Those who have followed the public meetings and articles about the city budget may have picked up conflicting messages. Earlier this year, we expected a shortfall for 2010. Budget work sessions for 2011 led off with similar concerns. Recently, we discussed how much reserves will increase and future resources will be freed up after final a debt payment next year.

The good news for 2010 came over the summer months when Salida was busy with visitors. After reporting decreasing sales tax revenue for 19 consecutive months, the summer months delivered a 4% increase in general fund revenue.

This positive news arrived after we cut expenses from the 2010 budget. The employee raise pool approved by council was eliminated and several capital projects were deferred or scaled back. Department heads tightened their belts when it came to discretionary spending in several different areas. We made organizational changes when employees resigned and kept the same level of service with fewer staff members in some departments.

In August, Salida received an unexpected one-time distribution from the county-wide sales tax. Salida’s share of a Chaffee County tax audit settlement was $134,151.

Based on information available today, the City will add at least $200,000 to reserves in 2010. The year end balance sheet will reflect more than adequate reserve levels based on Colorado statutes and accepted municipal standards.

The budget for 2011 will also improve general fund reserves. We will use reserves specifically set aside for the final payment on 1998 revenue bonds and increase unrestricted reserves by over $200,000. Yes, the city had a “shortfall” in the initial drafting of the budget. Again, the department heads tightened their belts. Salary freezes, hiring freezes, reductions in operating expenditures and deferrals of capital investments kept the 2011 budget in balance. We are okay financially next year.

The key message during the 2011 budget process was that this approach to balancing the general fund budget is not sustainable.

Expect the shortfalls we worked through in the 2011 budget work sessions to be back in 2012. We cannot keep cutting staff and freezing wages and expect to deliver the same level of services that the community currently receives.

Increases in sales tax revenue are unlikely to keep up with the inflation in costs for the services we provide. The city’s “basket of goods” is heavily weighted with commodities and services experiencing greater levels of inflation – gas, electricity, fuel, asphalt, employee medical costs.

Staff has committed to the council that over the next six months we will review what services are provided and how they are delivered. Changes are needed.

We also need to explore more steady and predictable revenue sources.

More information about the 2011 is described in the budget narrative. Access an electronic copy at www.cityofsalida.com under Departments / Administration on the right sidebar. You may also request a hard copy at City Hall.

Edit: Direct link to 2011 budget with narrative [PDF].

The two biggest cost-savings in the budget come from a postponement of the county road and bridge department’s chip seal project totaling some $300K and a wage freeze for county employees through 2010. No staff furloughs are anticipated but, according to County Finance and Personnel Director Dan Short, the county will stick to its attrition policy that means longtime employees who retire likely will not be replaced.

Short said the 2010 budget is pretty much a “break-even” budget even though the county will dip into reserves to cover a projected budget shortfall that could near $150,000. The county still has about $11 million in reserves, equal to four to five months operating expenses.

For more details about the 2010 county budget, read the earlier  budget story.

“I’d rather cut programs than people,” said County Commissioner Chairman Frank Holman as fellow commissioners Dennis Giese and Tim Glenn nodded in agreement.

At a budget workshop last week, County Finance & Personnel Director Dan Short told commissioners he and County Administrator Bob Christiansen had done all they could to cut out “fluff” in the county $22 million budget but were still facing a $175,000 budget shortfall. Short explained the cuts county departments have already made in an effort to slash away at a budget shortfall that started at $691,000.

At the top of the cost-cutting list was the county road and bridge department which Short said opted to defer $200,000 – $300,000 in chip seal projects until 2011. Instead  $40,000 has been budgeted to patch only the most severe road damage. The road and bridge fund will also be buoyed by an expected $160,000 grant from the state’s FASTER fund. FASTER, which stands for Funding Advancement for Surface Transportation and Economic Recovery, is supported by two revenue streams approved by the state legislature earlier this year: a statewide $2 daily rental car fee and earmarked revenues from a weight-based surcharge on vehicle registration that charges heavier vehicles more since they cause more damage to the roads.

Short said he felt staff had exhausted all ways to raise revenue for the county short of going to voters. He said it could make sense at some point to revisit the idea of a use tax.

The commissioners directed the two men to go back to county department heads to see if further cuts – hopefully close to 20 percent in each department – could be made to help the county get to just a $50,000 deficit in its 2010 balance sheet.

Short, who has been the county’s finance man since 1994, explained to the Citizen that while bleak, the county is in a better financial position than others around the state due to its historically conservative approach to budgeting. “We tend to be “slow on the upswing,” Short said, usually only budgeting for projects well after need has already been identified and maintaining a strong fund balance which provides a cushion against economic hard times and emergencies.

FALLING REVENUE

As elsewhere throughout the state, the largest root causes of looming budget deficits are declines in sales tax revenue, building permit fees and interest earnings.

County sales tax revenues account for nearly one-third of general fund revenues. Gains of five percent annually in 2005 though 2008 have been rolled back by an expected 5.5 percent decline in sales tax receipts by the end of 2009 and a similar decline anticipated in 2010. In 2008, county sales tax revenues totaled just over $2.9 million, the same total as expected by the end of this year. In 2010, sales tax is expected to fall by $150,000 to $2.75 million.

With the local construction industry limping along, the county’s building permit fees have slid $128,000 in just two years; from $503,000 in 2008 to $375,000 in 2010.

The biggest hit to county revenues is in interest earnings, which are projected to plummet to $90,000 in 2010 from just over $252,000 in 2008. Short explained that the county tends to invest in short-term instruments which reached historic lows of less than one percent this year. Short writes in the budget draft that the county will continue to invest in short-term instruments but will “diversify our earning assets by slightly extending maturities when appropriate.”

