Overview of 2019 Budget

When I took office in November of 2016, I spent the next several months separating the co-mingling of Utility funds with General City funds in addition to creating departments with their own revenue and expenses.

We now have a budget with much more accuracy, transparency and communication.  The hard work has paid off too, as you can see in a previous blog post. The financial health of the City has never been better. The painstaking time invested to update past years’ budget figures to easily compare to this new format has enabled us to see trends and better estimate projected expenses and income.

2016 Budget Proposal             2019 Budget Proposal   

If you review the 2016 proposal link, you will see two columns: one for the previous year’s budget and one for the current year’s proposed budget.  Where are the actual figures?  Were we over budget? Under budget?  The departments only included expense lines with no departmentalized revenue. It would be no different than you determining what you wanted to spend in a year without knowing how much money you were going to make.  There is no adequate information and transparency to determine where we’ve been, where we are and where we want to go.

Even without the level of transparency and detail we have now, budgets miraculously passed on time.

This year’s draft budget was delivered on August 10th.  Alabama municipalities operate on a traditional fiscal budgetary year versus the traditional calendar year. When municipal legislative bodies fail to pass a timely budget by October 1st, or there about, it results in many unforeseen impacts, issues and operational problems.

These unintended consequences of poor financial discipline run the gambit from day-to-day problems to long-term declines in morale and efficiency.

  • Creates a “dead” period where City Staff cannot be proactive in planning, procuring and prepping Capital Projects, Equipment and Personnel.
  • Skewed snapshot of year-to-year comparisons because the time-frame is not consistent.
  • Cost taxpayers more in inefficiency and process

Example of how the delay affects the procurement of a capital purchase.

Below is the overview I was going to present during 9/18 special called meeting I requested to go over the budget with Council.  Unfortunately, the meeting was changed to 9/19 and I’ll be out of town at a Mayor’s Conference.  Consequently, I am taking the additional time to present these notes with the slides from the presentation in order to stay on schedule: An overview similar to the last two years (which has not been done in the past and not required in order to pass the budget).

Overview of 2019 Proposed Budget

CITY REVENUE

Sales tax remains our largest source of income for the City. It is important to invest in ways to increase this revenue with shop local campaigns and initiatives with investment in ways to capitalize on the tourism we already have and enhance community events which drive local business.

Property Taxes are our second largest source of income, incentivizing annexation and increasing the benefits for those who live inside our municipal limits (our voters) is critical.

As the leading revenue stream, sales tax needs to be used to operate the City to reduce its need for unnecessary utility subsidy. We exceeded revenue projection in 2018 with $8.69 million, a 17% increase since 2016.

Council, by local ordinance, appropriates 25% of sales tax income to City Debt Reduction and 25% to Capital Project funding. Although the proposed 2018 budget only included $173k for capital purchases, the ordinance was not updated resulting in over $2MM being transferred unnecessarily to the fund. Subsequently, the City showed a deficit in 2018 and required needless utility transfers.

I recommend amending this ordinance by deleting the requirement for sales tax use for capital projects as we have the cash account available to pay for the project and reduce amount for City debt reduction to $460k in 2019 & 2020.  City debt will be paid in full.  The City needs to use these funds to be fully independent of any Utility subsidy.

The sooner we eliminate the need for our utilities to prop up the City financially, the sooner we can use this same funding for quality of life and community development.

 

Increasing lodging tax will bring in an income stream we could earmark for downtown improvements and other areas which drive the tourists to our area and further increase the lodging and sales tax income. This is a tax that does not come out of taxpayer wallets.

With the 2019 budget, The City will have reduced its reliance on our Utility subsidy by 70%. The City relied on an average of $5.27MM from our  utility department until this term.

This is an unprecedented improvement.

The goal will be to bring the subsidy to zero and use these funds instead for the good of the community.

