By Terry Nash — I recently wrote an article for Carl Jackson at Sedona.biz entitled, Sedona – The Future is Now, in which I gave a detailed financial overview of the current and future financial woes Sedona faces due in large part to gross financial mismanagement by current and past City Councils and City Staff.

The City of Sedona fought back through its new City Manager Mr. Tim Ernster. In the course of 10 days there were three public relations articles written in response to my article. The first appeared in Sedona.biz.

The next two articles showed up in the Sedona Red Rock News. In each article, Mr. Ernster was quick to note that my analysis of the City of Sedona’s financial matters was grossly inaccurate and/or purposefully manipulating financial information for some ulterior motive.

Indeed, on at least two occasions he sent e-mails acting in his City Manager’s role, which both cast aspersions and assigned untoward motives to my writings.
When I asked Mr. Carl Jackson the founder and publisher of Sedona.biz if I could rebut Mr. Ernster’s assertion both as to my character and my flawed (only in his perspective) analysis I was told I could not.

When I wrote Mr. Larson, the owner and publisher of the Sedona Red Rock News, asking

for an opportunity to pen an article refuting Mr. Ernster’s claims against me I received no response .

And so it goes. . .

That is the reason I paid Sedona Times for this page and I paid a regal sum. I think what I have to say, you will find interesting and if you pay particular attention, it might save you thousands of dollars a year in new taxes – that is if you get involved!

Now let me begin.

Many of us in the community held high hopes for Mr.Ernster upon his arrival in Sedona as the new City Manager. After his rebuttals to my previous article, Sedona – The Future is Now some of that hope has dimmed.

Noteworthy within his rebuttals were a decided lack of factual data and a recounting of budget history which is inaccurate.

It is important to note that while he states that “a healthy general fund and wastewater reserve (approximately $33 million) exists” he fails to point out that Sedona ranks 5^th in the state for City debt of $65,000,000. 

Sedona’s cash reserves are $3,000 per capita while debt equals nearly $6,000 per capita.

Also it is important to note that this debt was incurred without the benefit of the City owning its own water company and fire department as is the case in the other cities.

He conveniently made no mention of the Capital or Street Funds which have no reserves whatsoever and have been relegated to a pay as you go system.

More importantly, though, there is no mention of balancing the budget nor was there any mention of a ‘no new tax pledge’. 

Instead he mentions raising the sewer fee, which hasn’t been raised for nearly 14 years – that rate is currently $32.54 for a residential user.

Indeed the City of Sedona has already commissioned and received the Final Draft Report of The Waste Water Rate Study for which it paid $42,640 and which is so seriously flawed in both methodology and conclusions that it should be discarded to a paper shredder immediately.

I will address the flawed nature of this study at the end of this article.

Near the end of one the articles he states “The FY 09-10 General Fund operating budget adopted by Council last June was 10.2% less than the FY 08-09 Budget.

This is correct but he failed to mention that the actual FY 08-09 budget figures came in at $11,979,230 and the adopted FY 09-10 budget was adopted at $11,889,294— a net decrease of  a mere $89,936 or ¾ of 1%. 

He also failed to state that the adopted FY 2010 General Fund Budget had ‘BUDGETED RED INK’ of $1,134,209. The Adopted Budget Revenue for the General Fund was $10,755,085 with the Budgeted Red Ink of $1,134,209 ‘balancing the budget’ but paid out of reserves. 

The General Fund actual income will fall into a range well below $9,500,000 perhaps to as low as $9,300,000 from the Budgeted Revenue adopted $10,755,085 or a loss of  least $1,455,000.

 This loss was the direct result of a grossly overly stated revenue projection, which was the result of incompetent and misguided City Staff and a rubber-stamp style City Council.

These revenues comprised 37% of all sales tax, all bed tax collected, shared income tax, sales tax and motor vehicle tax, franchise fees, community development income, municipal court penalties, non-operating interest income from General Fund Reserves, and various in sundry income items.

The adopted FY 2010 General Fund Budgeted expenses were originally $11.9M and the deficit (Budgeted Red Ink) was $1.1M – Revenue $10.8M vs. $11.9M = ($1.1M).

With serious revenue declines throughout the first 4 months of FY 2010, Mr. Ernster did respond in November, 2009 with budget cuts totaling $450,000. 

And, he is due to come to Council on January 27, 2010 with additional “substantial budget cuts” and the aforementioned Wastewater Rate Study, wherein he will propose to raise sewer fees and shift some of the sales tax currently deposited in the Wastewater Fund into the General and Capital Funds.

