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Joyce Clark Unfiltered

For "the rest of the story"

Disclaimer: The comments in this blog are my personal opinion and may or may not reflect an adopted position of the city of Glendale and its city council.

For the next 6 weeks or so, the city council will be focused on Glendale’s budget. There will be a series of workshops devoted to it. The first one was held on March 7, 2017 and reviewed revenue projections, sources of the city’s revenues and the areas in which those revenues are spent. Keep in mind, per state law, Glendale and every other municipality must adopt a balanced annual budget. What does that mean?  That means the total of the city’s expenses must be shown to be covered by the revenues it receives.

There are 2 parts to the city’s budget: its General Fund budget and the Enterprise Funds’ budgets. The General Fund budget covers all expenses incurred by the city except for: Water, Sewer, Sanitation and Landfill. These 4 areas are called Enterprise Funds and they get their revenues from rate payers or users.

The pot of money for the General Fund has 2 components: all revenues and a fund balance (a rainy day fund). The money is paid out to 5 areas: expenditures, operating costs, the Capital Improvement Plan, our debt payments and a contingency fund. Except for debt payments which are a fixed cost, the other 4 areas compete against one another for the available money.

Where does the city get its money? From 5 sources:                                                                          

  • Sales tax                        44%                    
  • State shared revenue      26%                   
  • Other                             17%                  
  • Transfers In                    11%
  • Property Tax                     2%

There is one special note about the sales tax the city collects and that is, it no longer manages or collects it. A year or two ago, the state legislature, in its wisdom, mandated that it would collect every city’s sales tax and distribute those funds collected to each city. Now Glendale has to pay the state nearly half a million dollars to collect its sales tax…a new expense that Glendale never had before. To add insult to injury, this program rolled out completely in January of this year, 2017. To date, the state has only collected and dispersed approximately 66% of the money Glendale itself usually collected. I contend that in addition to our regular budget planning for next year, the city should be planning an alternate budget in case the worst happens and it does not receive all of the sales tax from the state to which it is entitled.  

There’s also another gimmick the state uses and that is with regard to state shared revenue. The largest component is state shared income tax. Every year we pay income tax to the state but cities do not get their share the following year. Instead the cities are paid two years later. That means the income tax you pay this year for 2016 won’t be seen by the cities until 2018. Think of the interest the state makes on millions and millions of dollars in income tax for that extra year until they disperse the money to the cities. 

There are no certain figures for expenses within the General Fund budget for this year as we are in the process of crafting this year’s budget. In last year’s Fiscal 2016-17 General Fund budget, here were the areas of expense:

  • Police department                43%
  • Fire department                   22%
  • Other                                  16%
  • Non-departmental                  9%
  • Public Facilities, Rec & Events  6%
  • Public Works                          4%

Note that 65% of the city’s money goes to pay for Police and Fire. When you see the city’s total budget of approximately $500 million remember that only a portion of that is the General Fund Budget (should be an estimated $200 million).  The remainder (an estimated $300 million) is either Enterprise Funds or other special funds, such as the dedicated public safety sales tax or the transportation sales tax and as dedicated funds, cannot be used for any other purpose, such as the General Fund.

Out of a General Fund budget of approx. $200 million, 65% or approx. $130 million is for Public Safety (Police and Fire). That leaves about $70 million in the General Fund to pay for operating expenses (examples: all other employees’ salaries and benefits; our debt payments and our Capital Improvement Plan). Over half of the remaining $70 million (approx. $45 million a year) goes to pay the city’s debt service. That leaves us with an annual General Fund budget of $25 million a year.

As you can see, the city’s annual budget and the processes to create it are pretty complicated. It’s all in the numbers and a basic understanding of what numbers go where.

In Part 2 of Glendale’s budget 101 we will look at the proposed Capital Improvement Program or CIP. This is the budget portion that will be discussed by city council on Tuesday, March 21, 2017 at its 9 AM workshop. This will be televised live on Cox’s cable channel 11.

© Joyce Clark, 2017          

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such material. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

It has been 17 years and 191 days since the city’s pledge to build the West Branch Library.

A political committee, registered in Glendale, Glendale First! is sponsoring the recall of up to 4 June30-GlendaleFirst-Amendedcurrent Glendale city councilmembers: Vice Mayor Hugh, Councilmember Turner and Councilmember Tolmachoff (they have yet to pull a recall packet on Councilmember Aldama). These 4 councilmembers, along with Mayor Jerry Weiers, voted to cancel the Glendale arena’s lease management agreement with IceArizona.

On their website they say, “It is the opinion of Glendale First! that the recent actions of the Glendale City Council regarding their vote to cancel the arena management agreement with IceArizona (the Arizona Coyotes) was hasty, ill-conceived, politically motivated, and fiscally irresponsible.” They are angry about council’s action and for them it’s payback time. Revenge is a heck of a reason to mount recall elections. This is reason #1 and it is the major reason.

