Friday, February 15, 2019

Bits and Pieces

Yogurt stores close
Two more of Oro Valley's what were four "smoothie...yogurt" places have closed: Blue Banana in the Oro Valley Marketplace, next to the theatre, and Planet Smoothie, on northwest corner of Oracle and Ina. Blue Banana cited "economic conditions" as their reason. That's code for: "Not enough business." After all, the economy is booming and there is no way that their business is negatively affected by the online shopping. These store closings follow the closing of Giovani's Gelato Cafe, which was on Oracle, next to the Fairfax Motel.

Looks like Oro Valley's "upscale shopping experience", the one LOVE fought against and lost regarding Oro Valley taxpayers subsidizing a private developer (Vestar) is turning into a ghost town.  Thank goodness for Walmart!

Skimpy Sandwiches at Baggins and at Mike's 
Speaking of Oro Valley eating establishments, we've noticed a decrease in the quantity of real ingredients ("meat") in the sandwiches at Baggins and Mike's East Coast. The amount of meat in a sandwich is just skimpier than they were when these chains first opened in Oro Valley.  Now, they are mostly bread. Not really worth buying.

Will Fry's charge for using "scan, bag and go"?
A while back, we wrote about Fry's "scan and go" program. You scan the item as you shop and then you only have to pay to check out. We noticed a new line item on our checkout receipt yesterday. It said: "Scan and Go" as a line item. There was no cost with it. But it's there, ready to go. Charging you for using a service that saves the retailer time and money would be like a self service gas station charging you more for using as self service gas pump.

El Tour de Tucson skirted Oro Valley for a reason this year
Want to know why the "El Tour de Tucson" bicycle race was routed around the western periphery of Oro Valley? It was because the town did not receive a requested "economic impact statement" from the sponsoring association. The town did spend $5,000 anyway. This KVOA report indicates that the likelihood of getting repaid is pretty slim.

Oro Valley housing market slowed in January
Fewer sales and more available inventory market Oro Valley's January housing market.
"In the Oro Valley area, January 2019 active inventory was 287, a 13% increase from January 2018. There were 45 closings in January 2019, a 22% decrease from January 2018. Months of Inventory was 6.4, up from 4.4 in January 2018. Median price of sold homes was $310,000 for the month of January 2019, up 7% from January 2018. The Oro Valley area had 100 new properties under contract in January 2019, up 6% from January 2018.' (Source: Long Realty Oro Valley Housing Report)

Wednesday, February 13, 2019

Town’s Golf Investment priority continues to run “off course.”

Below are the financial statistics for the Community Center and Golf since its inception in May 2015 through the last available financials in November 2018 (four months into the fiscal year).

Purchase Price

Total - $1,000,000

Total transfers from the General Fund to the Community Center Fund (CCF)

FY 2014/15 $1.2 million to start the CCF Fund
FY 2016/17 $350,000

Total Transfers - $1,550,000

Total sales tax revenues from the dedicated sales tax increase to fund the CCF

FY 2014/15 - $506,710
FY 2015/16 - $2,030,750
FY 2016/17 - $2,199,466
FY 2017/18 - $2,330,941
FY 2018/19 - $906,463 (through Nov. 2018)

Total Sales Taxes - $7,974,330

Grand Total of tax dollars funneled to the Community Center/Golf = $10,524,330.

That’s $10 million dollars of the people’s money and the Community Center is still not ADA compliant. This is your money that could have built a new, state-of-the-art Community Center. In addition, the sales tax increase could have been repealed after the new Community Center was built.

Total Troon losses – Forecasted vs. Actual

FY 2014/15 – Lost $1,112,252 (Opened for only two months)
FY 2015/16 - Forecasted - $1,518,343; Lost $2,567,385 -- (off by $1,049,042)
FY 2016/17 - Forecasted - $1,534,505: Lost $2,512,938 -- (off by $978,433)
FY 2017/18 - Forecasted - $1,822,941; Lost $1,993,040 -- (off by $170,099)
FY 2018/19 – Forecasted (see below); Lost $1,102,243 (through Nov. 2018)

In FY 2018/19, Troon initially forecasted losses to be $1,893,595. However, they updated their forecast to $1,936,101. We are only 4 months into the fiscal year, and they have already lost $1.1 million.

