Garner, Burns, Zinkin: Why This Budget Deserved A "No" Vote

The Oro Valley Town Council approved a record $107.1 million budget for 2014-15  by a 4-3 vote last Wednesday.  This is a 13.1% increase over prior year.

The Majority-4 (Mayor Hiremath and Council Members Hornat, Snider and Waters) voted for the budget.  Council Member's Burns, Garner and Zinkin did not vote for the budget.

In their remarks to council, council members Zinkin and Burns clearly stated their reasons for not supporting this budget.

Council Member Zinkin did not support the budget for a number of reasons. These are detailed and supported in the PowerPoint presentation at right.  (You can view the presentation to the right or  you can view it by clicking here.)

Zinkin was not allowed to present this PowerPoint document because it was objected to by Mayor Hiremath.  According to Council Attorney Kelley Schwab, meeting materials are supposed to be included with council meeting materials one week in advance of the meeting.

Zinkin continued that he felt that the budget includes a "hidden" increase in the number of employees and a substantial increase in average compensation (including benefit cost) per employee.  He believes that the raises are being granted based on an invalid compensation study.  "Our employees are well paid and they deserve it. Do they deserve to get paid as much as an employee in Avondale [or other Pheonix Communities]? The cost of living is much more up there."

Zinkin continued that he can not support this budget because the spending "...is not balance between the community and the employees"   Zinkin asserted, "We could give our employees their step and merit increase and a 2% raise, which is what is going on in the general public. I'm guessing that that would save us half million dollars. What would you do with that? You give it back to the people. Green parks in the winter time. Maybe do something with SACCA. Do something with Procter-Leiber.  There is all sorts of things we could do to give back to the community."  Perhaps even fund some of the ideas Council Member Burns put forth, as follows.

Council Member Burns observed: "I'm voting against the budget today and I have two main reasons why." First, "I personally believe that a budget is a policy document and more importantly a reflection on our values....I had only one budget request and that was for the town to provide programs for disabled an flow income individuals," asserted Burns.

"Our town does not have any program for disabled or low income individuals." This, despite, the fact that, according to Burns, "...24% of students at CDO use subsidized lunches, 22% at Copper Creek, Wilson 17%."  He concluded, "Oro Valley Is a very wealthy town. Yet I believe we ignore those that need the help the most."

Burns' second reason for not supporting the budget is that the budget does not discuss how the town is going to be funded in the future.  Council Member Burns asserts that Oro Valley has a defacto property tax because many of the town's assets have been financed by the county.  Burns asserts that Oro Valley would have better control of these funds it it assessed its own property tax.  However, Council Member Burns is not advocating for an Oro Valley  property tax.

Council Member Burns concludes that the best time to have this conversation about funding is when discussing the 2015 General Plan since there are so many future items being considered for investment but no identification of the sources of the funds for these investments.  "I don't think that relying on the county bond fund to fund our capital needs is the way we should go."

Be sure to take a moment to watch Burns' eloquent remarks.

Council Member Garner also voted "No."  When asked why, he provided three reasons:

• There is nothing in the current budget that addresses the needs of the citizens as much of the budget increases were due to employee raises and benefits that in the long term will cost the Town fiscally. 
• The salary study was flawed from the outset with much of the results suspect as many comparisons were done using cities and Towns much larger than Oro Valley. This salary study was never fully vetted to the public until much later in the process and was never going to appear until the issue was pushed to have it part of a budget study session. 
• There continues to be wasteful spending throughout the budget to include items such as being paid overtime for hours paid instead of hours worked as well as many areas in the budget where department spending continues to rise with little to no explanation.

The common thread among the three "No" votes is that each of these council members studied the budget in detail. They then compared the spending to a "citizen-centric" standard.

Compare their response to that of Council Member Snider. She voiced what appeared to be, a response for the majority:

"I don't mind new ideas. I have a problem with grandiose suggestion coming when we make a motion to pass the budget.  We could have had these conversations earlier and I would invite you to bring these ideas forward but give the council and staff an opportunity to vet these ideas. Let us debate them."

Apparently Snider had not heard Burns' remark that he had brought his ideas forward but that they were never considered. Or Zinkin's comment that the numbers Town Manager Caton had provided at the prior council meeting had been misleading. Or had not considered Garner's and Zinkin's educated evaluation of the salary study.

More to follow on Snider's response will follow in a future posting: "Management By Happenstance" or "Who Runs Oro Valley?"
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(Because of the holiday this week, we will post our regular Tuesday feature, "Heather's Corner",  tomorrow.)
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John's Place: "Predicting Oro Valley's Financial Future"

Town Finance Director Stacey Lemos presented a 5-year financial forecast of revenue and expenditures will be for Oro Valley to town council on May 7.  Council Meeting.

