Town Council Budget Study Session

Mayor Loomis explained the logistics of the budget study session and announced that two public hearings will be held 1) at the tentative budget adoption and 2) at the final budget adoption.

Town Manager David Andrews stated that the country is faced with the worst recession in the past 50 years and consequently, ithe worst financial forecast in the Town’s history. He urged the Council and staff to exercise superior leadership in moving through the 2009/2010 budget process. He stated that this process will be very difficult but with wisdom, benevolence, courage, discipline and the ability to look at all sides of the equation together the Council and our community will do a great job.

Mr. Andrews stated that the Manager’s recommended budget has been developed with a collaborative and negotiated effort with all departments. The key goals have been to achieve long term financial sustainability for the Town with a combination of variables such as revenue enhancements with the renewal of the utility tax, use of some of the bed taxes, reduced operations and maintenance costs, deferred capital acquisitions, a slight use of cash reserves, and he stated the most painful recommendation is the elimination of 31.5 positions. Budget cuts were negotiated with each department in order to minimize the negative impact to any one specific department rather than doing across the board cuts. He explained that he would rather go in and evaluate each department to see what would be the appropriate allocation. He gave the example of his recommendation to consolidate and downsize Development Services to address the Town’s slower rate of construction growth and impending build-out.

Mr. Andrews mentioned that within the existing Town boundaries, residential development is 85% built-out and commercial construction has peaked.  He explained that he is also recommending the downsizing of Public Works Engineering Division due to a projected decrease in the amount of roadway expansion projects and shift the focus towards roadway maintenance. He pointed out that Transit, Water, Police, Parks, Library and the Administrative departments have also been asked to make sacrifices in order to balance the budget.

Finance Director Stacey Lemos referred to a handout of news articles from other cities and towns across Arizona showing how other jurisdictions are dealing with the budget crisis.

Ms. Lemos reviewed the FY 2009/2010 Town Manager Recommended Budget totaling $120.4 Million representing 41% or $82.7M decrease from FY 2008/2009 Budget of $203.1M. Discussion followed regarding the Manager’s recommendations as outlined below:

Deficit Reduction Measures
General Fund - $4.2M Deficit
- Renewal of 2% Utility Sales Tax
- Use of Bed Tax Funds
- Community Oriented Policing (COPS) Grant Revenue Capacity
- Staffing Level Reduction/Reorganization
- Operations & Maintenance (O & M) Budget Reductions
- Defer Capital Asset Spending
- Use of Cash Reserves for One-Time Expenditures

Highway Fund - $1.0M Deficit
- Increased Highway User Revenue Fund (HURF) Tax Estimate from State
- O & M Budget Reductions
- Staffing Level Reduction

Staffing Level Reductions
                      FTE’s     Current Vacancies      Budgetary Savings
General Fund    23.63             4.38                 $1,614,288
Highway Fund     5.0                 0                       311,721
Water Fund        2.5                 0                       130,423
TOTAL             31.13             4.38                 $2,056,432

Development Services Organization
Building Safety         Planning & Zoning     Development Review
- Reduction of 9 full-time employees (FTE) between three departments
- Combines Builidng Safety, Development Review and Planning & Zoning under 1 Development Services Department
- One Department Head supervising 3 division administrators

Reclassifications
13 FTE’s - Total Cost = $43,330
Changes in job duties, workload and responsibilities

Bed Tax Fund
- Revenue estimates for FY 09/10 flat to FY 08/09 estimated actuals.
- $700,000 allocation used to fund General Fund operations.
- No increase in Economic Development expenditures over FY 08/09

Water Utility Fund
- No increase recommended in base and commodity water rates for FY 09/10
- Increase is recommended for Groundwater Preservation Fee (GPF) to pay for current and    future debt service
- Includes Water Infrastructure Finance Authority (WIFA) loan proceeds of $4.85M for existing system improvements

5 Year Capital Improvement Plan (CIP) - FY 2009/2010 CIP = $26.9M
- General Fund Projects total $620,000, only $135,000 included in budget, remaining balance of $485,000 recommended to come from contingency reserves.
- Highway Fund includes $3M in approved federal stimulus funding for arterial and collector street pavement preservation.
- Includes $1.2M in local funds to address pavement preservation on subdivision streets.
- Goal is to maintain Overall Condition Index (OCI) rating in 70-80 range

