Town of Oro Valley's Financial Situation Strong Entering 2021

Good Financial Times Prevailed in fiscal 2021

Oro Valley completed fiscal 2020 with strong financial results. This according to a discussion that town staff will hold with the town's finance and budget commission tomorrow.

“The Town has thus far successfully navigated the challenges posed by the COVID-19 pandemic” according to Oro Valley Finance Director David Gephart and Town Manager Mary Jacobs. “Financial performance across all funds has exceeded expectations," according to a town memorandum that was provided to the town’s Budget and Finance Commission. (Source: "Memo")

Revenues were strong

"...especially for single-family residential permits and construction sales taxes due to a strong housing market, as well as retail and online sales tax collections. There are also indications of improvement in restaurant/bar and bed tax collections.” In addition, the town received federal CARES Act and American Rescue Plan Act funds "ARPA". These totaled $13.5 million, more than $8 million over budget. The town is due some additional ARPA funds this fiscal year.

Fund balances increased

Other highlights provided to the commission include: 

• The General Fund, the fund that finances town operations, had a surplus of almost $15 million, increasing the fund balance to $36 million. This happened because of the stronger than anticipated sales tax revenues and permit fee revenue;
• General Fund expenditures of $42 million were $2.6 million less than budget; 
• Highway Fund Revenues totaled approximately $3.8 million or 102.1% of budget, while expenditures only totaled $3.4 million or 86.8% of budget; and
• The Community Center Fund outperformed the budget. Revenues were $500,000 over plan while expenditures were $1.1 million under plan. 

Municipal Golf Cash Flow a $700,000 deficit.. far better results than expected

Golf operations are part of the community center fund. Total reported losses were $373,000 less than budget. This is because gross income from golf operations exceeded plan by almost $600,000.  Financial performance was boosted from a substantial increase in green fees and and an increase in monthly dues. These two items were $753,000 more than the budgeted amount. In addition, underspending was driven by the town not doing the golf course irrigation project. This happened because bids to replace the irrigation far exceeded planned spending.

Oro Valley Weathers The Financial Storm.... So Far

Council discusses 2020 year end results tonight

Tonight, town council will hear the unaudited financial results of three of the towns funds for the year ended 2020: The General Fund, the community center fund and the Highway Fund. Results have been uncertain because of the unknown financial impact of the pandemic.  It appears the town has weathered the storm.

General Fund Balance Increased to $21.4 million

The general fund pays for all of the town's administrative functions and the police department. It is the fund that would be most impacted by the pandemic since sales tax collections are about half of total general fund revenues.  Year end balance is expected to increase by $1.8 million from the beginning of the year to $21.4 million.

(Click image to enlarge)

General Fund revenues 6% over budget

The town took measures early in March to slow spending and freeze hiring. The objective was to 
"hunker down" and be prepared for the worst. That game plan worked through the end of the year. The total estimated year end was 6% over budget, totaling $41.7 million.  Local sales tax revenues and interest income exceeded budget by $2.5 million. Inter-government funds and charges for services were $800,000 under budget.

General Fund spending 5% under budget

Total General Fund spending was $39.9 million. This was $2.1 (5%) million under budget. Spending in all departments except for legal were under budget. The Police and the Parks and Recreation Departments spent $1.2 million less than budget.

Community Center essentially on budget

Community Center revenue was $175,000 less than budget. Spending was $285,000 less than plan. The center received sales tax subsidy of $2.9 million. This amount is far more than the $750,000 sales tax subsidy target that was set by the town council last November. That subsidy level is to be achieved by 2023.  Golf revenues and membership fees were 9% over budget. Most other revenue sources were under budget because the Community Center has been closed since March.

Highway Fund slightly over budget
"In the Highway Fund, total actual revenues for the year came in over budget by approximately $272,000 or 7.2%. Expenditures for the year were under budget by roughly $12,000 or 0.3%. Overall, the Highway Fund ended the year with a decrease in fund balance of $53,343 (note that the planned budgeted decrease in fund balance was $337,241) (source)

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Oro Valley Parks and Recreation Operations Span Many Activities at Net Cost of $5million

The Town of Oro Valley is preparing a 2020 Parks and Recreation Master Plan. LOVE is publishing a series of articles about the plan. This article presents some background information on the town’s current Parks and Recreation status.
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Total Parks and Recreation 2020 net spending: $5million
The town has budgeted approximately $5 million in net spending for Parks and Recreation. This number is after applying an estimated $3.5 million in anticipated user fees. (The amount does not include the half cent sales tax levy for golf and the community center.)

Golf and the Community Center grab almost half the budget
The town’s 47 holes of golf and the community center require 44% of total net spending. There are two full courses and one that is Ka 9 hole course (Pusch Ridge). This last course is in the process of closing.