5-Year Operating Fund Forecast

A financial forecast is a prediction.  Those who prepare it try to identify the underlying factors (assumptions) that might influence the forecast.

Let's use the operating fund as an example.

The operating fund forecast shows major change in 2014-15.  This is because of the tremendous increase in spending as will likely be approved by council on May 21.  After that, spending and expenditure change modestly.

Lemos made a number of revenue and expenditure assumptions in making this forecast. Regarding the General Fund receipts, "The forecast reflects continued economic growth," according to Lemos. Specifically:

• Local sales tax revenues will grow from between 3% and 4%
• State shared revenues will grow from 1% to 5%.
• Residential contraction will be from 200-300 permits per year, peaking in 2015-16;
• Construction permit revenues will be stable at $350,000; and
• There will be no annexations.

Regarding General Fund spending

• Salary increases will be 4%-5% per year
• Minimal growth in new positions
• Pension increases growing to up to 2% per year
• No change in health benefit costs
• Operating and maintenance costs to remain flat
• Some spending for capital improvements, up to $2.5 million per year

Forecasting methods incorporate intuitive judgments, opinions and subjective probability estimates.  So, really, one can agree or disagree with Lemos' assumptions.

Still, risk and uncertainty are central to forecasting and prediction. It is generally considered good practice to indicate the degree of uncertainty attaching to forecasts. This is referred to as forecast error.

We did not hear any discussion of forecast error in the 5 year projections. Forecast error is the difference between the actual or real and the predicted or forecast value. Regardless of the underlying supporting assumptions the forecast will always be wrong. Only time will tell. No one accurately predicted the national recession we have been going through for the last 6 years.

Could it be that the 5 year financial forecast was an attempt to support increased baseline spending in the Town Manager's Recommended Budget for every future year, because it certainly does include extremely high levels of salary increases.

Even Oro Valley resident Bill Adler, who frequently advocates for a property tax, stated at the meeting: "It is clear from the graphs that the future is tenuous. We're not going to achieve any significant surpluses. It is clear from the projections. So, I don't know where the money is going to come from to continue improving the town."
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Oro Valley Town Council Majority-4 Approve Massive Increase In Oro Valley Spending Cap

Oro Valley's Majority-4 town council members voted to approve the largest budget cap in Oro Valley history. It is $107.1 million.  It is 14% greater than last year's budget.   The "yes" voice votes of Mayor Hiremath and Council Members Hornat, Snider and Waters were registered at last week's council meeting.  Council Members Burns, Garner and Zinkin voted against this cap.

We have previously written regarding this budget.

Caton Chart Understates Proposed Wage Costs By $2.9 Million

There was little new information presented at the council meeting.  A chart presented by Town Manager Caton did not include the substantial increases in earnings per person for Oro Valley employees.  The chart (right) understates the 2014-15 personnel cost by $2.9 million.

According to this chart, as revised for the understated budget dollar amount,  direct pay per employee was $67,352 in 2008-09.  It is $80,117 in the 2014-15 budget.  That is an increase of almost 20% in an economy where wages have been stagnant, even decreasing during those years.

During the "public hearing" portion of the meeting,  Oro Valley resident John Musolf voiced his concern that this budget is outrageous.  He entered into public record some of what he had wrote in John's Place, last Wednesday.

Oro Valley resident Bill Adler has frequently advocated for an additional revenue source for the town.  During the hearing he said he was pleased with the relative health of the town. "It is clear from the graphs that the future is tenuous.  We're not going to achieve any significant surpluses. It is clear from the projections. So, I don't know where the money is going to come from to continue improving the town."

Generally at council meeting, Council Member Waters makes the motions to approve something and Council Member Snider second the motion. For this discussion, the roles were reversed.  Was this because Council Member Waters appeared overwhelmed during the night's proceedings.  "Must be a product of my getting up at 5 am" he joked at one point.  At 9:06 pm, Waters quickly arose to second a Council Member Snider motion to approve the cap.

After making this motion, Council Member Snider celebrated the budget:  "I think this budget shows innovation... I want to thank the staff... I think that this is a great budget. We are the envy of the State. We have a balanced budget with a slight surplus. It is nimble enough to allow us to adapt to changing conditions."

Two other views of this budget cap were presented.

Mayor Hiremath feels that this budget presents strategic spending at a time when the country remains in a recession.  The Mayor does not believe that the money should be returned to the public as a "dividend", such as reducing or eliminating the utility tax.  Rather, Oro Valley should spend this money on more services.

Council Member Zinkin, on the other hand, considers the budget to be overspending, ramifications of which will last well into the future.  Watch their remarks.

