City
of Sandy Memorandum
PROPOSED
2007-09 BIENNIUM BUDGET
WHERE WE HAVE BEEN
The past two years have seen continued growth. We issued a
record number of new home permits in 2006; while there is some evidence that the
pace is slowing, several subdivisions have been approved and are in varying
stages of construction.
Thanks to our neighborhood park
dedication ordinance, we have seen a substantial increase in our park inventory.
The 8-acre Sandy Bluff Park was improved in 2006. We have new neighborhood parks
in Barlow Ridge, Hamilton Ridge, and Timberline Estates subdivisions. We
acquired a 5-acre park site in the heart of Bornstedt Village, and park land has
been dedicated in the Deer Point subdivision.
With the help of a state grant, we
have completed Dubarko Road, connecting 362nd Avenue all the way to Langensand
Road (as this is being written, we are waiting only for the final lift of
asphalt). The Urban Renewal Agency completed a new parking lot to serve downtown
businesses and customers. The new amphitheater in Meinig Park is a showcase
attraction, and will be the site of the new Sandy Acoustic Music series in the
summer of 2007 (and, we hope, some live theater in the near future). SandyNet
has made significant strides in wireless Internet service, with many new Wi-Fi
access points throughout the city. In December, Sandy Transit provided its
one-millionth ride.
Private investment has followed suit.
The new Mt. Hood Athletic Club opened at the beginning of 2007. The Sandy
Historical Museum is nearing completion. The former Adventist Church has been
renovated as the Shuler (office) Building, one of the most impressive re-uses of
an existing building that we have ever seen. The former Suburban Ford site has
undergone a face lift as a snowmobile dealership. AEC has invested in a new
parking lot adjacent to their downtown headquarters. A new Walgreens store is
under development downtown. We have seen many new buildings and businesses in
the Pioneer Corporate Park and other commercial and industrial areas of the
city.
Clackamas County has seen similar
growth (although at a more modest pace on a countywide basis), and its property
tax revenues have increased substantially. Nonetheless, the county has held the
funding for library services flat, redirecting the growth in revenues to other
services (e.g., sheriff and the criminal justice system) and county expenses
(e.g., employee medical benefits). In response, we were forced to reduce service
hours at our library (they were partially restored in 2005-07 due largely to
increased work done by volunteers).
The
Economy. Although we have seen large cost increases in some categories
(e.g., energy, medical costs), the overall rate of inflation has remained low.
As long as that continues, Measure 50 (limiting assessed value growth to a flat
3%) will not be too much of a problem. High inflation, however, would be a
financial disaster for our general fund.
Infrastructure. All of our major buildings--city hall, police station,
library, and community center--are paid for, and our budget does not reflect the
capital value of these facilities. But they are depreciating, and continued
growth will put a strain on these facilities. We need to be careful that the
lack of current (apparent) cost does not make us complacent about the true cost
of using and expanding our facilities. Sandy has always followed a "lean and
mean" approach to budgets and capital improvements, and this has helped keep us
in a healthy financial position. But we should not forget that investments in
public facilities that are used and enjoyed by our citizens is a good use of
public funds.
We are in fact addressing the issue of building
depreciation, in part, through the construction of a new Operations Center to
house transit and public works operations. This new facility is designed to be
efficient to operate, friendly to the environment, and built to last. It will
allow us to remove our current public works operations from the residential area
it now occupies.
One of the City Council's long term goals is to
consider relocation of the police station, and the 2007-09 proposed budget
includes some planning work toward this goal, but not the actual construction of
a facility. We are hoping to combine forces with the Sandy Fire District and
possible other public safety partners in construction of a new facility, and it
is too early to attempt to identify costs and sources of funds. Relocation of
the police station will allow the library to expand and occupy the entire
building.
The most critical infrastructure issue in the
city's near future is development of additional water sources. By the end of
2007 we should have a firm decision on development of our Salmon River water
right or the selection of an alternative strategy. While construction costs are
beyond this biennium, we will begin to see a substantial investment in
design and engineering.
From the community-wide perspective, the most
pressing problem is relieving the over-capacity problem at Sandy High School.
The City Council has adopted a goal of supporting the construction of a new high
school, if the Oregon Trail School Board chooses to seek voter approval for
bonds.