Parks Management of site trails and parks provides something for everyone
The town maintains trails and parks at a cost of $1.1 million

Source: Town of Oro Valley 2020 Budget
(Click to enlarge)

• Canada Del Oro Riverfront Park (30 acres)
• CDO Shared Use Path (4 mile paved path)
• James D. Kriegh Park (20 acres)
• Honey Bee Canyon Park (77 acres)
• Naranja Park (213 acres)
• West Lambert Lane Park (40 acres of hiking)

Parks management has fewer than 10 people in the budget. The facilities are in constant upgrade mode. For example, work is set to start on a playground for Naranja Park. The town is seeking your input on this.

The Aquatic Center is a major community draw
The Aquatic Center is adjacent to Kreigh Park on Concordia.  That pool was a given to the town by the County along with Kreigh Park. In 2012, the town invested $6.5 million to renew it. The
Aquatic Center is the host for many swimming events, bringing in swimmers and swim teams from throughout the southwest. It is known and respected throughout the swim community. The Aquatic Center is truly a visitor draw. And, given all that, it is a bargain of net spending of a bit over $700,000 in 2020.

Recreation and Culture brings our town together
Recreation and culture is ”...responsible for providing recreational programs, activities, classes, hikes, and special events for all ages, as well as ball field management and contracts. It is also responsible for management of all town historic and cultural properties, such as Steam Pump Ranch” (page 178 Oro Valley 2020 Budget).  This year the town plans net spending of about $300,000 in this area. That’s 6% of the budget

All this requires Administration
The remainder of the budget, 13% of total net spending, is for administration of the department. The department has four full time personnel. Spending on personnel is about two thirds of the budget. The remainder is on operations and management. The cost of the 2020 Parks and Recreation Master plan study is included in these operations and management expenses.

The town will be doing a complete inventory of all facilities as part of the master plan study.

After Six Years Of Funding Neglect, Public Safety Is On The Front Burner

Lack of public safety funding support during Hiremath years
Last week, Chief Daniel Sharp of the Oro Valley Police Department said that he felt that the town needed 4 additional police positions in fiscal 2020 (Begins July 1) and four more for fiscal 2021. The 2020 recommended budget submitted by Town Manager Mary Jacobs does not include these four positions.

Sharp states that there has been police understaffing for years
Speaking at last week's Town Council Study Session, Sharp said: "We knew there was going to be a point at which we were not going to be able to continue [being short positions]; and we’ve deferred [adding positions] every year. As I signaled last year, we aren’t going to be able to defer [adding positions] any more unless there is going to be a cut in service…. We’ve been band-aiding. This is the year [we need more police]. I tried to defer as long as I could. We’ve started slipping faster in the last few months that I even anticipated....we didn’t have enough officers to dispatch..” (Town Council Study Session of May 8, 2019: 1:16-1:17 minute mark)

Astounding but true
LOVE researched police department staffing over time. The chart that follows confirms that police positions have not been added during the past six years (2013-2019). The budget for these years was determined by former Mayor Hiremath and his council majority.

Double Click On This Chart To  Expand To Full View

Hiremath started his tenure by reducing police staffing from 135 to 125 in his first two years as Mayor. These are years in which current Council Member Solomon served. In 2011, the council doubled the Utility Tax from 2% to 4% to pay for police. This provided about $1.4 million in added funding. According to then Council Member Joe Hornat: "...1 percentage point...is worth $720,000 to the town." (source).

The added utility tax funds did boost police staffing. By 2013, police staffing had increased to about 132 positions.  Since then, however, police staffing has been relatively flat. It was even reduced in 2016, the first full year of town ownership of the El Conquistador Country Club.

The result: Six years, from 2013 to 2019, of approximately the same level of police staffing.  

It's up to Council, not the Town Manager, to properly assess and fund our public safety needs
In 2010, the Hiremath Council voted to have the police department report to council and not to the Town Manager. Town Manager Jacobs plays an advisory oversight role when it comes to the budget for the police department. The police department budget that she submitted this April is her budget. It is not the budget of any member of this council.

It's the responsibility of the Council to listen to the Chief, as they did last week, to truly understand the needs of the public safety. Council should meet again with him, meet without the hoopla of political rhetoric demonstrated at last week's budget study session. Indeed, it may be time to catch up on years of public safety neglect on the part of Hiremath Council.

Guns or Butter? Golf or Cops?
Where should the funds come from to support new public safety positions? The decision is easy. The funds should come from the Community Center/Restaurant/Golf Course budget. That endeavor is a complete luxury. Public Safety is not a luxury.

There is no other place we can see it coming from.