Tell us what you think.  Do you think the budget represents wise strategic investments or do you think it represents overspending?
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John's Place: "Roll Out The Oro Valley Pork Barrel"

The FY2014/2015 Town Manager’s Recommended Budget (TMRB) will be reviewed and voted on at the Town Council Meeting tonight. There will also be a public hearing on it.  It will be the only time the public will have any input into what is an Oro Valley record-setting spending budget.

The TMRB has a quote from Oro Valley Town Manager Greg Caton: “The demands of the organization continue to evolve as the Town sees significant signs of economic recovery.” (Source: TMRB Caton Transmittal Letter, page 1 Paragraph 3)

What a change four months makes!

In January 2014, Oro Valley Economic Development Manager Amanda Jacobs said: "The economy is beginning to recover. But we have not fully recovered. And we won’t in the next year.” According to a University of Arizona economist, she noted, ..."the recovery remains painfully slow by historical standards."

At that meeting, Oro Valley Mayor Hiremath voiced his opinion on the economy, concurring with AmandaJacobs: "We are nowhere close as a nation or close as a town to being out of this recession. So though we may have substantial growth over a prior year, it is a relative issue based on pre-recession times."

Yet, despite these stated economic assumptions, the Oro Valley town manager has proposed a budget that sets record spending levels, levels far in excess of anything ever proposed.

We've gone through the TMRB. We've read the Oro Valley town council "study session" briefings. We've concluded that this spending level is outrageous. In fact, it is outright dangerous in that it establishes a baseline of spending that will be impossible to reduce.

You want some examples of "outrageous"?  We'll give you some examples of "outrageous."

• "The Town Manager’s Recommended Budget for fiscal year 2014/15 in the amount of $107.1 million" is "a $13.2 million, or 14.1% increase from the Adopted FY 2013/14 Budget totaling $93.9 million." (Source: TMRB Transmittal Letter).  A 14% increase is, in and of itself, outrageous.
• Employee Compensation is usually based on productivity increases, not across the board rewards. The TMRB includes $1.5 million of increased employee compensation.  The basis for this is a flawed "comparative compensation market study" conducted by a Dallas-based consulting firm, of which we have previously reported. 
• United Health Care and the town's insurance broker are recommending an increase in premiums to fund expected costs in the Town's self-insurance fund. A 7% premium increase has been included in the TMRB for both employee and employer contributions.  The TMRB document does not show the dollar-value of this expenditure. There is no discussion in the TMRB about the potential effect of or cost of the Affordable Care Act. 
• The TMRB includes moving to a self-funded model for dental insurance coverage. Once again, the TMRB document does not show the dollar-value of this expenditure. 
• The TMRB plans for an on-site health and wellness clinic that would start in January 2015 and be available for employees and dependents covered through town health insurance. The investment in an on­ site health clinic has been funded in the TMRB at approximately $76,000, of which $15,000 is for one-time start-up costs. There are study details that have been given to the public. There was a first presentation made at the April 23, 2014 Budget Study Session by a vendor for on-site health clinics. 
• The current year budget FY2013/2014 for Development and Infrastructure Services Department included funding for contract personnel to assist with the General Plan Update. As a result, one full-time, temporary senior planner and two part-time, temporary office assistants were hired to fill this need. These positions have been included in the TMRB. They are temporary and will be eliminated when the General Plan Update is complete. The TMRB document does not show the dollar-value of this expenditure.
• The Aquatics Center has added a few additional part-time, non-benefited facility attendants, shift leaders and lifeguards in order to staff this facility. These additional positions have been included in the TMRB.  The TMRB document does not show the dollar-value of this expenditure
• The Water Utility added one 19-hour per week (non-benefited) customer service representative. The TMRB document does not show the dollar-value of this expenditure
• The TMRB plans for a police evidence facility.   In the 2013/2014 budget, $350,000 was set aside for initial planning ($30,000) and land acquisition ($320,000).  In the TMRB, $200,000 is recommended for the design of the facility. The TMRB identifies $2.5 million as a placeholder to construct the facility.  The police chief based his need for an evidence facility on an internal police staff study that the public has never seen.   Is the Town investing significant funds without extensive evaluation of the need?
• $200,000 has been included in the TMRB for improving the safety of the the Tangerine and First Avenue/Rancho Vistoso intersection. What safety measures are to be undertaken? 
• The Town operates and maintains the street lights in Sun City Vistoso.  In order to fix electric deterioration issues, an amount of $200,000 will be spent in each of the next three years budgets to rewire the circuits ($600,000 in total). Why does Sun City Vistoso receive this budget money from the Town? 
• The TMRB includes replacing seven (7) marked police vehicles; one (1) general administration vehicle; four (4) trucks combined for DIS operations, facility maintenance and inspection and compliance divisions; field groomer and truck for Parks and Recreation, and matching funds for ten (10) grant-funded Transit vehicles at a total budgeted cost of $964,800. The Water Utility Fund will replace two (2) vehicles per the replacement schedule at a budgeted cost of $85,000. Vehicle replacement is usually based on a projected useful life (such as wearing out in 5, 7, 10 years) which is not the same as based on the usage of the equipment. Has a useful life evaluation been done? 
• An interim parking and circulation road have been included in the TMRB for the aquatic center at a cost of $184,000.  Has a traffic study been done to support the parking improvements related to pool usage? 
• Oro Valley has committed piecemeal spending of $2.3 million for a dog park and 2 multi-sport fields in Naranja Park and $40,000 in FY2013/2014 for a Naranja Master Plan update.  The TMRB includes the Naranja Master Plan update continuation at another $40,000. Also, the TMRB budgets $250,000 for a restroom at Naranja Park.  Why the piecemeal spending before the Naranja Master Plan update is finished in 2015? 
• Funding is included in the TMRB to increase the frequency of the Oro Valley Vista Newsletter from quarterly to an abbreviated, bi-monthly printed publication to be mailed out with Water Utility bills. There is no estimate of expenditures.  Why do we need this publication more frequently.  Most people don't read it now.

