Mayor’s Corner
As we approach the City’s fiscal year ended September 30, 2018, it is time for a financial review of the year, as well as the outlook for fiscal 2019, the budget for which is nearing completion.
But first here is an overview of how the City’s finances work. When we talk about our “funds”, we mean the different buckets of monies that are available to fund City expenditures. The primary one is the General Fund, which collects most of the City’s revenues and pays most of the City bills. Then there are special purpose funds, the larger of them being the Blue Hole and Wastewater Funds, where their separate revenues and expenditures are tracked. There is also a HOT tax fund, which will be going away with the HOT tax eliminated at the last Council meeting. A new mechanism will be established to set aside dedicated road funds and manage those expenditures.
General Fund. The City’s total General Fund annual revenues approximate $1.3 million. The primary source is sales taxes and franchise fees, which in total represent almost 90% of the revenue base. The balance is collected from permits and service fees. Correspondingly, the City’s regular General Fund expenditures consist of mostly “fixed” costs of running the City – administrative and personnel costs. Very little of it is discretionary spending - for example for roads, which are usually budgeted around $0.2 million per year. Total General Fund expenditures are about the same as revenues - $1.3 million. For fiscal 2019 we will be budgeting about the same amounts - $1.3 in both revenues and expenditures. So typically, the City tries to operate near “breakeven.” However, that is before transferring monies between the funds, as further described.
Other Funds. Blue Hole’s goal has been to operate its activities close to breakeven – with about $0.4 million in revenues and expenses. Historically, the Wastewater Fund that currently just serves Deer Creek and Blue Hole Park has also attempted to operate near breakeven – before debt payments.
Fund Transfers. Because some of the funds may not have adequate reserves, the shortfalls may be made up with transfers between funds – typically from the General Fund. For example, $0.3 million will be transferred from the General Fund to the Wastewater Fund in fiscal 2018 to cover debt service and other expenses. Thus, after such transfers, the General Fund is expected to reduce its 2018 fund balance by $0.3 million.
Fund Balances. When we mention fund balances or reserves, this represents the City’s “savings”. We are fortunate that as we entered 2018, that our unrestricted fund balances for the General Fund and Blue Hole were over $2 million. As we end fiscal 2018, these combined fund balances are expected to be reduced to $1.8 million.
Outlook for Fiscal 2019. The budget for 2019 will be significantly tested, but not because of “normal” revenue and expenditure issues. It will be due to the City’s new sewer system coming on line, compounded by related transition and start-up issues. For example, once up and running, there will be lag times to allow customers to connect to the system – so the full monthly revenue stream should not be expected to be realized until near the last part of the fiscal year. Meanwhile there will be a full year of debt service - $340,000. There will also be other start-up costs involved – i.e. setting up billing and other administrative costs, plus likely unbudgeted operating costs for connection issues. Keep in mind, the original debt service forecast had the City subsidizing the system $200,000 per year once it was operating fully. Rates still need to be re-set for the sewer customers, but will fall far short of meeting 2019 expenditures. Fortunately, the City’s decision to not build and operate its own sewer plant will create cost savings from the original plan. In conclusion, be prepared that the City’s finances will clearly be challenged in 2019. Few funds for additional discretionary spending will be available – and expect a further reduction in the City’s fund balances (savings) next year. It’s not a crisis yet, but will be a financially painful 2019.