Since this must go to press before the January 27, 2010 General Council Meeting, I can only speculate about his additional proposed General Fund Budget Cuts.

For the sake of this article, I will presume that he can ‘find’ $1 million in budget cuts through unpaid furlough days and other means. This $1 million savings coupled with the previous mid-year cuts of $450,000 would yield a total savings of approximately $1.5M.

Therefore, the adopted FY 2010 Budgeted Expenses would decline from $11.9M to $10.4M. With a projected actual revenue decline to $9.3M this would produce a deficit of $1.1M and would deplete the General Fund Reserve from current level of $9.2M to approximately $8.1M.

The FY 2010 General Fund Budget projected outcome is not the real problem. The real problem is the FY 2011 General Fund Budget.

A both prudent and conservative estimate of General Fund Revenues for the period July 1, 2010 through June 30, 2011 must out of an ABUNDANCE OF CAUTION be projected to decline by at least another 10%.

Thus the FY 2011 General Fund Revenue must be reduced to a level of $8,400,000 ($9.3M – 10% or $930,000 = $8,370,000). 

As is easily seen and assuming that Mr. Ernster meets his FY 2010 final expense goal of $10.4M, a deficit of $2M would exist in the FY 2011 period.

Thus additional General Fund Budget cuts would have to be implemented in spring of 2010 during the new budget process.

Given the aforementioned concerns I have raised in previous articles, why would the City of Sedona go to such great lengths to write public relation pieces in which they assert they are proactive in this looming budget crisis and cast aspersions as to both my motives and financial competency in City Budget matters? 

I think the answer to that question is simple: It is to divert the attention of our electorate away from the City of Sedona’s dire financial condition by soothing assurances and beneficial certifications before launching their real agenda of proposing new taxes and fees through threats of cutting services.

What is mildly amusing about threatening to cut back on services is that except for the police and sewer we have no services – and it is important to note that 40% of dwellings are not connected to the sewer.

In my opinion the Police Department is a fairly well-run organization financially which could not realistically absorb nor should have to suffer any budget cuts.

So now we come to the Grand Plan – The Panacea -The Great Elixir – for all the years of financial mismanagement –THE WASTEWATER RATE STUDY!

As an alchemist changes a rock into gold, this rate study will free us from out debts and all of our past financial dalliances.

Where do I begin with this “Study?”

City Staff with the blessings of the Council directed CDM Camp Dresser and McKee, Inc., and Mr. Grant Hoag, P.E. to conduct both a rate study (although there is only one table out of 25 Tables that is a Rate Study) and “several utility funding alternatives.”

Essentially The Wastewater Rate Study is nothing more than a financial blueprint for the Wastewater Fund’s remaining attempt at solvency and potentially the solvency of the General and Capital Funds.

The Study lays out three possible financial scenarios all intended to divert sales tax revenue from the Wastewater Fund to the General and Capital Funds (Wastewater Fund now receives 46% of all sales tax revenues approximately $5M in 2010).

It will accomplish this by increasing Sewer Fees 20% a year for several years until they are doubled from $390 a year to $800 a year. 

However, the sewer fee will not begin to increase for two years, a hiatus if you will. But what will begin immediately is a new fee with an amazingly bizarre and convoluted name “CAPACITY STANDBY CHARGE.”

Let me cut to the chase. Realtors, investors, and tourists who might want to move here will love this — this is a sewer fee which vacant land owners pay now and forever until they build even though they are not connected to the sewer – that is the reason they call it a Standby Charge – you standby with no connected sewer service and watch your $23.50 per month or $282 per year go down a figurative drain.  

Then once you decide to build,  the Sewer connect fee will have increased from $5,150 to $7,669 and by then you’ll be paying an actual sewer fee for your ERU (Equivalent Residential Unit), which by then will have escalated to $800 per year.

According to the other 24 Detailed Tables in this report sometime within 5 and 10 years all or part of the sales tax revenue, which had been flowing into the Wastewater Fund, will flow into all the other depleted Funds and we will be set financially free.

In my review of these tables as to assumptions about future cash flows and Wastewater Utility Income it became painfully obvious that all of the Sales Tax Revenue Projections were seriously flawed.

In Table 4,  the FY 2010 sales tax was overstated nearly $1,000,000; in the period FY 2011 sales tax declines were 4% when they have been routinely ran at above 10% this year; in the periods FY 2012 and FY 2013 sales tax declines were only -1%.