(Source: FY2014/2015 Town Manager’s Recommended Budget-Caton Transmittal Letter)

Those are a few of the items that we have identified.
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It's pork barrel spending time in Oro Valley.

We don't like it.

Do you?
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John's Place: $14 Million Town of Oro Valley Police Budget “Aint” Enough!

We think there's a new credo in Oro Valley finances. Its called: "No dollar goes unspent."

Here's another source of funds, one that is called "Anti-Racketeering Funds (State and Federal)" for The Oro Valley Police Department to drain.

Federal Guidelines and Arizona Revised Statutes strictly regulate the use of Anti-Racketeering funds (a.k.a. asset forfeiture or seizure funds). Seizure funds may be utilized to fund departmental “necessities” that are not funded through the approved Town Budget.

In the April 9, 2014 Oro Valley Council Budget Study Session Police Chief Danny Sharp stated that there was $209,000 Anti-Racketing Funds (a.k.a. asset forfeiture or seizure funds) available to “backfill” three officers on task force assignments.

On April 23, 2014, Lt. Chris Olson, Oro Valley Police, was quoted in an article “Oro Valley Police Switch to Victory Motorcycles” This, from an article in the local advertising circular: “Olson said the first annual payment for the GOHS bike and the $3000-per-motorcycle warranties for all the bikes would not come out of the town’s general fund, but rather would be paid for through asset forfeiture funds (a.k.a. seizure funds)”.

It sounds like Chief Sharp and Lt. Olson have found some “necessities” for the Police Department to be able to use the asset forfeiture or seizure funds that the town could not fund.

This is the "no dollar gets unspent" program.

One small note! Seizure funds can be used with the approval of the Pima County Attorney’s Office. There was a change in the law that says the Use of Seizure Funds may have to be paid back if the case concerning the Seized Funds is dismissed. This might take months or years to be resolved and should be shown as a potential liability to be paid back.

When is enough, enough?

What do you think?

If anyone wants to learn more about “seizure funds” there is an article that explains what they are and how seizure funds are gathered.
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John's Place: Goodies For Everyone....Except You And Me

The general fund is the one that pays for the running of the town. This general fund (operating fund) represents the bulk of revenue and spending by the town to run our police department, parks, the development portion of our Development and Infrastructure Department as well most other town department services such as finance and town clerk.

The 2014-14 town manager recommended general fund spend is approximately $32.3 million. This is an increase of about $4.0 million from this year. That’s 14%.

A Budget For The Employees

There is $1.5 million to increase employee compensation and to add staff positions. The FY 2014/15 recommended budget includes funding for step and merit pay increases for police employees. This added $500,000 one-time adjustment proposed by the Memo of Understanding (MOU-Union Contract) is a 6% increase in pay.

The FY 2014/15 recommended budget includes $1.1 million to implement the market study adjustments and related benefit costs. We’ve already opined that this study is bogus. Any recommended increase based on this study is, therefore, not valid.

Other increased benefit spending includes:

• Spending for a self-funded model for dental insurance coverage;
• A modest increase in premiums to fund expected costs in the Town's self-insurance fund; and 
• An on-site health clinic. 

More Goodies Galore

There are also goodies for various departments and some constituencies:

• $200,000 for each of the next three years to rewire the circuits for street lights in Sun City Vistoso. 
• $200,000 for safety measure improvements to the Tangerine and First Avenue/Rancho Vistoso intersection. 
• $964,800 for replacing seven (7) marked police vehicles ; one (1) general administration vehicle; four (4) trucks; a field groomer and matching funds for ten (10) grant-funded Transit.
• $200,000 to design a police evidence facility. In 2015/16, an amount of $2.5 million has been identified to construct the facility. 
• $233,000 for computer. 