The town must start to property fund its pension lability to ensure that we keep our promise of retirement for our employees. The town should not jeopardize our excellent roads by taking funding from the highway department. The town should not take this money from needed parks for our children. They are, after all, our future. We can't take it from a necessity like our water department, a department that will likely be successful tomorrow in raising rates to cover its costs.

The council can and should fund the public safety needs of 43,000 residents over the needs of 200 users of the town owned country club.

It's time to get real. The town cannot do everything on everyone's wish list.

Now is when the "rubber meets the road."
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Jacobs Presents A "Tricky Budget"

Transparency lost
Town manager Mary Jacobs presented a solution to the substantial losses incurred by the town owned community center and 45-hole country club: Bury the losses.  Bury them so deep that they can't be easily identified.

Thus, the 2019-2020 town manager recommended budget doesn't include a separate community center fund, as it has in prior years. Rather, this "fund" is proposed by her to be buried in the general fund, commingled forever in the parks and rec budget, where detail of revenue and spending will not be reported.

This allows the town to take the half cent sales tax, "...previously deposited into the community center fund, now goes into the general fund as a whole." (source: Town Manager presentations to council, 4-17-19). Thus, we will never see that money returned to us through a reduction the sales tax back to pre-country club days.

Are you kidding? Budget includes $6 million in golf course bonding
It is beyond our understand as to why Jacobs budget includes the $6 million in bonding that the prior council approved for capital improvements to the town owned country club and Community Center.

Bonding did not occur last year because the prior council was sufficiently savvy to realize that the public does not want to go into debt to pay for parks and recreation. Council figured this out after the town rejected, through vote, council's earlier attempt fund Naranja Park improvements through bond funding. Their attempt to go around the will of the people by putting bonding for golf course improvements in last year's budget was duly noted in their sound defeat at the polls.

Can't compare this year' budget to last year
Jacobs also used a reporting trick. Instead of reporting the budget in the same manner as last year, which includes full disclosure of fund balances, as required by state law; she elected to present only the operating portion of the budget, and not the balances of the funds themselves. Or, at least we think that's what she did, but we can't be sure!

This reporting allows her to state that her 2019-2020 town manger recommended operating budget is $107.5 million.  Last year, the budget was $143 million. But, like we said, we can't compare the numbers.

Jacobs moved ahead with major accounting and reporting changes without Council approval.
Rather than presenting her recommendations for accounting and reporting changes for council to consider, Jacobs chose to include these changes in her recommendation.

Transparency and comparability matter
Transparency in numbers and the ability to compare one year to the past are principles of financial` reporting. Rather than follow the principles, Jacobs chose to present a budget that is less transparent and more confusing.

More importantly, we think: Burying the enormous financial problem presented by the town owned country club and community center is simply wrong.

We do hope that the new Budget and Finance Committee and Town Council see through these accounting and reporting ploys. We want more transparency when it comes to all town activities; not less.
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2019 Budget Starts With Your Input Tonight

Tonight, the town is holding a forum for residents to attend to identify, consider and discuss strategic issues facing Oro Valley. It is a meeting to prepare for the 2019-20 budget. The meeting is from 6 to 7:30 p.m. at the Oro Valley Public Library Adler Meeting Room. You can learn more about the session here.

According to Town Manager Mary Jacobs, this location was selected with purpose: To get people into an environment where creative thinking is encouraged.

And, for those of us who knew Bill Adler, Jacobs could not have chosen a more appropriate location.

Patrick Ibara, founder and lead partner of the Mejorando Group, will facilitate this meeting. He is Glendale-based consultancy that specializes in serving state and local government. He was selected by town manager Jacobs to facilitate the strategic leadership planning process because Jacobs wanted to bring in someone who had no "skin in the game."

Input gathered from this and other meetings will supplement the guidance provided by the 2016 voter approved General Plan. According to Ibara's proposal, the council can really benefit from current perspective and information from the community.

We agree. There are issues that weren't considered when the general plan was created, such as:

• Potential water restrictions from CAP starting in 2020
• Continuing and growing losses from the town run country club and Overlook Restaurant
• The impact on town sales revenues from a shift in retail sales from "brick and mortar" to online
• The impact of annexation on Oro Valley resources
• Oro Valley's quality of life reduction now and in the future that will result from previous extensive general plan and zoning amendments
• Extensive growth in Oro Valley's spending

"The council, especially this council, could benefit from hearing what residents think are the hot issues," noted Town Manager Jacobs.

Ibara's job is to "...get out of the council their priorities for the next 2 years."

Jacobs has implemented strategic planning in her previous town positions in Barnstable, MA and Sierra Vista. Initially, "there was some push back [to strategic planning] in Sierra Vista. Now they wouldn't do without it."

