Let’s look at two of Town of Oro Valley’s past two operating budgets:
FY2009/2010 (Dave Andrews (Town Manager):
“Local sales tax represents a significant source of the Town’s budgeted revenue. In this category, taxes related to construction activity are the biggest contributor. While residential activity is down, FY2010 will see a major renovation undertaken at the Ventana Medical Systems facility (130K+square feet), which will contribute significantly to taxes on construction, permit and impact fees. The FY2010 budget is also forecasted to see an addition of 350K+square feet of commercial building in the form of hotels, restaurants, retail and office space”.(Page 49, Revenue Summary, second paragraph)
FY2010/2011 (Jerene Watson (Town Manager):
“Local sales tax represents a significant source of the Town’s budgeted revenue at 19% of total revenue. In this category, taxes related to retail trade are now the biggest contributor. In previous years, taxes related to construction activity were the greatest contributor. For FY 2010/2011, revenue was projected assuming limited development and activity patterns similar to what is currently being observed. Commercial activity is down significantly from previous years with many projects having been put on hold, delayed or canceled. FY2010/2011 will see new construction commencing at the Ventana Medical Systems facility (130K+square feet) which will contribute significantly to permit and impact fees”. (Page 51, Revenue Summary, second paragraph)
WOW! In FY2009/2010 Ventana Medical Systems was making a major renovation (130K+square feet) and in FY2010/2011, Ventana Medical Systems will commence new construction (130K+square feet) Do those statements sound somewhat redundant?
"The FY2010 budget was forecasted to see an addition of 350K+square feet of commercial building in the form of hotels, restaurants, retail and office space." "The FY 2011 budget is forecasted to see an addition of 280K+ square feet of commercial in the form of a hotel, a school, restaurants, and office space." WOW! Sound familiar?
Let’s go to Item B on the consent agenda of the September 7, 2011 Town Council Meeting. Wendy Gomez’s Fiscal Year 2010/11 Year-End Financial Update.
This report states that the construction sales tax revenue projection missed (was short) by $1.7 million for FY2010/2011. When you predict 75 residential starts at the beginning of the year and end up with 47 at year-end, it’s a big surprise? Nobody was monitoring the building starts on a month-to-month basis? I suppose they were depending on hope and change! Also, some of commercial development with Ventana got delayed! Surprise! Surprise! Nobody was talking to the company? Nobody get excited! Did the Mayor just put this item [the budget report] on the consent agenda because it is routine and non-controversial so as to rubber stamp it? Problem solved?
Take a look at the Town Manager's Budget for FY2011/2012. Do you see any Revenue Summary discussion on how low our construction sales tax revenue might be for FY2011/2012? It looks like that construction sales tax revenue problem has disappeared. Not to worry! The Town Council could always double our utility taxes again.
Oh, by the way, Greg Caton, our interim town manager, doesn’t believe a hiring freeze exists and is considering adding people to the Development and Infrastructure (DIS) department because of the intolerable increased workload for the residential and commercial development activity!
John Musolf
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6 comments:
John,
Thank you for caring enough to pay close attention to these financial matters for the rest of us. What a disconnect! Sounds like tightening up the vigilance would have alerted Council of potential losses instead of hearing them when it is too late.
Or you could say that Monday morning quarterbacking is relatively easy. And then there is that pesky saying about hind sight.
Financial Dashboard
Objective Thinker (a.k.a. Don Cox)
Good ole Don Cox! Always a witty comment but no facts!
The Council and I did not have to use Monday morning quarterbacking or hindsight to gauge the potential shortage of the collection of construction sales taxes
Stacy Lemos, Oro Valley Finance Director had a great idea!
Stacy created a report for our Town Council to be aware of financial problems by tracking key financial factors monthly.
From the Finance Department Website: “The dashboard reports provide a visual, graphic depiction of the Town’s financial information as well as historical data so that trends may be followed in the Town’s finances. The reports are updated monthly and presented to Council along with the standard monthly updates”.
One of the financial dashboards is the monthly construction sales tax collection which alerts the Council on a monthly basis how much the Town is collecting in revenue from that source. For example, if a councilperson looks at the August 2010 construction sales tax collection they would see that the July 2010 YTD collections were $201,000. They would track each month and see that the prior month’s collection were continuing to be anemic (woefully inadequate).