Obviously reason #1 for the recalls will not play well with Glendale’s residents and so, reason #2 is Glendale First’s accusation that these councilmembers did not support public safety. By public safety, don’t be confused – Glendale First! is referring exclusively to the Glendale Fire Department and more specifically the Glendale chapter of the fire union.

The Glendale police unions made it clear that they did not share Glendale First’s allegation. Justin Harris, president of the Glendale Law Enforcement Association, spoke at a recent city council meeting and recognized and thanked the city council for its continuing support of public safety. Then the Glendale Law Enforcement Association and the Glendale Fraternal Order of Police ran an ad publicly supporting the councilmembers under threat of Glendale First’s recall effort. As an aside, another ad was taken out by all of the opponents who ran against the sitting councilmembers in the last election. Their ad also supported these members of the city council and their vote to cancel the contract. Obviously the men and women of the Glendale Police Department did not support the allegations of Glendale First! – but the Glendale Fire Union did.

Make no mistake, the fire union wants more money and appears to have partnered with Glendale First! to try to make that happen. Their argument for more money rests on their claim of deteriorating fire department response times. Yet the former Glendale Fire Chief publicly stated the department’s response times have remained constant over the past five years. The fire department is accredited and their response time is one of the major criterions for successfully acquiring that accreditation.

The recent history of the fire department demonstrates the fire union’s tremenous influence within the department. During former Mayor Scruggs’ tenure she allied herself with John Holland, former president of the local fire union chapter. Because of her support of Holland and his union Glendale’s fire chiefs were reluctant to oppose the union’s desires and demands. The union grew in power and strength until today it virtually runs the fire department. It will be extremely difficult if not downright impossible for any Fire Chief, including Interim Fire Chief DeChant, to put the fire union genie back in the bottle. Yet that is what must be done to get the fire department back on track placing the needs of its citizens first.

So reason #2 of non support by council of public safety didn’t fly either. That led to reason #3 and their newest allegation, Glendale First! feels the City Council acted inappropriately when it reclassified the inter-fund advances used to fund payments to the NHL, essentially removing that nearly $40M liability from the City balance sheet with the stroke of a pen and a vote for the budget. In effect, what had been a loan from several enterprise funds was made to disappear with no requirement for repayment.”

Has that money and the promise to repay the Enterprise Funds disappeared as Glendale First! contends? No, it has not. Here is the real story as Paul Harvey would say. In 2011 and 2012 in an effort to keep the Coyotes in Glendale, city council agreed to the NHL demand of a payment of $25 million a year. Funds to make the NHL payments were borrowed from the Enterprise Funds and were recorded on Glendale’s ledger as long-term borrowing and became new debt owed to: Water & Sewer, Landfill and Sanitation. It added even more debt to Glendale’s bottom line and was recognized as such by the bond rating companies. They considered this debt as another long term liability for the city.

The action city council took was to approve renaming this debt from the term “inter-fund advance” to “inter–fund transfer.” It’s no more than an accounting trick. By renaming this debt it had the accounting effect of removing it as a debt (even though it still exists as a debt) which in turn, satisfied the bond rating companies and provided them with a rationale to raise Glendale’s bond rating profile. They did not dismiss their obligation to pay this debt.

Is the debt still there and is it being paid off? You bet it is. At a recent April, 2015 workshop Councilmember Tolmachoff asked to bring forward a resolution to make the General Fund FY 2015-16 Inter fund transfer July 11, 2015inter-fund transfers to the Enterprise Funds part of the budget process each year. It resulted in a City council approved Resolution 4943 New Series on May 26, 2015 making the inter-fund transfers to the Enterprise Funds permanent. Each year the city council will decide what the monetary amount of the inter-fund transfer to the Enterprise Funds will be. This Fiscal Year, 2015-16, the amount of the inter-fund transfer to the Enterprise Funds approved by the city council located on page iv within this year’s budget is in the amount of $600,000.

Glendale First’s reason #3 against these councilmembers which was that they had made the loan from the Enterprise Funds vanish is simply not accurate. The money did not disappear nor did the city’s commitment to repay the Enterprise Funds. It appears as if Glendale First! will have to get creative and come up with a new reason for recall of the councilmembers.

We can strike Glendale First’s reason #2 of council’s non support of public safety.

We can strike Glendale First’s reason #3 of council’s action to make money disappear.

That leaves Glendale First! with only publicly stated reason #1 left – the council cancelled the Coyotes contract.

© Joyce Clark, 2015

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

It has been 17 years and 96 days since the city’s pledge to build the West Branch Library.

On March 25, 2015 the Glendale Star ran a story on the elimination of the city’s General Fund debt payable to the city’s Enterprise Funds (water, sewer, sanitation and landfill). Here is the link:  http://www.glendalestar.com/news/article_4fd7f4dc-d181-11e4-b56b-93c81bbb5cc5.html .

