Jessica Cejnar / Wednesday, June 24 @ 3:07 p.m. / Community, Local Government
Crescent City Council Adopts "Phase 1" Budget Amid Ongoing COVID-19 Concerns
Crescent City Councilors adopted a budget Monday that included several cuts — such as leaving the Fred Endert Municipal Pool closed — and net deficits in all major funds.
Finance Director Linda Leaver asked Councilors to think of the 2020-21 budget as it stood on Monday as “Phase 1.” Revenue projections continue to be uncertain, she said. Much depends on how long it takes from the economy to recover from the COVID-19 emergency.
Leaver told Councilors to expect updates about every two months with the first coming in July. The first proposed budget change will likely come before the Council at the second meeting in August, she said.
The state is also expected to do their first budget amendment in August, Leaver said.
“A lot is based around when the economy recovers,” Leaver said, referring to revenue projections. “When consumer spending gets back to normal and how long that will take, and how long it will take for travel to get back to normal.”
After cutting $500,000 to try to heal a $650,000 shortfall the pandemic created for the 2019-20 fiscal year, Councilors were left with a 2020-21 budget shortfall of $800,000. According to Leaver, the city expects projected revenues of $4.8 million in the general fund for 2020-21 and expenditures of $5.6 million.
In addition to keeping the swimming pool closed — which will save the city $370,000 a year — expenses related to travel and training, the Sister City, ordinance updates, equipment replacement and the implementation of Crescent City Fire & Rescue’s master plan have been removed from the budget, Leaver said.
Parts and supplies and contract services expenses have been reduced to the “bare bones.” Maintenance and capital improvement projects will be deferred unless they’re paid for by grants, Leaver said. The city is also not budgeting its payment for the Public Employees Retirement System and will not pay for legal services for code enforcement unless it’s funded through Community Development Block Grant dollars. The city has also not budgeted for second K9 officer this year, Leaver said.
Seasonal park maintenance employees will stay through the end of September, though they're not budgeted for after that, Leaver said. The deputy fire chief position and a part-time recreation lead position, both of which are vacant, have also been removed from the budget, she said.
Though employee furloughs aren’t included in this Phase 1 budget, that is something that may be discussed in the future if it’s needed, Leaver said. If there is funding available to pay for these program and positions, they will be brought back before the City Council for approval on a case-by-case basis, she said.
According to Leaver, expenses that will carry over from the current fiscal year to the 2020-21 fiscal year include the alarm for the city fire station; countywide polling for a potential public safety sales tax measure; completion of the Crescent City’s new website; and projects that were authorized and budgeted for but haven’t yet been finished.
“The proposed budget will be a further reduction of $791,000,” Leaver said. “If all that was spent that would leave us with a fund balance of just over $300,000 with another budgeto-to-actual difference of another $300,000, which is fairly typical. That would leave us at about $600,000. Obviously, that’s not where we want to be. It is well below our (reserve) target of 25 percent. But this is, again, just Phase 1.”
The budget deficit is fueled by a decrease in sales tax and transient occupancy tax, which the city imposes on guests staying at lodging facilities within its boundaries. Each tax makes up about 25 percent of the revenue to the general fund.
For the 2020-21 fiscal year, which starts July 1, revenue from sales tax is projected to drop 11 percent, reducing the amount from $1.5 million for the 2019-20 fiscal year to $1.4 million in 2020-21, Leaver told the Council at a June 8 budget workshop.
Revenue from transient occupancy taxes was expected to decrease by 16 percent, Leaver told Councilors on June 8. Crescent City is projected to receive $806,287 in transient occupancy tax revenue for 2020-21, Leaver said June 8. Before the pandemic, the city was projected to receive $1.47 million.
On June 8, Leaver said TOT revenue is flexible. She said she expects a gradual increase as hotels, vacation rentals, RV parks and other lodging facilities welcome travelers again.