5 Year Capital Improvement Plan (CIP) - FY 2009/2010 CIP Funding Sources
Federal Stimulus - $3,250,000
General Funds - $620,000
HURF Funds - $1,200,000
Regional Funds - $7,305,067
Impact Fees - $317,999
Water Utility Funds - $3,760,000
WIFA Loan Proceeds - $7,350,000

Municipal Operations Center (MOC)
- Suggestion to explore the feasibility of a phased down version located at the Naranja Town Site
- Sell 23 acre property at Rancho Vistoso Blvd., and Innovation Park Drive
- Pay off remaining principal on 2005 bonds issued to purchase property
- Smaller facility would include 24,000 SF Public Works and Water Operations facility, 6,300 SF Water Administration building, and renovations to existing Water Administration building at Town Hall.
Total Estimated Project Cost = $18M

General Fund 5 Year Stabilization Plan
                      Assumptions
Revenue                                             Expenditures
-Slow economic recovery and flat            - No employee pay raises until growth until after FY 2011/2012                 FY 2011/2012
- Further declines in State shared            - 10% health benefit increases/year
revenues for FY 2011, and slow growth     - 6% retirement cost increases/year
thereafter
- Single digit percentage growth in retail,  - No new employees
utility tax, restaurant/bar taxes               - O & M budgets remain flat
- Continued $700,000 subsidy from Bed
Tax Funds                                            - Minimal CIP funding
- SFR building permits flat for next 2         - $500,000 budgeted annually for
years and increase by 50 per year              routine capital asset replacement
through FY 2014
- Commercial building activity planned
for Ventana Medical Systems, 3 new hotels, and continue
build-out at Oro VAlley Market Place

Highway Fund 5 Year Stabilization Plan
                        Assumptions
Revenue                                            Expenditures
- Single digit percentage increases in      - No employee pay raises until
local construction taxes                        FY 2011/2012
- Further declines in HURF gas tax          - 10% health benefit increases a
revenues for FY 2010/2011, slight           year
increases thereafter                             - 6% health benefit increases a
                                                        year
                                                        - No new employees
                                                        - O & M budgets remain flat
                                                        - $1.2M annually for pavement
                                                        preservation
                                                        - Assumes new debt service
                                                        payment on MOC in FY 2011/12

Bed Tax Fund 5 Year Stabilization Plan
                     Assumptions
Revenue                                     Expenditures
- Projected increase 5% annually    - Allocation for economic
new hotels planned over next 5       development remains flat
years
- $700,000 annual allocation to     - 2% bed tax rebate to Hilton El
General Fund                             Conquistador Resort
                                              ends mid-year 2010/2011

Suggestions for Additional Funding Sources for Council consideration:
- Increase Utility Tax to 4% ($1.2M)
- 2% Local Rental Tax ($1.1M)
- Seek 100% reimbursement from County for Library ($700k)
- Sales Tax Rebate Relief ($1.2M)
- Local Sales Tax Increase of .25% ($1.2M)
- 2% Sales Tax on Food for Home Consumption ($3.5M)
- Voter Approval for 5% Gas/Electric Franchise Fee ($2.4M)
- Turn Library operations to County Library District ($700k)
- Further Use of Bed Tax Revenues ($200-500k)
- Primary Property Tax Levy of $1 per $100 Assess Value ($5M) (Must receive voter approval).

Council asked that the following Issues raised during Council discussion be addressed by staff:

Issue: Prepare a six month history of building permits issued for new construction, construction taxes, remodeling, etc.

Issue: Clarification of the reorganization of personnel in the Public Works Division.

Issue: Research if there are any Town employees eligible for early retirement.

Issue: What would be the financial impact if the Town implemented a 1% across the board pay-cut for all employees, or required employees to take 1 day off per pay period without pay.

Issue: Provide information regarding the portion the Town contributes towards employee healthcare premiums and its financial impact if the percentage of contribution was reduced.

Issue: Research the COPS grant to determine if it was not received until later in FY 09/10, would the Town be reimbursed retroactively back to July 1st.

Issue: Provide information on the potential of partnering with an outside agency, such as the Y.M.C.A. to run Parks & Recreation Programs.

Mayor Loomis called a five minute recess at 6:50 p.m. The meeting resumed at 6:55 p.m.