Total Troon losses - $8,175,606 and counting

Food and beverage losses (Overlook Restaurant)

FY 2014/15 – Unknown. (Opened for only two months)
FY 2015/16 - $255,570
FY 2016/17 - $114,792
FY 2017/18 - $96,100
FY 2018/19 - $62,325 (through Nov. 2018)

Total restaurant losses - $528,787

Member Dues

FY 2014/15 – $201,531
FY 2015/16 - $876,133
FY 2016/17 - $725,611
FY 2017/18 - $784,071
FY 2018/19 - $284,968 (through Nov. 2018)

Total dues - $2,872,314

The Town Council needs to ask staff the following questions:

• Why is the facility still not ADA compliant after almost four years of operations?
• Why are the citizens still subsidizing the Overlook Restaurant?
• Why is the staff still supporting the 45-hole golf model?
• Why is the staff still supporting a dedicated golf course for only 226 members?

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Editor's Note: We originally posted incorrect numbers for Troon losses in FY 17/18. We have corrected the information.

Tuesday, February 12, 2019

Is It Time For New Town Outside Auditors?

11 years as auditor and counting
The town's current outside audit firm, Heinfeld Meech,  has been auditing the town's books for 11 years. That's a long time. Too long, in fact. Not because the firm may or may not have been doing a good job. But because 11 years is just too long a time period to have the same firm audit the same town staff.

Though the auditor does report to the council, they have to work with town staff for 11 years. It's really the same town staff in place. The auditor has developed relationships over 11 years with them. At this point, they trust town staff. That's nice. However, trust is not an auditing standard!

The same firm auditing the work of the same people simply does not provide the critical eye and independent thinking that is required in today's compliance oriented world.

After the Enron financial fiasco, public company best practices regarding auditors changed. It was no longer wise is to keep the same auditor forever, as Enron had done. The auditor, regardless of who it is, gets too comfortable with staff.  Post Enron, it is a best practice to change auditors every 4 to 6 years.

Trust is not an audit standard
During last week's meeting, Corey Arvisu, partner in the Heilfeld firm, responded to several probing questions by council member Nicolson. Nicolson wanted to know how the firm detected the error and whether or not they extended their audit procedures. The auditor did not know exactly how the error had been detected. He surmised that it was detected through conversations with town staff. Really, trust town staff to tell you what may be wrong?

The auditor should have known this was an area ("Developer Credits") to be investigated since it was the result of a change in policy the town in 2016. The auditor should have known of this change. They should have developed audit procedures to test that this change is being properly recorded. They did not. Instead, they trusted staff. The auditor also did not extend their audit procedures to identify all possible errors, in this year or by looking into the past.

Being the best of the worst is not good enough for Oro Valley
In continuing his response to Nicolson, the auditor went out of his way to point out that  the $3 million reporting error which his firm detected (see our posting last week) and identified as "significant" was "... not a significant concern at this point." His said that his firm has found worse in other places.  So what?

Being best of the worst is not good enough. This isn't other municipalities. This is Oro Valley. The auditor's point of reference (worse communities) is simply not good enough.

Take it behind closed doors
The council did not but should have met with the auditor is special session, with no town staff, no public attending. This has three advantages:
  • The auditor can speak freely without having to temper comments because staff is watching
  • Council members can ask any question they want to ask, without fearing that they are going to "offend" or in some way "impugn" town staff
  • Showboating is eliminated. There is no need for any council member to use the discussion as a vehicle for pointing out how great the town is doing financially or how great the staff is.
Yes. It is time for a change, in both who is external auditor and how they report to council.
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Monday, February 11, 2019

Guest View: Diane Peters ~ The “Art” of Time Management

As you begin reading this article, you might ask yourself…what does this have to do with Oro Valley? Bear with me for a moment and it will become clear.

