City seeks to adjust budget to reflect nearly $7M shortfall

Lackluster investments and a major slowdown in construction are pushing the leaders of Maricopa to make spending adjustments to reflect a nearly $7 million budget shortfall.

“We are going to do everything necessary to make sure our expenses don’t exceed the amount of revenue we have coming in,” said City Manager Kevin Evans.

This $7 million shortfall is divided among two different revenue categories for the city the general fund and the special fund.

General Fund

The general fund is the more essential of the two portions of the city’s budget, as money from it pays for city salaries, benefits, contracts and capital projects.

The five major revenue sources in the general fund are local sales tax, general property tax, state shared revenue, investment earnings and development permits.

For the 2009 fiscal year, the city originally projected $26.7 million in general fund revenue, but city budget manager Corrine Wilcox-Corn predicts that number is going to come in at around $24 million.

Developing permits and investment earnings are the two areas of the general fund that have seen the most dramatic dip in predicted revenue. At the start of this fiscal year (July 2008), city leaders predicted that the city would bring in $4.3 million from these two sources; the amount is going to end up being around $1.6 million.

According to assistant city manager Roger Kolman, the primary reason for the drop-off in investment earnings is lackluster interest rates and a $1.5 million loss the city suffered in mid-2008 when major financial firm Lehman Brothers filed for bankruptcy.

“Interest rates are horrible, we are whopping out at a 1 percent investment yield,” Kolman added.

While bankruptcy and shriveling interest rates have crippled the city’s investment portfolio, a screeching slowdown in permits has lead to nearly a $1 million loss in permitting revenue.

The city’s budget at the beginning of the fiscal year was based off a monthly average of 100 single-family home permits, however that number has thus far only been realized once and the actual average for the year is at 37.

City leaders have acted on the reduction in housing permits, adjusting their numbers to reflect an average of 15 per month, but Wilcox-Corn said that she predicts next fiscal year the slowdown will hamper the city further.

“We had a couple good months this year, so the drop-off hasn’t been as dramatic,” she said, “Next year we will have to really tighten our belts.”

While the city is currently in the initial stages of crafting next year’s budget, adjustments are being made to the 2009 budget to reflect shortcomings.

The City Council will decide on Tuesday whether to take action on nearly $2.5 million in budget cuts to the city’s general fund expenditures.

The four pages of cuts Wilcox-Corn is proposing to the council touch each department, but those hardest hit include police ($139,760 in cuts), fire ($493,651), transportation ($1,033,500), and facilities management ($122,647).

The biggest individual cuts are $256,880 for the purchase of a brush truck, $533,500 for transportation grants match and $500,000 for a public works yard.

“The majority of these cuts are small items, but they add up in the end,” Wilcox-Corn said.

Special Fund

While the general fund has seen a drop in expected revenue, the special fund has been devastated. It is a source of revenue funded almost extensively through development impact fees that the city typically uses to complete capital improvement projects.

At the beginning of the fiscal year, the city projected $14.6 million in revenue in the account, but Wilcox-Corn’s projections show a more realistic final number of $9.8 million.

City leaders have readjusted the capital improvement plan multiple times, pushing back non-essential projects.

“Many of the projects in the plan were dependent upon growth. If the growth is not there, the projects can be moved back,” said Brent Billingsley, development services directory.

Billingsley said delayed capital improvement projects included the fire department land acquisition, equipment purchases, the road realignment from Honeycutt to state Route 347, drainage projects, signals and several other transportation plans.

“These purchases were typically pushed back one or two years,” Billingsley said.

While a lot of these projects were moved because of the lack of money coming in from development impact fees, Billingsley said others were delayed because of the shrinking general fund. “Many times we have the money to build something, but not the money to staff it,” he said.

When Billingsley is looking at projects in the capital plan, he prioritizes based on safety and mobility. “We do those projects that affect safety and mobility first and then focus on the connectivity and other issues,” he said.

Financial Health

Even with the recession, the leaders of Maricopa insist that the city is in financially sound.

When Maricopa was in its rapid years of growth, city leaders squirreled away money and capital improvement projects were difficult to complete because of a lack of time.

As a result, at the start of this fiscal year the city had nearly $105 million in capital reserves. Of this $105 million, $32 million was generated through development impact fees and can only be spent on specific capital improvement projects.

The city has spent nearly $15 million of the reserve and continues to plan on using the remainder to continue implementing new projects, however Evans said he would like if at all possible for the city to stay away from using the non-restricted surplus funds to make up for a loss in projected revenue.

In addition to having an excess of capital in the bank, the city decreased this year’s fiscal budget by nearly 14 percent off last year’s budget and has not filled open positions.

“Considering everything, we are doing good, really good,” Wilcox-Corn said.

Photo by Michael K. Rich