributing additional funding from any savings due to vacancies throughout the year.
State Shared revenues: These revenue sources are always of concern to municipalities due to the state's history of trying to reallocate them for state purposes.
Capital Infrastructure Planning: The City has been struggling with capital planning due to the slow recovery of the local economy. Some projects will continue to be postponed until the economy improves. Other projects will, however, move forward, funded through planned resources or other financing sources.
The City expects to finance some capital needs to the tune of $1.1 million. Those needs include a new fire truck police vehicles, two Jaws of Life and postponed equipment for the recreational center. An expenditure for a new street sweeper may be delayed after talking to Clarkdale about sharing theirs.
Even though the city continues to struggle with a sluggish economy, some movement forward have raised some revenues:
Recreation Center: The Cottonwood Recreation Center was anticipated to have a 70-percent cost recovery rate; however, the struggling economy has hampered this goal. Currently, it is recovering slightly above 61 percent of the expenditures. The largest concern stems from future maintenance and operational costs of the facility.
The city eliminated discounts and re-structured management of the facility.
A five-year long range financial planning review of anticipated revenues and expenditures shows that revenues barely keep up with operational expenditures for the next five years due to the slow economy and the state's future financial picture. Any capital acquisition would require some financing alternatives.