Have you ever been on the Internet, perhaps Facebook, and you've clicked on a video that is of interest to you? Maybe it was a heartwarming video of a soldier being reunited with his dog that he hasn’t seen in a year. Maybe it was a stunningly beautiful nature video. That’s what you chose to watch…and then BAM!!!...your video is interrupted with a commercial for dental implants or car insurance. You’re annoyed, yes? The commercial might last only 30 seconds, but 30 seconds seems like an eternity when you’re not interested in the topic and you’re waiting to see something else.

And this brings me to the “Youth Art Program by the Arts and Culture Ambassadors” that I and many others have been forced to sit through during council meetings when we are there to listen to and perhaps speak on an agenda item that is of importance to us.

The only “art” I want to see at a Town Council meeting is the “Art of Time Management.”

It’s not that I don’t appreciate art. I love art. One of my favorite past-times is visiting art museums and art galleries. But when I’m in an art gallery, I don’t want to discuss town business or politics. And when I’m at a Town Council meeting, I don’t want to sit through a Youth Art presentation. I decided to speak on this issue because the Youth Arts Presentation was just on the council agenda four months in a row (Oct-Nov-Dec-Jan).

Town business should be the #1 priority
We have approximately 17 town council meetings per year. These meetings should be for critical town business, not for art shows. It’s a disservice to the residents who are waiting to speak on an issue of importance to them (usually a development proposal) to have to first sit though these presentations which usually last anywhere from 8 to 13 minutes. I remember one marathon presentation that went on for over 30 minutes, at which point I got up and walked out, missing the agenda item that prompted me to attend the meeting in the first place.

Another meeting where the inclusion of the Youth Art Program was particularly annoying was the December 6, 2017 meeting. The room was packed that night due to the agenda containing FOUR PUBLIC HEARINGS on contentious development proposals. These included:

• General Plan amendment regarding the 302 acre Tangerine North Annexation
• General Plan amendment and rezoning for a 131 acre residential development in Big Wash
• General Plan amendment for a 76 acre residential development on Shannon Road
• General Plan amendment to change a 15 acre property from office park to residential

The town had to know that this meeting would be a standing room only crowd, packed with residents who were opposed to these development proposals, and that this meeting would last for hours. The room was packed and the meeting lasted 4 hours and 34 minutes, not ending until 10:30 PM. This was not the appropriate time to include a Youth Art presentation on the agenda.

On that particular evening, (former) Mayor Hiremath asked those who were there for the above agenda items to give up their seats to the parents and kids because the room was over capacity. [You can watch the full video clip above.  A partial transcript of his speech is below.]

HIREMATH: “Because it’s such a packed house…would people who are not here for the Youth Art presentation please relinquish your seat and just kind of wait outside so the parents and kids can get a seat?...We have an ask from the Fire Marshall because we’re over capacity.”

A time and a place for everything
My point is that people come to town meetings to listen to and speak on important issues. Therefore, Youth Art would be better celebrated in a place where parents and friends could appreciate it. I’d like to suggest that Youth Art be displayed at the library where people can enjoy it on their own time.

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Diane Peters has lived in Oro Valley since 2003, moving here to escape the humidity of the East Coast. She’s been involved in OV politics and development issues since 2006. In 2014, she organized a citizens group, Citizen Advocates of the Oro Valley General Plan, who over a 9-month period, successfully negotiated a controversial 200-acre development project. In her past life, she worked in medical research at various University Hospitals in New England. Her interests include reading, writing, nature photography, travel, art galleries, museums, and politics.

Wednesday, February 6, 2019

Outside Audit Finds Errors In Town's 2018 Reported Financial Result



Town financial internal control procedures in question
According to an audit report of the Town's 2018 financial statements, the internal controls surrounding the recording of economic transactions that occur outside the Town of Oro Valley's finance department have been found to be insufficient.

This finding was part of the annual audit report by independent town auditor, Heinfeld, Meech. The auditor will present these and other results at tonight's town council meeting.