On Monday, Leaver told Councilors staff will continue to evaluate revenues and provide updates throughout the year.
“If revenue projections improve — revenues go toward increasing the fund balance — it may allow us to add in additional expenses,” she said. “One thing that’s very important to a lot of people in the community, the Council and staff, is reopening the pool. However, if revenue projections don’t improve we will need to look at making additional cuts.”
Leaver also went through the city’s other major funds, which include the Housing Authority, the water and sewer funds and Shoreline RV Park.
With revenues at a projected $3.79 million and operating expenditures at $3.88 million, the Housing Authority is expected to have a net deficit of $84,196, according to the staff report.
Funded through the U.S. Department of Housing and Urban Development, or HUD, the Housing Authority assists an average of 564 families a month with housing vouchers.
The Housing Authority received additional money from the U.S. Department of Housing and Urban Development to offset impacts from the COVID-19 emergency, Leaver said. Much of those dollars have been spent providing additional services to residents and enabling better social distancing in the office, she said.
Shoreline RV Park, the water and sewer funds are the city’s three enterprise funds. The RV park completely relies on travel for its revenues and they’re currently projected to be about 50 percent of normal — about $189,000, Leaver said. Operating expenditures are about $300,000 for a deficit of $117,000 for 2020-21, she said.
“We’re monitoring the reservations and what’s happening with the projected occupancy of the RV park and we hope to come back with an improved revenue outlook,” she said. “We have a working capital of about $138,000 that’s projected at the end of this year. If revenues are only 50 percent of normal that’ll bring the working capital down to about $20,000, which is not where we want to be, but we’ll be monitoring it closely and updating (you).”
The sewer fund budget includes an estimate that revenues will decrease by about 20 percent due to businesses being closed and reopening slowly from the COVID-19 emergency, Leaver said. Operating expenditures are budgeted at $3.4 million, she said. This includes transfers into the capital improvement fund of $450,000 as well as carry-over of unspent money for capital improvement projects. The sewer fund shows a projected net deficit of $1.8 million, she said.
Though working capital has increased over the last few years due to large projects that need to be finished, Leaver said long-term projections show a structural deficit in the sewer fund.
Crescent City began using a contractor, Jacobs Engineering, to operate the wastewater treatment plant earlier in 2019-20, Leaver said. Staff also plan to “analyze options” for the laboratory, update a long-term capital improvement plan and conduct a rate study.
Working capital in the sewer fund was $6.3 million. The city is projecting $5.9 million in working capital at the end of the fiscal year with an ending balance of just over $4 million if everything in the budget is spent, Leaver said.
The water fund is also projected to receive 20 percent less in revenue, which equates to about $2.4 million, Leaver said. Operating expenses for 2020-21 are projected to be $2.2 million with some carryover of unspent capital improvement dollars and a debt service payment into the fund, she said.
However, though the water fund is projected to experience a net deficit of roughly $729,000, it has enough working capital to complete its capital improvement projects without grant dollars, Leaver said. It currently as $2.5 million in working capital and is projected to have $2.3 million at the end of this fiscal year. At the end of next year, if its budget is spent, the water fund will have $1.6 million in working capital, according to Leaver.
Before Leaver gave her presentation, City Manager Eric Wier reminded Councilors that they dealt with some tough decisions.
“This isn’t a typical budget that we’re going to adopt at this time of year and not visit again until mid-year,” Wier said. “This budget is one that’s going to come back to the Council from time to time as we know more. We’ll be able to make more informed decisions and we’ll make those decisions as early as possible.”
After he and his colleagues unanimously adopted the 2020-21 budget, Crescent City Mayor Blake Inscore thanked city staff.
“I express my appreciation to Ms. Leaver and Mr. Wier for trying to give us the very best information possible in what are very uncertain times,” he said. “I appreciate all the hard work that’s gone into this budget and, not only that, the hard work ahead to try to manage this budget.”