In an effort to buy additional time to secure a buyer for the NHL Coyotes who would pledge to keep the team at Glendale’s Gila River Arena, a previous city council approved borrowing $15 million from the city’s water and sewer funds, $40 million from its landfill fund and $5 million from its sanitation fund. The revenue was used to pay the NHL to manage the arena for two years while the process of finding a team buyer continued. At the time council also approved a repayment plan, using General Fund revenue to pay the Enterprise Funds back with interest. It was a solemn pledge and a commitment that the previous council never anticipated future councils would renege upon. The unthinkable is about to occur. At a recent workshop following the recommendation of Tom Duensing, Glendale’s Finance Director, a majority of council plans to do exactly that.

When Councilmember Tolmachoff asked what would be the consequences of such an action, Duensing replied, “You could do it a number of ways: you could do rate increases, you could defer maintenance, you could cut your operating costs.”

There were questions unasked that still demand answers:

  • While this action might make the general fund balance sheet look better, what impact does it have on the balance sheets of water and sewer, the landfill, and sanitation?
  • By recording the former “loan” to a fund transfer, doesn’t it reduce the assets on the balance sheets of those funds?
  • How does the reduction in financial assets impact the bond ratings of the water and sewer fund and the landfill fund?  While the proposed action may assist in the General Fund bond rating, doesn’t the converse action harm the Enterprise Funds ratings?
  • Doesn’t this action reduce the funds available to water and sewer for maintaining and upgrading the water and sewer systems? Duensing in his answer to Tolmachoff implies that it does.
  • If the Council approves this action, doesn’t that mean that a water and sewer rate increase will be necessary and supported by the Council? If a rate increase occurs, it looks like we can lay the evaporation of a pledge to repay the Enterprise Funds at the feet of retaining the hockey team as an anchor tenant at the city owned arena.

Duensing’s proposal is moving the pea underneath a different shell. It’s a magical, accounting trick designed to satisfy the rating agencies. The problem is that it sets precedent. Who, whether it’s a developer, a citizen or a company doing business with the city, will trust in the city’s word if it is willing to renege on paying a debt? If a water, sewer or landfill rate increase is proposed and adopted by this city council citizens will have every right to be angry for it will be driven by a broken promise to reimburse the Enterprise Funds. Glendale rate payers of the water, sewer, landfill and sanitation services will have every right to assume that any proposed rate increase is driven by money borrowed from these funds and paid to the NHL to run the arena for two years.

Duensing appears obsessed on building up the city’s reserve funds (contingency). While building the city’s reserve back up is necessary and critical his solutions are to keep the sales tax increase permanent and now, to raise Glendale’s property tax rate by 2%. He appears to have only two tricks in his bag.

Sterling Fluharty of the Glendale Star in writing an article entitled City decides not to cut taxes, in its online edition of April 6, 2015, reports, Glendale City Council had few objections two weeks ago when the acting city manager and financial director announced they were abandoning plans to lower the sales tax rate and making preparations for raising property taxes. Here is the link: http://www.glendalestar.com/news/article_b6c5e5e6-dc99-11e4-8961-4fb07a583a64.html#.VSNVhK1dGb8.twitter .

Last December Duensing was still pitching lowering the sales tax rate. Fluharty in his article states,  Duensing published a five-year financial forecast that month (December, 2014) that assumed the council would approve annual reductions, making the sales tax rate 2.85 percent in 2015-16, 2.825 percent in 2016-17, 2.8 percent in 2017-18 and 2.775 percent in 2019-20.” What information does senior management and the council have (not shared publicly) to cause them to not only reject a reduction in the sales tax rate but now to increase the property tax rate?

Since the new council was seated in January, 2012, adopting Duensing’s recommendations it has:

  • Made the increase of 2.9% as a temporary sales tax increase permanent
  • Approved a management agreement paying IceArizona $15 million a year
  • Will approve construction of a parking garage at Westgate for $46 million + over 3 years
  • Will approve a 2% increase in property taxes

Where is the council commitment to cut expenses and to live within the city’s means? It seems their only solutions to solving the city’s ongoing financial problems is to keep the increased sales tax rate and now to raise the property tax rate.

Over the next 3 years the General Fund will have to absorb an additional $46 million plus as brand new debt. That figure does not include the ongoing debt for the baseball park, the Westgate Media Center and is parking garage, the Westgate Convention Center, the annual $15 million payment to IceArizona and the construction debt on the arena and the Public Safety Training Facility…as well as other debt I have failed to include.

During council’s discussion of a property tax increse while the sales tax increase does not diminish Mayor Weiers said, “At least we’re giving our citizens something, certainly in the right direction, anyway.” What exactly are the Mayor and council giving to its citizens? A screwing? It appears the right direction for Mayor Weiers and this city council is to raise yet another tax.

©Joyce Clark, 2015

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

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