This trend continues to be anemic through the next 11 months.
Then we get the surprise shortage of 1.7 million in the September 2011 Year End Financial Update?
Another of the financial dashboards is YTD single family residential permits. This is when the permits are issued for construction. It is an indicator of some future potential construction sales tax collections.
Looking at the trend of issuance of single family residential permits from July 2010 through December 2010 (6 months) we see a YTD issuance of 17 permits (certainly not a tremendous workload and an indicator of potential low construction sales tax collection). From January 2011 thru May 2011 (5 months) we see an additional issuance of 15 more permits (again, not a tremendous workload or potential construction sales tax collection indicator
The Council did not have to wait for the year end surprise on the potential shortage of construction sales tax collections.
John Musolf
Moose......I would make some of observations.
1. And what would be the action to be taken IF they did notice a decline in the construction revenue?
2. Could anyone predict the horrible performance of the general economy?
What is really your point? Much of what you write is very difficult to translate.
Objective Thinker Observation One
“Or you could say that Monday morning quarterbacking is relatively easy. And then there is that pesky saying about hind sight”.
John Musolf Response One
You imply that I or the Council can only do Monday morning quarterbacking or 20/20 hindsight on something that had occurred at the Year End Financial Update!
Quite the contrary! Stacy created a report for our Town Council to be aware of potential financial problems in advance by tracking key financial factors monthly. One financial dashboard is the monthly construction sales tax collection which alerts the Council on a monthly basis how much the Town is collecting in revenue from construction. The Council tracks each month and observes that the prior month’s collection were continuing to be anemic (woefully inadequate).
This trend continues to be anemic through the next 11 months far in advance of the surprise at year end. The Council did not have to wait for the year end surprise on the potential shortage of construction sales tax collections to take some form of action.
The Council ignored strong warning signals and were shocked (I repeat shocked) at the shortfall!
Objective Thinker Observation 2
“Moose......I would make some of observations”.
1. And what would be the action to be taken IF they did notice a decline in the construction revenue?
2. Could anyone predict the horrible performance of the general economy?
What is really your point? Much of what you write is very difficult to translate.
John Musolf Response 2
I thought my point was made! Stacy Lemos had thoughtfully provided a financial dashboard to the Town Council so they could anticipate financial problems in advance and take some alternative action.
On one point we do agree is that predicting the performance of the general economy is difficult. But that is also precisely the problem! If you can’t predict the general economy and construction starts then you should be extremely conservative in you construction sales tax revenue projections so you don’t get surprises. Especially, if you are depending on that revenue for expenditures.
You then ask what anyone can do faced with declining revenue? I realize that there is very little you can do to correct the original bad financial forecast on construction sales tax collections even if you know in advance that they will continue to be short revenue.
You assume there are no other alternatives that can be taken.
How about spending cuts? How about town employees sharing in the cost of benefits? How about eliminating some of the take home cars? How about reducing the motorcycle unit size? Some major belt-tightening might be in order on other expenditures since the revenue is not there to support them. However, that might require work and of course we have been told again and again that the budget is bare-bones and no cuts can be made. Tell that to the unemployed families or seniors on a fixed income! They make drastic budget cut decisions every day when their revenue goes away or down. Why can’t the Town?
John Musolf
John.....
I have often suggested that many folks who post on this blog do so only to trumpet what they perceive to be negative. I can honestly say that I can't remember ever seeing a positive, uplifting headline on this blog that dealt with Town government.
So allow me to present the following:
FY 2010 OV Budget $121549343
FY 2011 OV Budget $116208785
FY 2012 OV Budget $ 94219647
Now I don't know about you, I would call $27 million in budget reductions over two budget cycles a pretty significant decrease. Maybe it is not as drastic as you and some would like but it does clearly demonstrate that those responsible for our tax dollars are cognizant of the financial times and are making significant efforts to reduce expenses.
I for one, am not at the point that I believe we need to make "drastic" cuts in Town services as you suggest. And when and if we do get to that point the cuts need to be made very carefully to avoid cutting "core" services such as public safety to the point that our streets become unsafe.
Lastly, I would be very interested in hearing your and some others on this blog suggestions to increase the revenue side of the budget. In other words, how can we grow revenue?
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