Sandy Faces Potential Multi-Million Dollar Deficit by 2020
Jan 26, 2016 03:40PM
By Stacy Nielsen
Sandy - Sandy City Council and administration are planning now for what can potentially be approximately a $2.8 million deficit by the year 2020. The potential shortfalls are illustrated in a new “Long Term Financial Analysis” completed by Sandy’s finance department and presented to the city in November 2015 by Brian Kelley, the finance department director.
“Sandy City for many years has planned and budgeted using a ‘this year-next year’ approach. The long term financial analysis is intended to allow the council and administration to take a longer view, see the varying revenue and service level scenarios, and better anticipate when a financial pinch may be coming. It is a tool allowing a proactive response to potential future revenue reductions or changes in services,” Councilmember Steve Smith said, as the start of the new year means the budget is on the agenda.
The analysis includes a 10-year projection for the city’s general fund and demonstrates how decisions potentially affect its future fiscal position. Budget discussions started when the city council attended a workshop in December of last year, and as they attended a formal budget retreat the fourth weekend of January.
The projections cover a range of scenarios in order to help the city determine the best strategic response. In each of these scenarios, gaps between revenues and expenses emerge beginning in fiscal year 2018 and increase from there.
State law prohibits the city from approving a budget where the total revenues don’t equal the total expenditures. (Sections 10-6-110, U.C.A. and 10-6-117, U.C.A.). As a result, Sandy City must balance all budgets annually with the total anticipated revenues equaling total expenditures. Utah state law allows cities to accumulate fund balances as appropriate in any fund to help meet future needs. However, the law limits balances in the general fund.
“In city budgeting, there are just two ways to balance a budget: increase revenues or reduce expenses. Sandy has worked very hard over the years to keep expenses as low as possible. However, the cost to deliver services and the need to replace or increase capacity will soon overwhelm the available resources. The quandary facing the council and administration is whether to bite the bullet and endure the pain now, or to kick the can down the road to future years and hope it can be dealt with then,” Smith said.
“It’s all hypothetical, but a painful process and seeing how big the gap is and how much has to be done,” Kelley said.
The first scenario projections in the long-term financial analysis are based on the actual historical trends from the fiscal years 2006 to 2015 with appropriate adjustments made for outliers in the trends. The revenue assumptions include a 1.5 percent annual average increase in total revenues, consisting of a 1.2 percent average increase in property tax, 1.6 percent increase in sales tax, 1 percent increase in franchise tax and 3.3 percent increase in charges for services.
The expense assumptions are based on an average 2.3 percent average increase in total expenses, which includes a 2.8 percent average annual increase in personnel expenses (pay and benefits), and 1 percent average annual increase in material and supplies expenses, with other expenses also included and no new debt issued.
The second scenario anticipates outcomes with staffing and service level expansion requests while utilizing the same assumptions as scenario one with some revenue and expense adjustments that can be found in the completed fiscal analysis.
The third scenario projections continue from scenario two based on projected new growth and the potential for an economic downturn. Revenue assumptions include a 1.6 percent average annual increase in total revenues, a 1 percent annual increase in property tax is projected except in fiscal years 2019 and 2020.
Also included in the revenue assumptions is a 2.1 percent average annual increase in sales tax, with more rapid economic growth in fiscal years 2017 and 2018 and recession like conditions and a decrease in building-permits growth during fiscal years 2019 and 2020. The expense assumptions consider a 2.9 percent average annual increase in total expenses and 3.6 percent average annual increase in personnel expenses, with department requests delayed in fiscal years 2019 and 2020 until fiscal years 2021 and 2022.
The fourth scenario builds on scenario three and projects a balanced budget with expansion requests and other significant items included in the scenario. Among those are property tax increases in fiscal years 2017, 2019, 2021 and 2023; a new franchise tax on sewer in fiscal year 2022, sales tax assumptions based on growth, an annual increase in charges for services, and general fund transfers to capital projects decreased in the fiscal year 2023 and also fiscal year 2026.
“We need to be proactive in growing our revenues, or limit our expansion and find ways to do more with less,” Kelley said when he first presented the analysis.
Strategies cited to address fiscal imbalances include: property tax increases, legislative measures, franchise tax on sewer services, tax on media streaming, (the implementation of) the Remote Transaction Parity Act or Marketplace Fairness Act, changes to development and zoning policies, also limiting staff and service level expansion and reducing the number and scope of capital projects.
“As we wrestle with the city’s finances, we try to act responsibly and consider the effects this year, next year, and several years in the future. The reality we see evidenced in the long term financial analysis is that some near term pain is probably necessary to maintain the city’s financial strength, and to lay the groundwork to address future needs,” Smith said.
The Long Term Financial Analysis is available online at: http://sandy.utah.gov/fileadmin/downloads/city_council/packets/2015/xa111715.agn.packet.pdf