A Call For Fiscal Prudence

“Spending” seems to be the credo of the town when projected increased windfall revenues appear all at once.  It might be more fiscally prudent to avoid immediate spending and put some more in the “rainy day (contingent fund)”

We wonder why the town manager didn’t recommend using the windfall revenue to eliminate the utility tax on the citizens? This is the same tax the Majority-4 doubled to fund shortfalls when they first came to office.  They were supposed to give it back. They never did.

How about getting input from the citizens on where to spend their money?
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Does Oro Valley Government "Want It Both Ways?"

The most key assumption underlying a budget is the assumption about the economy.  In this case, is the Oro Valley economy robust or is it still recovering from the recession?

Oro Valley's Town Manager Caton's proposed 2014-15 budget most certainly assumes a robust economy.  Caton presents a budget that projects robust revenue growth.   His plan is to spend it all.   As our colleague John Musolf posted Monday, Caton plans a diminimus increase in the contingency fund.  Caton is not going to put aside funds for a rainy day in 2014-15.  No.  Caton wants the town to spend virtually all of the revenue increase, an increase of 14% over prior year.

This assumption of a robust Oro Valley economy is in stark contrast to that presented to council at the regular session meeting January 15. Oro Valley Economic Develop Manager, Amanda Jabobs observed:

"The economy is beginning to recover. But we have not fully recovered. And we won’t in the next year.”  According to a UA economist, she noted, the recovery remains painfully slow by historical standards."  (January 15, 2014 Item 8 discussion.)

Jacobs reports to Town Manger Caton.  Certainly, he must have reviewed and approved such an important comment.

At that same meeting,  Oro Valley Mayor Hiremath voiced his opinion on the economy, concurring with Jacobs:

"We are no where close as a nation or close as a town to being out of this recession. So though we may have substantial growth over a prior year, it is a relative issue based on pre recsssion times." (January 15, 2014 Item 8 discussion.)

So, we ask, what has changed so dramatically in the past 3 months to cause the town manager to assume a robust economy?  Because, for all we see, which includes a jobless recovery, a continued rock bottom interest rate policy that has failed to stimulate investment, and a now stuttering stock market, the recovery, if there is one, is very tepid and very fragile.  

Is the economy still in recession as the mayor and the town economic development manager asserted three months ago in support of extending a temporary A-Frame permission for 2 years?  Or during this three-month period has the economy radically changed allowing the town to spend a substantial increase in forecasted revenue? Is it possible that the projected revenue increase is a mirage?  Much of it is from economy-sensitive construction fees. These are one-time revenues.

If indeed the economy has recovered, then there was no need to extend the A-frame policy in January.  Mayor Hiremath asserted that it was precisely because there was a slow recovery that this "special favor" be granted to business.

If, on the other hand, the Oro Valley economy is in recession, as Hiremath and Jacobs asserted in January,  then a 14% increase in spending is fiscally irresponsible.

If, indeed, Mayor Hiremath agrees with this extensive spending increase, then he should recommend that the temporary A-Frame policy be rescinded.  He should also recommend giving the community back the doubling of the utility tax he championed in 2010.  After all, in order to agree to a 14% spending increase he would most certainly have to acknowledge that there is no longer a recession; thus, the A-Frame sign relief and the double utility taxes are no longer needed.

Mayor Hiremath has not publicly opined on the budget.  Will he support such massive increased spending or will he advise caution, as his remarks in January would indicate?  We shall see.

In the meantime, it appears to us that we are witnessing a situation in which town government assumes one set of economic assumptions to serve one purpose and then a opposite set to achieve another purpose.  Perhaps they "want it both ways."
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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.
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Oro Valley Town Manager To Recommend 14% Budget Increase

Oro Valley Town Manager Greg Caton will unveil his town recommended budget for 2014-15 at tonight's Oro Valley council meeting.  He will unveil a budget of $107.1 million. This is a 14.1% increase.  The recommended general fund budget increase is 8%.

The basis of the recommendation is a set of robust expectation of revenues.  For example, general fund revenue projections are expected increase almost $4 million, a 13.8% increase.   Anticipated sales tax revenue increases are 67% of this. This increased is from anticipated new construction and increase retail activity.  An RTA budget reimbursement of $1.3 million is anticipated, further bolstering expected revenues.

Spending on employees will increase dramatically if this budget is implemented.  Salary adjustments and step increases total $1.4 million. This increase becomes a permanent cost to the town, forming a baseline for future wage and salary increases.  

The salary adjustments are based on a "compensation market study" conducted by a Dallas-based consulting firm that compared Oro Valley town wages to those of major Maricopa County towns. Most of these towns are several times larger than Oro Valley.   These salary increases plus the rich benefits package will make Oro Valley a better place to work, compensation-wise, than at a private sector company.  Does this make sense to you?

