city council budget

The Scottsdale City Council adopted its tentative budget for the next fiscal year on May 19 at its first in-person meeting since the coronavirus pandemic began.

The City of Scottsdale reduced its budget for next year in response to projected revenue shortfalls brought on by the coronavirus pandemic.

At its meeting on May 19, the Scottsdale City Council unanimously adopted a $1.54-billion tentative budget for the fiscal year starting July 1 – $30 million to $40 million less than a budget proposed by staff in April.

It shows a decrease of $18.7 million in general fund sources along with a $13.1-million decrease in overall uses when compared to the budget adopted for the current fiscal year ending June 30.

And it sets the city’s maximum spending limit for the next fiscal year at $1.54 billion. The budget is to be adopted June 16.

The unanimous adoption of the tentative budget stood in stark contrast to meetings over the past few months when some council members chastised staff for projecting too rosy a revenue picture when it suggested around $25 million in cuts earlier in the year.

At the time, some on the Council had been calling for cuts of anywhere between $50 million and $80 million while Councilwoman Linda Milhaven and Councilman Guy Phillips cautioned against making too many cuts.

Both Mayor Jim Lane and Councilwoman Suzanne Klapp, who had called for more cuts, commended staff  this time around and for providing more data to back up revenue projections.

“I appreciate the fact that you have addressed the concerns that we expressed the last time, which was we were concerned about where did these revenue figures come from,” Klapp said.

The bulk of the spending reduction came from the city’s general fund – which pays for most services and programs – and its capital projects budget.

Staff decreased operating expenditures from $610.3 million to $582.1 million, including a drop in general fund expenditures from $296.1 million proposed in April to $277.7 million. The city also reduced capital spending from nearly $724 million to nearly $691 million.

Council also canceled the transfer of  $6 million to the capital budget from the general fund.

The reductions were partially offset by an approximately $23 million increase in the city’s contingencies and reserve budget.

A Council majority first started pushing for increased cuts back in April when it became clear the pandemic would significantly impact city finances.

Sales tax receipts were down 26 percent in March alone compared to the previous year.

 Overall, the new tentative budget projects general fund revenues of $296 million, a 10 percent decrease from projections prior to the COVID-19 crisis.

City Treasurer Jeff Nichols said he anticipates April to be the “bottom” as most restrictions closing businesses were lifted, but the city is still projecting year-over-year sales tax revenue declines over the next 12 months.

Overall, the city is projecting sales tax revenues of $122.6 million – down from the $145.5 million projected in May.

Unsurprisingly, the city projected that hotels and restaurants will be the hardest hit industries over the next year, though it projects declines in sales tax for all industries except utilities and food stores.

The city projected that sales tax generated by hotels and motels will be down 60-75 percent over pre-pandemic projections until at least December, while restaurant sales tax revenues will be down between 40-55 percent during that time.

If revenues come in under those expectations, City Manager Jim Thompson said the city would continue making cuts across departments beyond what is presented in this budget.

Staff could also come back with additional cuts before the city adopts the final budget on June 16 if the revenue data for May shows a steeper decline.

The most significant cut in the general fund came to community services, which saw its budget cut by over $3 million compared to the previous year and reduced by 10 percent from previous spending proposals.

 Police and fire, the two largest chunks of the general fund budget, each saw reductions of 5 percent and 8.5 percent, respectively, from the April proposal.

However, both police and fire still saw their budgets for 2020-21 increase by about $1 million compared to 2019-20.

The public safety increases are mostly due to increases in pension liabilities and new firefighter hires in anticipation of large-scale retirements in the next few years, according to Thompson.

Public works also saw its budget go up by about $1.5 million compared to 2019 as a result of increased custodial services costs under a new contract.

Because personnel costs make up 74 percent of the general fund budget, layoffs and furloughs are likely inevitable.

The city reduced staffing by the equivalent of 78 full-time positions for at least half of the fiscal year, though it did not eliminate all of those jobs entirely.

The tentative budget leaves 44 positions unfunded through at least Jan. 1 and another 15 positions unfunded through July 1, 2021.

The majority of the new positions – 15 – were firefighters or fire engineers.

The eliminated positions include many from community services, including libraries and recreational offerings that were reduced or suspended during the pandemic.

The city also took steps to provide relief for residents during the downturn by removing a proposed increase in the storm water fee and delayed increases of base water rates and fees from July 1 to January 1, 2021. The city also delayed some fees for planning and development services.

The city also nixed a proposed two-percent increase in the city’s primary property tax.

The property tax decrease narrowly passed the Council on a 4-3 vote, with Council members Solange Whitehead, Virginia Korte and Linda Milhaven opposing.

Had the Council left it in place, the overall property tax rate for residents still would have remained the same year-to-year due to an equivalent drop in the secondary property tax rate, which is used to pay off city debt.

The primary and secondary rates combine to create the overall rate.

Whitehead said it was not the right time to cancel the primary property tax hike in the face of funding shortfalls for social services.

“It doesn’t save any of our homeowners a significant amount of money,” Whitehead said. “Property taxes are remaining the same; this is not the time to cut taxes when, as Councilwoman Milhaven said, we have $700,000 that we use for feeding seniors and that we use for rental assistance that might go away.”

 Whitehead also pushed to protect funding for social service programs, including rental assistance and recreation activities for disabled adults.

In response, the Council unanimously supported creating a $6 million contingency fund that could be used for any unforeseen budget shortfalls that arise in the future, including social service programs.

The Council freed up the money by redirecting $6 million in food tax revenues that was to be transferred to the capital budget.

City staff would have to come back to the Council for approval if wanted to spend any of that contingency.

The revised budget will have a significant effect on the amount of money the city projects to have left at the end of the year when all expenses are accounted for, though staff still projects a small general fund reserve will be available.

Prior to the pandemic, the city’s proposed budget showed revenues of $15.6 million over projected expenses in the general fund.

That leftover amount is now down to approximately $2 million, which will go towards the city’s fund balance. That has grown significantly in recent years due to a string of conservative budgets with revenues that far outpaced spending.

The city anticipates it will start fiscal year 2020-2021 with a fund balance of nearly $94 million.

Despite the downturn, it does not appear the city will dip into those funds, which are earmarked for several purposes – including paying down the city’s public safety pension liabilities, funding the city’s operating reserve and reimbursing Nationwide for infrastructure built for the Cavasson development.

About $47 million is reserved to pay down pension liabilities, which the city expects to pay off in 17 years.

The city has funded about 52 percent of police pension liability and has a net liability of over $181 million.

Its fire pension liability is about 93 percent funded, with just $8 million owed, but Thompson warned that number could jump significantly following the expected wave of retirements in coming years.