The result of all these seriously flawed revenue projections is that an overstatement of revenue well in excess of $5,000,000 occurs over a ten-year period.

As Mr. Hoag, P.E., the author of this Study,  so dutifully and prudently points out, all the data on sales tax, plant operations and maintenance expenses were supplied by City Staff.

Mr. Hoag also gives the City notice that it still has to implement the Standby Capacity Charge, which is the cornerstone of this Study.

Of course it must be enacted by law and then collected from undeveloped (land) property owners using a ‘billing and collecting mechanism.”

A third serious flaw is found contained within Table 8 The Wastewater Capital Improvement Program for the period FY 2010 through FY 2020.

This Table reflects Capital Improvement Programs only through FY 2014.   From the Period FY 2015 – FY 2020 no Capital Improvements are listed, only Projected Replacement Projects which are non-specific as to the project and averaging only $2,000,000 per year, which is far less than previous years.

In conclusion, this Study, which provides three financial scenarios, projects that with a doubling of fees by FY 2018, the imposition of a new sewer fee (Capacity Standby Charge) on vacant land, a 50% increase in Sewer Connect fees, will be able to achieve on the average a cut in sales tax subsidies to the Waste Water Fund of 50% of the $5 million currently deposited into the Fund.

Further, it reduces the Wastewater Fund Reserve balances to $6,000,000 at the end of FY 2016, where it is projected to remain through FY 2020. 

However, as stated in the previous paragraph the Wastewater Capital Improvement Program is essentially not projected after FY 2014. 

Therefore, it can be concluded that this Study has relevancy only through FY 2014, if at all, given the serious flaws I have pointed out earlier in this article.

What are the chances this flawed study will ever be implemented with the New Standby Capacity Charge as its lynchpin?

I think given the onerous financial impact it will have on property owners throughout the City, that it would be difficult if not impossible for it to be accepted and passed given any form of public outcry.

The typical residential user would find it be difficult to accept such rate increases given the fact that both Cottonwood and Flagstaff have already existing sewer rates lower than Sedona’s current rate, let alone new increased rates.

We have now come full circle in this article. The real question all along was: Why is Sedona not better off financially and tittering on the brink of financial collapse?

There is one simple answer – just old-fashioned Arizona Style Cronyism.  It pervades Sedona.

I recently reviewed the City salary structure – $80,000 to $150,000 plus salaries abound. The Chamber of Commerce, which receives over $600,000 as a direct payment from the City pays out over $530,000 in salaries.

I recently asked the Sedona Chamber of Commerce to supply me with salary information for its personnel.

So far it has been unwilling to supply that information in spite of the fact the City of Sedona funds 40% of the Chamber’s annual revenues.

Over two years ago, when I started this quest to understand the City Budget and delve into the issues of the staggering debt Sedona carries, I had no knowledge that the economy would falter.

Because of that fact alone we are now at a crossroads in Sedona’s future.

In the interests of all citizens the City of Sedona must acknowledge fully the financial dilemma we face and work in a truthful and direct way to solve the problems without resorting to greater taxation and financing gimmicks as it has in the past.

Why can’t we aspire to greater heights and move forward in diversifying our economy?  Perhaps we can plan for a convention center, modernize our airport, convert the Wastewater Plant to solar and potable water, and even install a Solar and Wind Turbine farm on its adjoining property.

If planned correctly we could create a business environment which would thrive. 

Perhaps on the same property as the Solar and Wind Turbine Farm we could interest research firms to establish facilities.

There are many examples we can learn from – seventy percent of Aspen’s energy consumption is supplied by solar power. Aspen has less debt than Sedona and yet operates all the public utilities and has an abundance of high-tech and alternative energy research facilities. 

Durango, Colorado is a model for a diversified economy blending mid-size businesses while embracing and cherishing Tourism.

Each of these Cities is known throughout the world for the Festivals they have created.

Why can’t Sedona do the same? 

These are simply a few ideas to put Sedona back on the road to the future.  There are hundreds if not thousands more ideas and I would be willing to bet that each of you as readers of this article could add dozens of your own.

Well, if you’ve gotten all the way through this article, and if you are perhaps taken aback by my description of what the City of Sedona has become, you’ll do something about it at the ballot box. 

It is imperative that we elect Councilors who have vision and dedication in leading us away from the ways of old and into a 21^st Century filled with promise.   

I fear that if business as usual continues in Sedona we can expect an outcome which will surely be a “bitter and inevitable conclusion to the tawdry financial life of Sedona.”