The recommended budget also anticipates an increase in bed tax funds of about 20% and a 20% increase in water utility revenues.

Despite these robust projections, the contingency fund is anticipated to remain at about $10 million.  The current majority on council has reduced the contingency fund several times in the past 4 years, reducing it to its current level of about $9.6 million.

The budget does not seem to consider the nature of the "windfall" in construction fees.  They are one-time in nature.   As the town learned in 2010, bad times" follow "good times." It is more fiscally conservative to anticipate and save for those bad times than to spend what appear to be projected windfall revenues all at once. 

The budget will be vetted at a council study session before it goes to council for formal approval.
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Oro Valley Town Council Considers Police Contract Wednesday

The Oro Valley Police Officer's Association ("OVPOA"), also known as "Town's Public Safety Employee Group" has negotiated  "... a 2-year MOU providing for full implementation of the Town's market study with step ownership on July 1, 2014, and step increases in both FY 2014/2015 and FY 2015/2016. "
(Source: Town Staff Corbin Report)


The Salary Scales Are Based On A Possibly Flawed Market Study

The "town's market study" is a study that compares Oro Valley employee salaries and wages in communities that are almost 3 times the size of Oro Valley. They are in Maricopa County.  That study concluded that Oro Valley employees are not paid comparable to these communities.

"The only new costs associated with this MOU are the proposed changes to the Police Pay Structure which were recommended by the Waters Consulting Group after they conducted the market study. The one-time cost of implementing the structure is approximately $500,000 and will be a part of the recommended 2014-2015 budget."

The $500,000 is about 6% of police direct pay personnel costs.

(Oro Valley's police budget for 2014 is $14.1 million. $13.8 million is from the general fund.  This is 48.1% of general fund expenditures.  Total town budget personnel costs are $25.1 million.  $19.7 million are supported by the general fund.  There are 134.1 full time equivalent employees in the police budget.  These employees receive approximately 74% of total budgeted personnel costs of $11.6 million.  So, pay to police employees is about $8.6 million. The added $500,000 one time adjustment proposed by the MOU is a 6% bump in pay.)
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"Insiders" Negotiated The MOU

Four town employees, one of whom is a police commander, negotiated the agreement with four other town employees, who represent the union.

The MOU, which must be approved by council, defines the salaries, terms and conditions of the employment of the police.

Winners and Losers

For the police, reporting to council and then influencing the majority of council through endorsements are the two key ingredients for OVPOA negotiating success.

The OVPOA follows the playbook detailed in the text: "Police Union Power, Politics, and Confrontation in the 21st Century: New Challenges, New Issues."

The book instructs to support friendly candidates and to score incumbents based on how they voted in relation to union related matters.   A "B" or better warrants a continued endorsement.

According to the text, police union candidate support should go beyond endorsements.  The book speaks at length of providing media support to candidates, using PAC money, and providing manpower to a candidate's effort: "The reason firefighters have so much influence... is that they own the yard sign franchise...candidates are getting yard signs printed and, in many cases,  installed by fire fighters."

The book notes that the police department should expect the following:  "When you endorse a candidate... make sure to extract a price. This candidate needs you much more than you need him or her. Get this candidate's binding promise to support the pay raise, next collective bargaining agreement or whatever else is your top issue before you make the endorsement. Then remember to collect on the promise after the election."  (This from page 114 of the text)

Lack Of Independent Negotiation Is The Problem

So, you may ask: "Why is this a problem?" Unions, after all, have using these same tactics for years.  And, they have been successful in doing so.  In addition, it is their right to do so.

We agree.  Lack of independent negotiation is not a problem for the union, of course.  It is also not a problem for a town employee as long as they stand down from challenging the union.  The town's employees involved in the negotiations have good reason to avoid angering the OVPOA.  All they need to do is look to what happened to Town Manager David Andrews in 2010. (Read: Evil Trickster of Oro Valley).

It is a problem for the residents of Oro Valley.

It is a problem because, to this point, there has been group beholden to the people of Oro Valley who are negotiating on their behalf.

Our Analysis: A Sweet Deal For The Cops

That is the role of the town council.  In most instances that would be sufficient to represent the people. Not at this time however.

What will council do Wednesday night?  Here is our surmise:

The Majority-4 on council were endorsed by the OVPOA. They fawn publicly over anything police related.  They gush each time they mention the name of Oro Valley Police Chief Sharp.  They have yet to demonstrate that they will provide a critical eye to police operations and spending.

Only Council Member's Burns, Garner and Zinkin are independent of the police.  They were not endorsed by the police union.  In fact, OVPOA has actively complained against Council Member Zinkin, and has refused to talk with Council Member Burns.