The strategic plan is designed to have a two year shelf life, providing guidance to town staff on priorities. This is important "... so that the budget requests for the next 2 years will reflect what it is that the council wants to accomplish over the next 2 years. That's staffing resources and financial resources as well."

Jacobs hopes that, as a result of this process, "...the council will come to a consensus on the top priorities from an outcome perspective... not the how... the what do you want to achieve. So I know where to steer the ship. It's not appropriate for me to make assumptions on the direction of this council. I want to be sure that when I bring a budget forward in April, they can say: 'Yes. They heard us.'"
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Oro Valley Town Manager Received Significant Compensation Bump After Election

The defeated majority on town council and current carry-over members, Solomon, Rodman, and Pina, significantly enriched the compensation package of town manager, Mary Jacobs. On September 5, a week after the council majority lost the election, they awarded Jacobs:

• An annual compensation increase of 12.5%, to an annual salary of $180,000
• A 100%, $5,000 increase in the town's contribution to her retirement plan 
• An increase of 5 vacation days to 27 vacation days per year
• A grant of 7 months severance pay if she is terminated for other than cause

Town manager's is Southern Arizona receive compensation similar to Jacobs: 

• Siera Vista:   $138,000
• Sahuarita:     $181,000
• Marana:        $200,000
• Tucson:         $210,000

       (Source)

We believe that these changes in compensation are based on the council's assessment of Jacob's job performance. Generally, a change in compensation at this level would indicate that her job performance was superior.

Jacob's compensation increase embeds more spending in Oro Valley's budget. This, at a time when the reliability of ongoing sales tax revenues, the town's mainstay source of operating revenue, is suspect.

According to her contract, the council was obligated to make a reasonable effort to evaluate Ms. Jacobs within 30 days of her one year anniversary, which was September 5, 2017. We do no know if they could have deferred a final decision on her compensation to the incoming council.
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Empty Storefronts, More To Come Means Bad News For Oro Valley

Stores closed=lost sales tax revenue
The Hallmark Store in Rooney Ranch closed. The for-profit Oro Valley Senior Center in the same mall closed. Dick's Sporting Goods in the Oro Valley Marketplace closed.  And lets' not forget the long shuttered Radio Shack store in Rooney Ranch. These are destination stores. They draw customers specifically to go to their stores. Other retailers in the area benefit from the traffic flow. Now such destination stores are gone. And with them, the sales tax revenue they directly and indirectly generate.

More store closings to come=future lost sales tax revenues
Mattress Firm has filed for bankruptcy. It plans to close several hundred stores. There four Mattress Firms stores close together in Oro Valley. According to the company, stores that are close together eat their sales of their other stores.  Thus, they are closing stores. Certainly, at least 2 of these stores will close.

Oro Valley lives off sales tax revenues
Empty storefronts mean lost sales tax revenue.  Sales tax revenues are the town's most significant revenue source.  Sales tax revenues are 50% of total Town Of Oro Valley general fund revenues.These funds pay for most of the town's administration cost, for most of the cost of Oro Valley's police, for some public works and parks and recreation costs. A loss of sales tax revenues is a big deal.

Reflect on 2010's budget crisis, when spending outpaced revenue
We saw what a decrease in sales tax revenues can do to a community that depends on sales tax revenues but is unprepared for the potential consequences of less, and not more revenue.

This is what happened in Oro Valley in 2008-2010.

The town council could not bring themselves to reduce spending to balance the budget, a budget deficiency caused by what was laughingly called a 'depression.' The council was replaced by the voters in 2010.

The spending challenge today is more complex than in 2010
Oro Valley's spending has ballooned to $143 million from $92 million in just 8 years. Spending has far outpaced population growth. Today, online shopping plays a major role in reducing store traffic. People now use "point and click" shopping for purchasing all kinds of merchandise, including groceries. Fortunately for Oro Valley, online sales are taxed and the revenues are supposed to come to the town (information request on this is pending with the town). This use is rapidly accelerating.  This was not happening in 2010.

The train of Oro Valley spending has a huge head of steam. And, it's rolling down the tracks. 
The potential of decreasing sales tax revenues presents a huge challenge to our council when they face the 2019-2020 budget process, which starts in February.

The council challenge will be to slow the train of spending down a bit; to prepare the town for whatever sales tax revenue scenarios might emerge; and to steer the train of spending in the right direction.

This will be hard to do.

Some of the spending is embedded in the "community center."

Some of the spending is embedded in the way the town operates. Entitlement has crept into Oro Valley's administration with automatic pay increases, free health services, and self-insurance programs. Separate pay negotiations and agreements exist between a major element of town services and the town.

It's complicated.

It will be up to the new council to simplify the complicated.
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