At a special City Council meeting last Wednesday, May 15, interim City Manger Tom Haglund told Council members that he would call the city budget a “financial crisis” for the city.
This came after Finance Director Claire Tyson gave a lengthy review of the city budget.
“If this chart doesn’t yet give you pause for concern, I would ask you to really concentrate, because it should,” Haglund told Council Wednesday night after Tyson’s presentation.
Although the last fiscal year, ending June 30, 2018, shows a rollover to this fiscal year in the unallocated fund balance in the amount of approximately $4.8 million, because of expenditures related to Parks & Rec and Lighting and Landscape Districts (LLDs), this fiscal year (ending June 30, 2019) will only show $2.4 million, to start the new year.
“The reason I really want you to concentrate on this is because that $2.4 million transfers up to the top and that becomes the unallocated fund balance for FY20; you’re still going to have the $4.4 million reserve for a rainy day,” Haglund said. “Then we go through the same process, revenues in, expenses out.”
Haglund said that, at the end of FY20, the city will have “chewed up” $2 million, ending that year with only $777,000.
“And so what that shows you is a roadmap,” Haglund continued. “And the roadmap it’s showing you is a roadmap to your rainy day fund if we don’t do something to correct the deficits.”
The two funds, Parks & Rec and the LLDs, require help from the general fund to balance their budgets.
The general fund has been supplementing the Parks & Rec fund to the tune of over $1 million annually, and two of the three LLDs have been in the red to the tune of approximately $200,000 combined, requiring general fund assistance annually.
“Between the two funds, without underwriting anything, Parks and Recreation or LLDs, the general fund has a fighting chance to make it on its own,” Haglund said.
When created, the LLDs did not have income escalators built in. So while maintenance and operations costs increased, the income generated in those LLDs did not.
Parks & Rec is mostly funded through revenues from the Galt Market. In many years past, the market generated enough money to support the department on its own. With decreased revenues, due to lack of interest in the market, the Parks & Rec Department required assistance from the general fund to make ends meet.
This is completely different than most cities within the state that have to fund the entire Parks and Rec department through the general fund.
Haglund went on to say that, if spending trends stay status quo, in two and a half years, the city will need to dip into the general fund reserves, something the city hasn’t done since the great recession.
But with those funds being a one-time shot, especially if there are no plans to replenish the funds, the city would find itself with nothing in the bank.
“And so we’re going to be faced with, over the next few months, making hard decisions about what our core services are and funding those core services with the level of revenue we have coming in the general fund and certainly to the Parks and Rec fund, and perhaps our lighting and landscaping funds, as well,” Haglund said. “And that’s all going to mean at some level a diminution of service.”
What that diminution looks like will be part of those hard decisions needing to be made. Possibilities include cutting back landscaping services to once every two weeks, every three weeks or cutting it to once a month; and possibly looking at the level of programming offered by Parks and Rec.
“All of those are on the table because the only other option is to kick the can either a little bit down the road, or a long way down the road,” Haglund said. “But we all know that when you start kicking that can, the answers may seem to come easier but the problems just continue to mount and then become insurmountable.”
According to Tyson, kicking the can is precisely what the previous council and administration did.
“As you can see from the slides, the city was waiting for that next year to put it in that general fund balance, so they were kind of kicking the can down the road a little bit. But it’s our reality now,” Tyson said.
Haglund said that there are short-term decisions and long-term decisions that can be explored. Examples of each are cutting back services temporarily, and long term choices that would go before the voters asking for more money.
Vice Mayor Shawn Farmer voiced his frustrations over the situation.
“It is frustrating because going back you keep talking about points in time, I keep thinking back to a point in time less than 18 months ago and the picture was rainbows and unicorns, and now we’re in really bad shape,” Farmer said. “I know we can’t dig into the past but I just feel like the word revenue keeps popping up, and you said we need to make more revenue; I think the core of living within your means comes from your expenditures, and I struggle when I think about decisions that were made last year that were expenditures that can’t be reversed. And so decisions that were based on bad financial information, at fault of no one in the room, and now here we are.”
Councilman Rich Lozano is not in favor of immediately running to the residents with their hand out.
“I personally don’t think the first answer to anything is raising fees or asking the community to increase taxes; that’s not fundamentally where I’m at,” Lozano said. “I think we need to roll up our sleeves; we have a great staff and I’m sure that everybody has tried to do what they can do as it relates to the budget, but take one last look at everything we have in our budgets, whether department budgets or overall budget, and say ‘where can we stop wasteful spending?’”
Farmer also raised his concern over the ability for the city to keep the revenues the city is currently receiving, which includes sales tax revenues, which account for 24 percent of the city’s revenues.
“I sit here and I keep thinking about people speaking about businesses closing and it’s like we have a budget problem here, but we could be facing a worse problem,” Farmer said. “We could be sitting here saying we’re going to make the market make more money, or we’re going … to fix the lighting and landscaping, and at the same time we’re doing that, we could be losing money on the other side because if we have businesses close, that’s going to directly affect our 24 percent sales tax. And any upticks that we foresee of any new business in town, they may say ‘you know what? It’s crazy there in Galt with those rates and this and that. I think I’m going to pass right now.’ I mean any forecast that someone like Amie Mendez might be seeing, might not happen because of that, too. This is something that is blindsiding us from behind. We as a council really need to be thinking about, cognizant of, how this is going to impact us long term, this waste thing. Because we talk about increasing revenues but we’ve got to make sure we maintain the ones we have now.”
Tyson told Council members that staff would be back before Council June 4 for a public hearing regarding the budget, as all cities are required to have an approved budget by the end of the fiscal year.
After that, staff recommended a “calendar of events” starting in June to address “corrections to the structural deficits”.
“After that approval, hopefully, of that budget, [we can] start reviewing more in-depth the general fund, Parks and Recreation and the LLDs,” Tyson said, “and then, hopefully by August, working with Council, bring you some options. You’ve already given us some ideas, but hopefully through this process we’ll have more, and then hopefully by September we’d like to have some kind of Council direction and action on some of these hard decisions that we just talked about.”
Wanting to make sure all avenues are traversed, Lozano asked that all departments look to tighten their belts.
“We have identified three budgets that we need to look at,” Lozano said. “One is the general fund as a whole, one is the LLDs group and one is Parks and Recreation. It sounds like we’re talking a lot about Parks and Recreation and LLDs, but there are other places, I’m sure, in our other departments in the city that we could cut back, tighten up our belts a little bit. So, direction from me is to look at all departments and not just one.”
Tyson assured Lozano that, as a part of the general fund, all of the other departments will be looked into.