Most of the downtown utility wires will be moved
underground--accompanied by major streetscape improvements--by the summer of
2008. This will be the last large project of the urban renewal district.
Quality of Life. Several important planning
projects will be completed in the next few months. We should, by the summer of
2007, have new design standards in place for downtown development, and
commercial buildings in general. The design of the Highway 26 "gateways" to
downtown will be complete in the next few months. Early in the next biennium we
will update our buildable land inventory and land needs analysis. This will give
the Council and Planning Commission good data on whether we should amend the
comprehensive plan (as a mid-course correction) or even amend the urban growth
boundary (we have built in "placeholders" for that work in the budget).
BUDGET INITIATIVES: EXECUTIVE
SUMMARY
Growth
in the city has resulted in increases in the property tax base, and in revenues
from franchise fees (these are based on gross revenues of utilities, which are
in turn related to the size of their customer base in Sandy). This has put us in
the pleasant (and unusual) situation of being able to add services to the
budget. We should be conservative about this, and ensure that service levels are
sustainable over the long run.
After discussions with the management team, I am
recommending several changes in services and budgets:
BUDGET FEATURES
Biennial Budget. This will be our third biennial budget. We have
used a two-year budget since 1993, and state law has more recently allowed cities to
adopt true biennial budgets (i.e., a budget period of 24 months). This
allows us to account for the medium-term impact of policy decisions. It has
also forced us into the self-discipline of balancing the budget on realistic
projections of ongoing revenues, rather than merely getting by another year by
spending down fund balances or inflating revenue estimates. Finally, it frees up
time during the off year for other budget-related projects. In 2004 we completed
an update to our long-range capital improvement plan, and previously we used the
time for financial forecasting and for a complete review of city programs.
Expenditure Control
Budgeting. "Expenditure
Control Budgeting" is based on the premise that managers are paid to
manage, and it changes some of the rules of the game that have undermined
traditional governmental budgeting systems. Briefly put, expenditure control
budgeting gives department managers a great deal of flexibility over individual
line items, as long as they remain within the "bottom line." The
focus is on stretching limited resources as far as possible to provide as much
service as possible.
This, of course, depends
on department managers having a clear idea of the service goals of the City
Council and community. The long term goal statement of the Council has been
helpful in this regard.
But just as important,
the flexibility in the system allows Council and staff to respond quickly to
new opportunities and contingencies. As an example, in the real world, we
don't know very far ahead of time when a $10,000 grant may become available.
When it does, our taxpayers benefit when we can scrape together the 20% match
(as long as the grant meets a real community need).
An innovation in Sandy's
process is to tie departmental revenues into the bottom line. Governmental
accounting typically lumps all revenues into a separate part of the ledger, far
removed from departmental expenditures. As a result, it is hard for managers
to get a good sense of the overall financial performance of their operations.
We instead report the "net" budget of each departments, where
expenses are offset by departmental revenues.
A key feature of
expenditure control budgeting is that department managers are allowed to carry
over savings from one biennium into the next. This policy
eliminates the "spend it or lose it" incentive that is built into
traditional budget systems. We have set only two restrictions on the carryover
savings: 1) the savings can only be used for one-time expenses (e.g.,
equipment, grant matches, temporary help), and 2) the uses of the savings are
reviewed by the City Council during the budget process, like the other line
items. Carryover savings are shown as the beginning balances in the departmental
budgets.
Because this budgeting
philosophy works with human psychology and not against it, we call it the
Aikido Method
of budgeting.
FINANCIAL POLICIES AND BUDGET STRATEGY
This budget was prepared
with the guidance of the following financial policies:
1. Continuing expenses should be covered
by continuing revenues.
2. Cash balances in the general fund at
the beginning of the biennium should be sufficient to cover expenses until
property tax is received in November.
3. New development should pay for itself.
For programs within the general fund, I asked department
directors to submit budgets with a bottom line less than or equal to the
current budget (less one-time expenditures). They could add to this bottom
line only for:
1.
Salary and fringe cost increases that are beyond the department's
control. This would include cost-of-living increases, but not an increase in
the number of staff or hours worked;
2.
Savings carried over at the end of the current biennium; and
3.
Departmental revenues projected to exceed the amount in this year's
budget.
The departments were able to meet this challenge (with a few
exceptions, highlighted below). This is the same rule that was applied to the
past seven budget cycles, so the operating departments have used their own
revenue sources to cover inflation and growth-related increases in non-salary
items for twelve years in a row.
CITY COUNCIL GOALS
In January of 2007, the City Council held a goal and
policy setting retreat. The goals adopted by the Council at that session are
published the city's
web site.
