City revenue falls short of budget projections

Overly rosy revenue projections for the current fiscal year may result in budget cuts as the city of Maricopa grapples with a first-quarter shortfall.

The city budget for the current fiscal year, which runs from July 1, 2010 to June 30, 2011, predicted an $8 million increase in general fund revenues from the previous fiscal year, from about $17 million to $25 million.

However, data obtained by InMaricopa detailing the first three months of sales tax revenue, construction permit revenue and state shared revenues, shows substantial year-over-year decreases in all three areas.

If these trends hold for the remainder of the fiscal year, it would result in a general fund budget shortfall of roughly $5.4 million.

“I can’t speak for my colleagues, but I am concerned and feel this is something that needs to be addressed immediately,” said Councilmember Marvin Brown. “I have seen a lot of budgets in my dealing with governments and it seems they are typically over-optimistic.”

“I would prefer that we error on the side of caution and not be shocked.”

While a $5.4 million shortfall would be shocking, the decline in revenue could be even more dramatic since the figure was derived from analyzing only three of the city’s 12 revenue streams. Other areas were not analyzed due to a lack of information.

The largest revenue stream not analyzed was property tax collections.

Last fiscal year, the city budgeted for $9.4 million in general property tax revenue, but actually collected $5.67 million.

This budget for this fiscal year is based on $11.2 million in property tax collections.

“There is no guarantee the revenue predicted in the budget is going to be the amount of revenue collected,” said Councilmember Carl Diedrich. “If there are shortfalls we will need to make adjustments.”

Wiggle room

The city council has maneuverability in dealing with shortages in the general fund due to a $30 million reserve that was put aside before the current economic downturn.

However, state law mandates that cities determine how much of this money they are willing to use in a given fiscal year at the beginning of budget process.

This year, Maricopa City Council members voted to use as much as $5 million of the “rainy day” fund for possible budget shortfalls, including approximately $2.5 million allocated to meet general fund obligations.

If the general fund shortfall is greater than $2.5 million, spending cuts will likely be made.

In terms of potential cuts Councilman Diedrich said it is difficult to cut the general fund without touching people or programs. This difficulty arises because the majority of money in the general budget goes to pay for salaries.

Councilman Alan Marchione said he wasn’t opposed to cutting city employee salaries and benefit packages, and that starting with the next budget cycle he would like to see cautious revenue predictions.

“The city was overly optimistic,” he said. “We are now going to have some tough decisions to make.”

The city of Maricopa declined to comment on potential budget shortfalls for this story, but a presentation on the budget by city staff is scheduled for the Nov. 16 city council meeting.

Look for an in-depth analysis of the city’s budget woes in the next edition of InMaricopa News.