Finance 101 – How is the City Doing and What Can I Expect Next Year?
Sedona, AZ (June 8, 2011) – You may have read recently that the City of Sedona is projecting about a $1 million surplus in the general operating fund of the City. At the same time, you are probably seeing more dreary stories that show continued slashing of city budgets across the country.
So you might ask, “what really happened in order to make the financial picture work?”
Since about 2000, the City steadily received revenue in excess of expenditures. While revenues were growing, some new programming was added and costs did increase; however the increased expenses did not grow at the same rate that the increased revenue grew. The result was an increase in savings. In the general fund, this built up as a cushion for a rainy day or to be used for one-time or short-term expenses and opportunities. In addition, the wastewater fund, capital fund, and special revenue funds each have their own separate savings accounts. These savings are typically used for the more expensive construction projects in the City.
The savings account in the general operating fund has continued to grow, and is projected to increase again at the close of the fiscal year on June 30, 2011. We project to have operating fund savings of about 100% of ongoing operating costs to start out the next fiscal year on July 1, 2011. The City has used some savings in other funds for major construction projects, but substantial savings remain in those accounts as well.
As the revenue picture declined in Sedona and nationwide, staff and council began delaying several capital projects and reducing expenses as early as October 2008. We approached major service impacts cautiously at first, but made a series of operating reductions in December 2008 that included cost control measures like a hiring freeze that included hiring only essential personnel, reductions and elimination of programming, and providing a review of wastewater fees to provide a better picture of cost recovery.
By far the largest impacts came in 2009 and early 2010. The first year of a five-year rate increase to wastewater fees was implemented, with year two going into effect for the August 2011 billing – another 15% increase. These rate increases will allow for a ten-year goal to reduce the sales tax subsidy to wastewater operations – freeing that revenue source to be used for citywide operations and projects. A new capital planning process that requires all projects to compete for the same sales tax dollars instead of providing direct funding was also instituted. The City instituted a series of new business practices. Underway for less than a year, the first-ever sales tax audits have discovered about $375,000 in unpaid taxes. In addition, businesses are now required to have a City business license and to pay local sales taxes directly to the City, not the State, which provides more detailed information and timely payment of taxes. Finally, a layoff in the spring addressed anticipated future declines in revenue from the State which are likely to be realized not only next year but beyond.
In essence, while other cities used one-time resources and cuts – band-aids that also left lingering problems to address, Sedona ripped off the band-aid and addressed its finances early. Sedona’s combination of cost controls, cost reduction, and financial policy changes combined to place us in a positive financial position now and in the future. Staff is planning for the addition of several one-time projects in next year’s budget and are approaching this next budget as a transitional year, with a conservative budget that still signals caution at the weak but rebounding economy.
For more information about the budget and financial reports, visit us at www.SedonaAZ.gov/finance.