Letter to The Editor:
Dismal outlook for Cottonwood’s financial future

By Sherry Twamley, Cottonwood Resident
(May 29, 2016) 

The current proposed City of Cottonwood FY 2017 documents are being presented in a way that makes it more difficult to compare the proposed level of expenditures to income (revenues) that includes the cost of pensions and other fringe benefits and are extremely misleading. 

And press coverage of the proposed budget, therefore, has apparently been limited to the story the Mayor wants to tell.  The budget is what the city wants to spend, including proceeds of loans.

A more complete picture emerges when the latest budget documents are compared with city revenues (income) and when personnel costs are compared to previous fiscal years’ personnel costs, because personnel costs can be a significant drain on city budgets 

Local governments are service-based governments who provide the city’s services; and that explains why the city’s budget is driven primarily by personnel costs. 

Another barometer of fiscal health is the city’s General Fund reserves, which have dwindled.

The problem is, year over year, Cottonwood’s government costs continue to skyrocket relative to the rate of inflation, the economy, the city’s population growth, the city’s income which is predicted to remain relatively flat for the next five years, and continues to far outpace the income of those who pay the bills – the taxpayers. 

As city managers continue to get richer and richer and as the cost of city employees’ benefits grew many times greater than those who struggle to pay their bills (average per capita income in Cottonwood is $19,581 rev. 2015 U.S. Census, and the poverty rate is 24%), the gap gets bigger each year. 

The rise in Cottonwood’s personnel costs — including the rise in benefits and pension costs, is clearly unsustainable, yet the number of employees continues to grow.

The proposed FY 2017 budget shows that Cottonwood plans to make no decreases in personnel costs. Instead the city will hire five new full time employees and increase the maximum salary ranges by 1.7 percent (as compared to the national inflation rate of 1.4 percent).

Budgeting will continue to be, an ongoing process of revenue and expenditure choices that affect services, public employee welfare, and conditions for future economic growth. 

The more the city taxes its taxpayers, the less spendable income they have, which is already putting a drain on the city’s economic growth.  

As a result of the Great Recession, evidence suggests that Arizona cities are more fiscally conservative than in recent years and are cautiously preparing for the next economic downturn. 

The city has no property tax, it relies on about 60 percent of its income from sales taxes mainly from tourists and outside residents — making Cottonwood significantly vulnerable to the next downturn in the economy.

The city finance department has projected a General Fund fiscal shortage for the next five years.

This five-year analysis of the General Fund demonstrates that operating revenues will not keep up with operating expenditures for the next five years.

This reflects the City’s inability to substantially increase the current revenue streams via rate increases or through diversifying the current revenues with additional fees or charges for services.

The present economic situation will also stifle future revenue generation.

Other issues that are out of the City’s control are some of the rising employee benefits costs. Health insurance costs for employees and their dependents will increase after July 1, 2015.

A 2% increase is reflected in this forecast. Worker’s compensation will see a slight increase in FY 2017 as will both Retirement Systems.

There are required capital reserves that need to be met. To fund these reserves, the General Fund will run a deficit in current operating expenditures that will have to be covered by fund balance.

That too poses a different set of issues. The S.A.F.E.R. Grant revenue, which funded 90% of the cost of 12 new firefighters in 2010, was completely eliminated in FY 2014. At this time, the City is solely responsible for funding these firefighters.

The Recreation Center has been fully operational since FY 2011 and is forecasted to cover slightly below 60% of its expenditures through its own revenue stream.

A new Regional Emergency Communications Center was built in FY 2015 that will increase the General Fund Expenditures due to additional employees and facility maintenance. These costs are not fully covered by Dispatch Fees.