The OVPOA has driven Oro Valley politics for years. It will continue to do so until voters elect council members who do not have the OVPOA "seal of approval."

Wednesday: "An Agreement Rich In Fringe Benefits"
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Building The Oro Valley 2015 Budget Ain't For Sissies

The Town Of Oro Valley is embarking on building its 2015 budget.  It's not going to be easy to do.

On the surface, things look just fine.  Oro Valley's current revenue sources include development fees and sales tax revenues. These are "over budget" so far this year. Spending is a bit under budget.  Faced with this, the council majority-4 voted last month to not consider alternative sources of revenue.

Source: Community Budget Forum 1-16-14

On the surface, that would seem to have been a sound decision.  However, Oro Valley's 5 year financial forecast, created by Town Finance Director Stacey Lemos, forecasts a slight deficit in 3 of the upcoming 5 years (2015, 2017 and 2018). So, things are not quite as "flush" as they might appear. today.

The challenge of town budgeting is that things never stay the same.  The town has very little influence over its revenues once the year begins. Development revenues, for example, ebb and flow based on many factors.  So, the "top line" is locked in.

Oro Valley does have control over its spending.  Spending, however, doesn't stay the same. Employees, for example, want more pay, pay above inflation increases.   Inflation drives up the costs of goods and services.  Some town infrastructure needs replacement.  Some neglected areas, like not over seeding our parks in the winter, need attention.  One-time costs also arise. There are more ideas for spending money than there is money to spend.

In the past 4 years,  Oro Valley has worked through these murky waters, using a combination of fiscal spending restraint, increased fees, a now-permanant 4% utility tax, and the "raiding of funds," like the contingency fund.

But spending pressures are building.

From an ongoing cost perspective, there are two items that could drive additional cost into the operating structure of the town. One is the town's current negotiations of a memorandum of understanding with the Oro Valley Police Officers Association ("OVPOA"). That will likely result in increased spending. The other is an employee compensation study. This study, which will be released in the next several weeks, compares Oro Valley's town staff compensation levels with that of other cities. This study will conclude that Oro Valley staff is paid less than "comparative commuities".

One-time expenditures arise from separate initiatives. They come up during the year as a "surprise" decision that must be made then and there. They are not in the budget.   For example, this year, the council decided to take $1.5 million to build infrastructure and ball fields at the Naranja town site. The funds fore this came from the contingency fund.  Last year the council decided to spend $2 million to bury underground power lines along Oracle and Tangerine roads. The funds were taken from the contingency fund. Two years ago council decided to spend $5 Million to recreate the Oro Valley Aquatic Center. Next year, the town will complete a study of the Naranja Town Site. Who knows what spending will be needed to fund this plan.

Building the Oro Valley 2015 budget ain't for sissies.
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The town manager's recommended budget will be delivered to council on April 2.  The target date for council adopting the budget is May 21.
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Oro Valley Now Negotiating 2-Year Agreement With Police (Employees)

During the creation of the town of Oro Valley, the town privately contracted police services through Rural-Metro. There, fire-fighting, police services, alarm response, and paramedic operations were provided to 1,200 residents by the company Rural/Metro. The contract was agreed to and ran from 1975 through 1977, with a flat yearly fee of $35,000 to be paid to Rural/Metro.

The company (Rural/Metro) agreed to a number of conditions giving the town control over their operation. They agreed to establish a police headquarters in Oro Valley, to keep records according to state guidelines, and to supervise and assume all liability for their employees. The town authorities retained ultimate authority, able to override Rural/Metro if they felt it necessary.

In 1978, Rural/Metro agreed to transfer their policing duties to official town police, with the company reducing its role to the supply of vehicles and equipment.

Notably, when the town authorities took over full provision again, many costs increased. One change was to replace the civilian employees of Rural/Metro with uniformed officers on higher salaries.

For many years, the Fraternal Order Police (FOP) represented the Oro Valley officers in negotiations with the town.   Many Oro Valley officers belonged to both the FOP and the Oro Valley Police Officers Association (OVPOA).

In 2004, the town recognized the OVPOA as the excluding bargaining organization for the police force.  Every year since, the town and the OVPOA negotiated a memorandum of understanding (MOU). This memorandum defines the terms and conditions of the employment of the police.

This changed on May 2, 2012 when the Town Council approved a Memorandum of Understanding (MOU) Resolution 12-23 between Public Safety Employees (Police) and the Town of Oro Valley pursuant to Chapter 4, Section 4-1-8 of the Town Code for two years.

The Memo of Understanding affected two years of the Town Budget (FY2012/2013 and FY 2013/2014). At that time, the OVPOA negotiated an agreement that was, essentially, applied to all town employees. For example:

“As part of fulfilling the Town Council's goal of investing in Town employees, management recommends the reinstatement of the step plan along with a modest merit increase ranging from 2% to 3.5% for non-step plan employees in the second year of the MOU, FY 2013/14.  A similar merit increase would also be recommended for the rest of Town staff not represented by this Memorandum of Understanding during FY 13/14 as well”.   

