Sedona AZ (June 27, 2012) - In speaking with my friends and neighbors about our city’s financial condition, I have encountered opinions that range everywhere between “the city is soon to be bankrupt” to “the city has too much money in reserve funds and should pay off our indebtedness”. It isn’t that the opinions are wrong; it is that just looking at individual pieces of the city’s financial picture can lead the lay person to different conclusions.
The City of Sedona has a current outstanding debt of $56 million and spends over $6 million every year in debt service. This indebtedness will be completely retired in 2027. The city currently has over $41 million in total reserve funds that includes wastewater plant capital improvements. The city has $12 million in General Fund reserves, approximately 100% of our annual general fund expenditure budget.
Every year in May, the Sedona City Council is required to approve the next year’s city budget, which is the legal cap on the amount of money the city may legally spend. The budget cap must be set high enough to allow the city to take advantage of receiving and spending unanticipated grants and other possible funds for specific acquisitions and projects that are paid by outside sources. If the grant opportunities cause the city to exceed the legal cap, those grant funds cannot be accepted and used.
Last year the City budget was $34.3 million and the total amount expended is anticipated to be $36.4 million. Next year’s budget was approved last month at $37 million. Despite the ongoing economic difficulties, your city council decided it was prudent and beneficial to the city to spend $2 million of our savings surplus next year to accelerate the city’s storm water drainage plan and city street improvements.
The City’s bond funded capital improvement projects for the wastewater system varies widely from year to year: This causes the city’s annual expenditures to fluctuate between $28 million and $38 million between FY 2006 and FY 2009. In the past, the city’ budget was set artificially high. For example, the FY 2008 budget was approved at $61 million while only $28 million was actually expended. Under our new City Manager, Tim Ernster, who joined the city in 2009, our city budget much more realistically reflects the real anticipated costs of running the city every year.
These facts are all true.
So, how is the average lay person supposed to make any sensible conclusion about the city’s financial health? The simple answer is that you can’t without a thorough understanding of the Governmental Accounting Standards Board (GASB) rules that governs our accounting practices, and a degree in accounting wouldn’t hurt either.
Since being elected to the City Council, I have suggested that the city publish three simple numbers at the end of each fiscal year that I believe would give the average person a pretty clear picture of our city’s financial health. We all deal with these three numbers when looking at our household finances: net income, net expenses and net savings.
For the City of Sedona, net income are funds from tax receipts and state revenue sharing – excluded are grants for specific purchases, earmarked state funds (gasoline taxes designated for roads for example), and proceeds from bonds. Net expenses would include all operating expenses and debt service but excludes bond funded capital improvements. Net savings would be limited to unencumbered cash on hand excluding earmarked reserves from bond sales and wastewater capital improvements.
The following are the net income, net expenses and net savings for the city for the past, current and projected next fiscal year. The estimated numbers for FY 2011-12 are based on a closing date of June 30, 2012:
FY 2010-11 FY 2011-12 FY 2012-13
Net Income $12.3 million $12.0 million $13.7 million
Net Expenses $10.8 million $12.1 million $20.4 million
Net Savings $20.5 million $20.9 million $13.7 million
I sincerely hope that you will keep these three numbers in the back of your mind so that the next time someone says to you the city is broke or the city has too much unspent money stashed away, you would be able to credibly offer a correction to that statement. In the future, the City of Sedona plans on publishing these three numbers quarterly to keep the public apprised of the city’s ongoing financial health.
I want to thank our Assistant City Manager, Karen Daines, for providing the City’s accounting information for this article. The views that I, Mike Ward, am expressing are my personal opinions and not necessarily the opinion or position of the City of Sedona or the City Council.
This SedonaEye.com article was submitted by the City of Sedona.