 

CITY EXPENSES

 

 

 

UTILITY NET EARNINGS

 

 

UTILITY INFRASTRUCTURE OVERVIEW

5 YEAR CAPITAL IMPROVEMENT PLAN

Sewer $6.855,000

  • Two transmission projects for sewer = $2,000,000 ea.
  • New lift station at Fels and Mobile St. = approx. $250,000
  • Mapping upgrades = $50,000 to $75,000
  • Study for the Grand Hotel = $25,000 to $30,000
  • Three future force main projects and at least one major pump station project = approx. $2,500,000

Water $6,230,000

  • Add a production facility and connecting transmission mains = $4,000,000.
  • System modeling and connect the balance of our production facilities with SCADA to balance system pressures and production min = $250,000
  • Potential transmission mains = ~$1,000,000.
  • Complete Fairhope Avenue water tank at $980,000.

Gas   $5,000,000

  • Replace 16 miles of cast iron main = $4,000,000.
  • Work on exposed transmission mains min = $1,000,000

Electric $11,500,000

Agreed in 2017 to go with an option which addresses an overall upgrade (recommended from a 2016 study)

  • Substation upgrade project = $9,000,000
  • Relocate the Fairhope Substation = $1,000,000
  • Upgrade to the 46,000-volt transmission line = $1,000,000
  • We have a pole maintenance contract in the works that we anticipate will cost as much as $500,000 by the time we get all the poles replaced that are identified as in poor condition.

All total, the probable spending needs over the next 5 years will be approximately $31MM (including facility remodel).

The $21,000,000 dollars our Operation Director, Richard Peterson, proposed last year was assessed after only a few months on the job. He has better identified overall needs. It will be like a remodel, we won’t know exactly what to expect until we get started!

A proposed rate & fee increase was included in the 2018 budget but it was taken out.  In order for us to maintain quality service with experienced staff and infrastructure/rehabilitation upgrades without borrowing money, this must be addressed.  We are addressing 50 years of neglect and hope to put our utilities in a proactive position in the future.  The same rate & fee increases have been proposed for 2019 (with a reduction in the proposed increase for irrigation systems) even though the estimated price tag has gone up 50%.  At the very least, there needs to be a staged approach to the rate increase to pay for all of this.

 

LIST OF ALL CASH ACCOUNT BALANCES CITY & UTILITIES

  • Increased the cash account balances by 50%:  From ~$30 million to ~$45 million = +$15 million.
  • Decreased the City’s debt by 46% from $6.83 million to $3.68 million = -$3.15 million The City of Fairhope debt is now on track to be paid off by 2020
  • Decreased the Utility Department debt by 21% from ~$19 million to ~$15 million = -$4 million

PERSONNEL PROPOSED NEW POSITIONS

Cost of Living Adjustment (COLA) has historically been the main increase city employees have been rewarded.  Whether it’s called COLA or across the board raises, the result is everyone is treated the same and exemplary performance is not rewarded.  I am a proponent of Merit Performance Based Raises to retain and reward standout employees. This has not been supported and for the last 2 years there has been NO meaningful merit increases and we are losing valuable staff as a result.

In 2017, the merit increase was turned down completely and a 2% COLA was passed instead.  This approval also came late which caused unnecessary frustration with employees and brings down departmental morale. Employee evaluations which used to occur before the budget process is not happening now until after the budget passes.  The empty promise of proposed merit increases has proven to be counterproductive.  This is another reason why having a % for merit increases has been proposed.   It has been extremely difficult for managers to keep morale up when high level performance is not being rewarded – especially with today’s unprecedented low employment rate.  Our valued employees are being stolen by other municipalities and businesses because they are more competitive.

Some studies (such as SHRM) estimate it costs 6 to 9 months’ salary on average to replace an employee after they leave. This is not counting the time it takes to hire an experienced candidate which is taking a long time in this job market. The loss of well-trained employees is costing you, the taxpayer.

The 2019 budget includes a 3% pool of money for department heads to manage merit raises and $33k for promotions.  This total is still less than previous years’ total increases. Some employees are at the top of their pay grade due to a long overdue comp study. We are proposing a 5% pay  grade increase to allow those who qualify for a merit raise can be rewarded while the new comp study is ordered for 2019.  This will not affect the budget numbers.

This budget represents my commitment to fiscal responsibility and retaining & rewarding our valued employees who provide the high level of services our citizens expect.

More about Mayor Karin Wilson

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