The Town and the OVPOA are currently in negotiations for a new MOU. It is not known what time period it will cover or what demands will be made. It will certainly affect future budgets.

We will watch what the proposed final agreement will contain and how it will affect the taxpayers of Oro Valley.
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Bits and Pieces

Rancho Vistosos Rich History Detailed In Article

Inside Tucson Business freelance writer Hillary Davis has written an extensive history of Rancho Vistoso. Its worth reading.
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Oro Valley Rated 4th Best Place To Live In Arizona

Oro Valley has been selected 4th of 5 top communities in Arizona by California-based Movoto.com.  Ready why.  Its ranked behind Litchfield Park,Gilbert  and Fountain Hills and ahead of Paradise Valley.  We think were #1! (Source: Email From Movoto.com)
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Your Voice Wants Your Opinion

The most popular ideas expressed by citizens on the yourvoiceov.com web site to date are:

1. Continue to attract young professionals 
2. Stop Building new shopping centers until existing are utilized 
3. Develop a "Downtown" and more Family-Friendly Dining Options 
4. Improve traffic light timing on Oracle and La Canada 
5. Preserve Green Space and Curb Urban Sprawl 
6. Make a plan to complete the Naranja park site

What do you think?  Express your opinion.

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Oro Valley's Fees Are On Par With That Of Neighbors

The town included a chart comporting its not water rates and fees with those of other communities.

Turns out the Oro Valley's fees are comparable to other communities even after increases that will likely take effect in June.
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Oro Valley Gets 2 Bad Guys

...For La Fitness Gym Robberies

This week, the The Oro Valley Police Department arrested Danielle Bratton, a 21-year-old,  as a suspect in the theft of property from lockers at LA Fitness.  Bratton had "... attempted to enter the LA Fitness located at the 9000 block of East Golf Links. The Tucson Police Department (TPD) was contacted by LA Fitness and arrived on scene and took her into custody.

According to an Oro Valley Police Department press release, the Criminal Investigations Unit responded and located several stolen items in her possession from Oro Valley victims.

Apparently, Bratton was booked was on probation.

...For Fradulent Checks

Last Week, the Oro Valley Police Department arrested Randi Hartjen, 31, for passing fraudulent checks, none of which were in her name.  Apparently, Hartjen would go to various stores in Oro Valley, purchasing items with checks.  (Source)

Hartjen gives us a big smile in here arrest photo.  We guess that she's happy that she'll be in the slammer where she can get 3-squares and some companionship.  Good luck Randi: "Let a smile be your umbrella.'
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Funny Thing

Pima County Sheriff Deputy Anthony Doran is being investigated by the department for "heavy petting" while on duty.  "It was a poor decision on my part.” "He knew it was against department rules, Doran told investigators."  He got that right. (Source)
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Oro Valley Will Not Consider New Taxes

The town of Oro Valley will not look at alternative revenue sources this fiscal year. That decision was opined by the Oro Valley Town Council last Wednesday by a vote of 5 to 2.

The item was asked to be considered by the two dissenting council members, Garner and Zinkin. They requested this discussion because the strategic plan, a plan that has been referred to by the town manager as critical to the implementation of the General Plan, called for consideration of alternative revenue sources.  What Garner and Zinkin wanted was a special study session where projections of spending and revenue sources for the next 5, perhaps 10 years would be discussed.

Those council members who disagreed with considering alternative sources at this time did so on the basis that the town does not know what additional revenue requirements it has and that, therefore, there is no basis to use to consider alternative sources. Council Member Snider summed this position noting that the town should look at alternative sources when it determines what is financial needs are for the next fiscal year.

Snider is not entirely correct.  The town does know that it needs additional revenues over the next 4 of the next 6 years.  The town's general fund forecasts show a deficit in 2014, 2016 and 2017.  The highway fund forecast is for a deficit in 5 of the next 6 years.

No new taxes can be created and imposed on the residents of Oro Valley without a vote of the residents. In addition, state law requires that such can be discussed only after a 60-day notice to residents.  Given the timing of the next election, there will be no new forms of taxation this year or for the next several years since, there can be no voting for such until 2016 of the earliest.  In addition, it is highly likely that this discussion will occur once the study of Naranja Town Site is completed and once the  2015 General Plan has been drafted.

Town counsel attorney Kelly Schwab plans to research what can be done to discuss additional revenue sources within the confines of state requirement, perhaps as part of a study session in relation to the 2014 budget.

We have included a video of council's discussion for your review.  Listening time is about 9 minutes.
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