For the past two years, county finances have ended in the red, 2007 being the last year the county ended in a positive financial position, Short told the commissioners. “At some point we need to balance the budget,” he said.

Giese said public safety and the road and bridge department need to be at the top of the list of basic services the county must provide.

The commissioners broached the topic of sales tax or property tax increases to create dedicated revenue streams for big ticket items such as emergency medical services or roads.

For example, emergency medical services have been a major impact on the budget since the countywide service was established in 2006. A dedicated, tax-supported revenue stream for EMS would aim to save the county $700,000 which could then be re-allocated to support other county priorities.

Christiansen said he would follow through with plans to hold a ballot initiative workshop between the county, the towns, and possibly the school districts to discuss a coordinated approach to what, if any, tax increases might be brought before voters in the coming year.

RISING EXPENSES

In addition to declining revenues, the cost to do county business continues to rise.

The county’s health insurance premium was slated to increase 15.5 percent, Short explained, but thanks to some revisions to the plan, only increased a still significant 8 percent. County paid health insurance, which includes dental, vision and health savings account options, amount to nearly $1 million of general fund expenses.

Also topping the list of expense increases was the county’s general fund legal budget which has mushroomed nearly 44.5 percent in two years, from $137,000 in 2008 to $197,950 in 2010.

The county commissioners’ legal budget alone is increasing $45,000, from $85,000 budgeted this year to $130,000 in 2010. Short and county attorney Jenny Davis attribute much of the increase to the county joining in reply to a grazing rights suit filed against the US Forest Service Pike-San Isabel National Forest by the conservation group Western Watersheds Project.

The sheriff’s department is also anticipating a major increase in legal fees as it battles the district attorney’s office over whether to prosecute as a crime, a death previously ruled accidental. Sheriff’s department legal expenses totaled $4,169 in 2008, more than doubled to $9,403 in 2009, and are budgeted to balloon 219 percent to $30,000 in 2010. Davis pointed out both legal cases are being prosecuted by outside counsel.

The fledgling county economic development corporation championed by Giese also came under scrutiny as the commissioners looked for ways to cut expenses. Giese said that even in this tough economy he still believes “we as a county need to commit funds” to economic development. He suggested cutting proposed economic development funding from $50,000 to $30,000. [See related story]

As commissioners continued to spend the afternoon wrangling with intransigent numbers, they kept returning to the same conclusion: “We need to focus on revenue streams,” Glenn said flatly.

The state mandated deadline for adoption of county budgets is Dec. 15. The next public hearing on the budget had not been scheduled as of this posting. Last week’s meeting was not posted on the county web site. The bulletin board outside the commissioners’ chambers at the county courthouse in Salida is the legal site for county public hearing notices.

Government revenue in Colorado is managed much the same. However, the amount that goes in each can is driven by citizens’ desire as expressed by the language in tax revenue ballot questions.

Using Salida as an example, for many years Salida’s share of the 1% Chaffee County sales tax was adequate to fund the desires of the citizens of Salida.

According to Denise Ronald, in Currents of Change, “… in 1984 business leaders in Salida pressed for the addition of a city administrator”. As a result a 1% city sales tax was approved by the voters. The 1% was divided in two chunks: 70% would go to street repairs and the rest to the salary of a city administrator. In other words, the voters of Salida voted for adding two coffee cans, a larger can for street repairs and a smaller can to pay for the city administrator.

In 1990 another group of cans were approved by the voters. A second 1% was to be divided between capital improvements, building a contingency fund, economic development and general fund operations. Most recently 2A added another coffee can. That additional 1% goes to roads and infrastructure. The Water and Wastewater Enterprise Funds have another set of “coffee can” criteria.

When emergencies or opportunities arise private citizens have the option to make adjustments between their coffee cans. Elected officials and staff need to stick to the voter-approved apportionment reflected in the ballot language of the taxes as they are passed. There is far less flexibility of how funds can be moved from one can to another.

The City Council is in the midst of our 2010 budget season. Staff has been working on the budget for a couple of months and the Council has been seeing the evolving results since September. Because of the economic downturn and the subsequent reduction in sales tax revenue, belt tightening occurred in 2009.

The unknown of economics of 2010 are causing an increased vigilance by the City Council regarding expenditures. Voters will see a slowing of grant applications by the City so we do not have to commit to grant match requests the City might not be able to honor. There will likely be postponement of some major costly projects to see how Salida’s revenue trends in 2010.

There will also be major costs no one has control of. Last year the health care premiums for City employees went up over 20%. This year we anticipate a 15% rise. We must move forward with the 12 million dollar improvement of the Waste Water Treatment Plant to comply with State and Federal regulations. We also have costly repairs to certain Water Treatment Structures to assure water quality and reduce wasteful water loss.

The balancing of what projects and costs have to be borne and what we would like to do, is the job of the City Council. It is your job as a citizen to give each council member your input.

When you hear the City Council debate 2010 expenditures and an elected official expresses a commitment to retain the City’s workforce in spite of reduced revenue, you are observing the “coffee can issue”. Yes, the city has a total 14 million dollar budget but every dollar has a “coffee can” it goes in and it is not often possible to shift money around. We all like new things. That is why capital improvements gain voter approval more easily than more abstract categories. However, maintenance is done by people and that comes from the “operations” coffee can and that is often where the funds are short.

Observers of Salida city government will note the belt tighten another notch in the 2010 budget. Be aware, if revenue trends improve we can always amend the budget mid year.

It is not easy for the City Council to say no to all the great ideas citizens have. Hopefully, as things look up, we can continue Salida’s forward efforts.