Not material?
The lack of internal control resulted in a restatement of previously reported 2018 financial results.  According to town staff: " It is important to note that these findings did not cause a material misstatement of the Town's financial statements." The term "material" is their judgement that the errors detected were a relatively small portion of total town budget.

The auditors, however, did not provide judgment on that. What they did say is that the deficiency is significant. (source)

Impact fees not properly recorded
There were three errors uncovered by the outside auditors:
  • Street infrastructure contributed to the Town was not captured in capital asset records.
  • Impact fee credits issued to developers were not recorded in the Town’s general ledger
  • A cash contribution received was incorrectly recorded as deposits payable.
Significant amount of error: $3.2 million
The amounts of the misstatement are significant:
  • The Town received $2.5 million in street infrastructure in the current year which was not added to the Town’s capital asset records. 
  • $630,830 in impact fee credits were issued in exchange for the contributed infrastructure. Of these credits, $199,000 were drawn on and used by developers during the fiscal year. The Town did not record transactions related to the impact fee credits, resulting in a misstated general ledger. 
  • Also, a cash contribution of $133,000 was incorrectly recorded as a deposit payable. ​
The auditor recommended that "The Town should implement procedures to ensure that all transactions and pertinent financial information is being communicated to the Finance Department and captured in the Town’s financial records."

Procedures being put in place
According to town staff, "...procedures will be completed by mid-February, and will be followed by training with all key staff involved in collecting, approving, managing and accounting for impact fees and impact fee credit agreements." (source)

Independent party review required
We understand that mistakes happen. Occasionally, a transaction does get incorrectly recorded.

But this is more than a mistake in recording a transaction. It is a mistake in not even knowing that a transaction occurred. That is a situation that is ripe for fraud. It is wrong to shrug off the situation by saying that it does not have a material affect on the financial statements. That is because it is a serious breach of the integrity of the accounting system.

It is not sufficient that the same people, town staff, who failed to recognize the breach in the first place be the same people to design, write and train in the procedures to fix the lack of internal control.  The fix should be one that considers all economic transactions that originate outside of the finance department. The town council should retain a third party unrelated to the town and to the town's auditor to evaluate and opine on the "fix." And then to test the "fix"  thoroughly. That person should be retained by and directly report to town council, not town staff.

Tuesday, February 5, 2019

Guest View: Kathryn Hull-Butkus ~ An open letter to the mayor and council

Shelve Main Streets La Canada location
I would like to continue my encouragement for the town to shelve Main Streets – La Canada. I will remind everyone that the constituency voted by a large margin for change; not more of the same. I can guarantee you that you will get push back, and if I were the new kids on the block I would not want to start out my tenure with a contentious project. I would not recommend forcing the project (as the former mayor did with the community center and golf courses) as that will not sit well with the constituents who voted for change.

The proposed site on La Canada has precious few businesses that fit the model of “walking, shopping, gathering.” There is no bakery, deli, women’s fashions, etc., the kinds of business conducive to that model. Canada Crossroads (SW corner of La Canada and Lambert) fits that model better. There’s a bakery, a jewelry store, a book store and two restaurants with patio dining. I’ve made a couple of suggestions to Mr. Johnston (Director of Community and Economic Development) to complete that site to the suggested model of the Main Streets walking and gathering place.

Filling the Fry’s void
Fry’s, the anchor of the proposed Main Streets site, is leaving. This begs the question -- will you continue to move forward with a project that portends contention or will you try to fill the void? May I suggest that you attempt to fill the void with a Trader Joe’s. It would be very successful. The residents of the area would get behind it, and the residents of that area have coin to spend. I am very sure that the town has a list of inducements to bring in that kind of business, up to and including a dedicated person to assist and speed the permit process.

This leaves the corner where the gas station is located (which I believe is part of the Kroger store.) As it has imbedded electrical, plumbing and water, you might be able to put in a “pocket park.” Like my suggestions to Mr. Johnston regarding Canada Crossroads; a couple of brightly colored sail shades, a bench or two, a small restroom, a water fountain with a spigot for the dog population. The town gets a specialty market, there’s a gathering spot, and every one saves face.

