Monday, April 14, 2014

John's Place: Oro Valley Plans To Add Little To The Contingency Fund

At the April 2, 2014 Town Council Meeting The Town Manager's Recommended Budget for fiscal year 2014/15 in the amount of $107. 1 million; a $13.2 million, or 14.1% increase from the Adopted FY 2013/14 Budget totaling $93.9 million was presented.

The budget has received no citizen input.  There is, for example, no Oro Valley Finance and Bond Committee to review the budget.  There was no citizen input allowed at the April 2, 2014 council presentation or a subsequent budget study session held on April 9, 2014.  It is, therefore, the job of each Council Member to represent the citizens.

This budget is being presented as 'balanced' or 'provides a surplus.'  Yes. The budget is that. However, it is also a 14% increase over prior year, a fact that only LOVE has reported.

Why is a 14% increase problem?  It is a problem because the increase is based on a robust set of increased revenue projections. The assumption is that the economy will be robust.  The expectation is that construction fees will be robust.

We've been through the "boon-bust" cycle countless times.  We know that: "What comes up, must go down."  We also know that it is extraordinarily painful for the public sector to reduce spending.  It is, after all, not their money. It is your money.

Oro Valley's method of budgeting does not challenge each expenditure. Rather, it adds an increase each year.  It challenges only the increase, not the baseline spend.  Thus, a budget once set becomes the baseline for the future.  In essence, the 14% increase becomes a permanent cost to the citizens of Oro Valley.

It is the boom-bust cycle that requires fiscally responsible individuals, company's and public sector operations to build surpluses.  Oro Valley calls these surpluses a "contingency fund." In Oro Valley, it is build from general fund revenues.

Most of our citizens are not aware of Oro Valley's "contingency fund".   Oro Valley's councils have set a minimum 25% ratio between the operating fund expenditures and the contingency fund balance.

The contingency fund is a buffer for unexpected financial problems. It is also a means to set aside funds for specifically designated future projects.  It is like an individual's savings account.

A contingency fund is also used to manage risk.   In the public sector, there are two such risks. One, is the risk of a shortfall in revenues. The other is the risk of unexpected events.  For example, it is often used for risk management when an exceptional risk that, though unlikely, would have disruptive or catastrophic consequences.

This proposed budget is yet another year in which there will be little addition to the "contingency fund."

Given the the history of the majority-4 on council, 2014-15 could be another year in which they raid the contingency for some "unforeseen reason." The majority-4, with the consent of some other council members, took funds from this fund over the years to:
  • They authorized the use the of $2.1 million in contingency reserve funds to underground utility lines along Oracle and Tangerine roads in a three-project proposal brought forth by Tucson Electric Power. There was an ordinance that required “undergrounding” so it was an emergency.
  • They authorized $500,000 to aquatic center upgrade project
  • They raided the fund to build two multi-purpose fields in Naranja Park
The estimated year-end contingency reserve balance in the General Fund for FY 14/15 is $10.1 million. The good news is that this is about 31% of the recommended expenditure budget. The bad news is that it should be more, given such a vast expected increase in anticipated revenues.

Next week: Our take on the Oro Valley's most discretionary fund, the operating fund.


Richard Furash, MBA said...

As usual, governments spend other people's money with aplomb. Meanwhile, there is little accountability to the taxpayer. The cycle just continues - should we be surprised?

Richard Furash, MBA said...

There WILL be accountability in Nov!

Richard Furash, MBA said...

John says the "majority-4” took funds from the contingency fund for years. I am confused by his facts.

June 20, 2012 Town Council Meeting: vote regarding aquatic center was

January 16, 2013 Town Council Meeting: vote regarding underground utility lines was 6-1 (Burns opposed)

November 6, 2013 Town Council Meeting: vote regarding Narana Park improvements was 7-0

Richard Furash, MBA said...

I love how they change their opinion of something depending on whatever they're trying to sell us at the time.

On one hand, they'll push for a 14% increase in the budget based on their ASSUMPTION that the economy will be ROBUST in the coming year.

On the other hand, they recently passed a 2-year extension on the use of A-frame signs and banners because of their ASSUMPTION that the economy would continue to be SLOW for another two years. They wouldn't even consider just a 1-year extension. No. It had to be two years.

If their decisions were truly based on economic factors, then all their decisions would be consistent.

Richard Furash, MBA said...

Victorian Cowgirl... I, too, remember the necessary 2-year extension of A-frames and banners. The mayor could not believe an audience speaker said the economy was on the up turn. I guess that man knew the facts.

Richard Furash, MBA said...

Greetings Sheldon,

Thank you for pointing this out. You are correct.

We have adjusted the posting to reflect that, indeed, some other council members also supported these fund transfers.

Richard Furash, MBA said...

Richard, I appreciate the "adjustment" in the post, but I feel the need to point out that the new wording, "with the consent of some other council members," seems misleading. In reality, in two of the three cases John cites, ALL of the council members consented. Those votes were UNANIMOUS! In the third case, MOST (two out of three remaining council members) consented. In my opinion, ALL and MOST are very different than "some."

Thank you.

Richard Furash, MBA said...

i do not see them being accountable for two reasons:
1. i do not see any viable candidates, except don bristow, stepping forward to challenge the incumbents and they will gang-up on him
2. the citizens continue to be motivated by the safety campaign of the police, fire dept and current administration. Read the vision statement and citizen responses and you will note the number 1 concern is safety and the incumbents will use to their advantage