Consider a historical/western theme for Main Streets Oracle Road location
The second location for Main Streets, near Steam Pump Ranch, makes more sense as it’s the main drag for the town. There wouldn’t be much in the way of demo and you could do a western type theme, making it a niche/unique/historical Oro Valley destination in keeping with the western locale.

Involve the residents, put out a call to OV architects, or U of A architecture students who have parents/grandparents in OV, get the OV Historical Society involved, etc.

I respectfully make these suggestions and I hope that you will shelve the contentious La Canada location.

Editor’s note: The above letter has been edited slightly and subheadings were added.

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Ms. Hull-Butkus “escaped Los Angeles” four years ago, moving to Oro Valley which she refers to as “the uniquely beautiful green valley of gold.” She feels strongly about keeping it this way. She believes that if we continue to raise our voices, that we can “keep this valley green.” She is a member of the Newcomers Club of Tucson, and through that organization, supports “Single Mom Scholars,” a local charity serving young women who are raising children on their own and who desire to complete their education.

Monday, February 4, 2019

LOVE Is Right! Water Is An Issue... The Water War Is On

Water Is Problem
LOVE has been "carping" about water being a strategic issue that Oro Valley must consider. It was not considered as part of the 2016 General Plan because it was simply overlooked.

Water is an issue because CAP water is going be restricted.  When will restrictions take place? As soon as 2020. Arizona could lose as much as one seventh of its Colorado River water allotment, based on the latest agreement among the state that draw from Lake Meade. (source)

Governor Ducey agrees
Governor Ducey stressed water as a strategic issue (source) on is visit to Tucson three weeks ago. He addressed it two weeks back when he unveiled the state's 2020 budget. He also specifically identified it as an issue when he was sworn in earlier this month. “Nearly four decades ago, in 1980, Arizona’s accelerated water consumption forced a sobering ultimatum from the federal government: reform or suffer severe water cutbacks. The can could not be kicked any further.” (source)

Arizona has not "reformed." It uses more water than ever.

Pinal County farmers will draw water exclusively from groundwater 
Pinal County farmers grow  "water hungry" cotton. They grow water hungry cantaloupe. They are going to lose substantial portions of CAP Water allocations and they will be allowed to draw water instead from the ground.

"Under the proposed drought plan, about 200 Pinal farmers are supposed to return to full groundwater pumping for the first time in more than 30 years. That would begin in 2022, after the third year of shortages in Central Arizona Project water deliveries to them from the Colorado River." (Arizona Daily Star)

How will this impact Oro Valley's groundwater supply?
Water is fungible. It moves below ground. It seeps. Pressure and gravity move it.  Take two buckets of water. Connect then with a straw. Hold one above the other. The water flows until the water levels are at equal height from the ground. Water flows the same underground.

Oro Valleys' wells may seem far away from the farms of Pinal County. They are not. We suspect Oro Valley's pockets of well water will be impacted negatively when wells, maybe ten miles north of us, start a drawdown.

There will be less CAP water for Oro valley and it will cost more!
CAP water restriction will impact Oro Valley's water supply and its water plans because Oro Valley uses CAP water to recharge the ground water supply. You can read our many recent postings on this to understand the details. Those "last in" to get water from CAP will probably be the "first impacted." Arizona was last in. Oro Valley was last in our region to use CAP water.  And, we don't drink it. We use it to replenish our wells. So, other will likely argue that Oro Valley doesn't really need CAP water.

When CAP restrictions take place, CAP water is going to be more expensive (Source). This finding was presented at the November 18 meeting of the CAP Board of Directors. The reason for this is that the fixed costs of operating the system will stay the same. However, there will be less water drawn. So, the cost per water unit will be higher.

What are Oro Valley's plans for this eventuality?
We are meeting with Oro Valley Water Director Abraham next week. We will discuss his perspectives on this water crisis and the impact on Oro Valley's present and future water supply. We will let you know his thoughts.