BUDGET HIGHLIGHTS
General Fund
Since the passage of Measure 50
in 1997, property tax growth has been fairly steady at approximately 9% per
year. Energy-related franchise fees (electricity and natural gas) have also
increased. Other revenues, such as the state cigarette tax, have either been
flat or have declined. Our six-year forecast shows that balancing
the budget is sensitive to economic conditions, especially inflation and growth.
The decline in county library funding is a major problem, as are the costs of
medical insurance, which continue to escalate.
Administration.
We have experimented with providing computer
technology support first through consultants, and more recently through a 2-year
internship program for recent high school graduates. While the latter has worked
very well for us, in seeking candidates for the next two-year internship, it
became apparent that we had been very lucky to find the individual, Scott Brown,
who has been our network administrator. He is entering college in the fall of
2007, and the SandyNet Advisory Board has recommended funding this position on a
full-time basis to maintain continuity and professionalism in our growing
SandyNet utility. This position will also relieve the department heads of some
of their administrative burden of maintaining their own computer networks.
Police. Calls
for service and reported crimes have both increased. The complexity of crimes
has increased too, with more incidents of identity theft and meth-related
crimes. With the addition of an officer in 2005-07, our officers to population
ratio has stayed fairly constant, but to keep up with growth, we will need to
add an officer in 2009-11. For the next biennium, however, I propose adding
staff on the civilian side of the organization (1/2 FTE) to keep pace with the
added records workload. In the following biennium, we should see a boost in
revenues due to the expiration of the urban renewal district, giving us the
resources to add an officer at that time.
Library.
The County has established a goal of stable library funding, at a growth rate of
3%. This rate may cover inflation, but it won't cover growth in demand for
library services. This means that we will need to either reduce services, become
more efficient, charge fees for some library services, or provide more support
from general city taxes. In the long run, a library service district is another
possibility.
In 2005-07 the city provided $120,000 in ongoing support and
an additional $120,000 in one-time support, in the hopes that county funding
would increase. In this budget, I am recommending general city support of
$247,000 for the biennium. This breaks down as $120,000 in base operating
support, $56,000 for inflationary increases in salary and fringe benefits,
$35,000 in additional ongoing support for materials and programs, and $36,000
for one-time increases in equipment and improvements to the library building.
This does raise some equity issues. The majority of our
library's users live outside the city, and don't pay city taxes; they get a free
ride on the support provided by city taxpayers. But the situation is similar at
the senior center and in our recreation programs (for the latter, we do provide
a discount on user fees for city residents). General fund support for the senior
center and recreation program are both around $250,000
for the biennium. We would need to provide some level of operating support for
the library (just to keep the doors open) whether or not non-city residents use
the service. Therefore, I believe that city general fund support is warranted.
At the same time, if the amount provided by the county continues to drop in real
terms, we should consider charging additional fees for non-city residents to
partially offset the subsidy.
Recreation. As
noted above, the special events component of our recreation program has grown to
the point that it should be treated as a separate program. By freeing the
recreation coordinator from the time burden of organizing the special events
(which are self-supporting), we hope to free up some time that can be devoted to
park planning.
Building. The building inspection program is self-supporting (based on
building permit fees). We do not charge general fund departments for indirect
costs such as accounting, payroll, insurance, and building space costs. We have
estimated these costs (for the building department) at $25,000 per year, so the
net budget for the biennium is negative (i.e., revenues exceed
direct expenditures by approximately $50,000 for the biennium). The program
has built up a healthy beginning balance, which will help offset revenue
reductions if we experience a decline in the rate of new home construction. For
the next biennium, we have budgeted some equipment for electronically archiving
our large format plans, thus freeing up space in city hall.
Planning. The Planning program has
also accumulated a fairly healthy
beginning balance. We have set this aside for the land needs analysis, and if
necessary, the amendment of our comprehensive plan and urban growth boundary.
Street Fund
In September of 2002, Sandy voters approved a local one cent
per gallon fuel tax for street maintenance. This had made a big difference in
our ability to keep up with the street maintenance requirements that are called
for by our Pavement Management System. Since our fuel tax is a fixed amount per gallon, it does not
increase with inflation. On the other hand, the cost of paving (largely due to
the oil in asphalt) has increased substantially, so our miles (paved) per gallon
of fuel sold has dropped. I recommend increasing the rate to 1 and 9/10ths cents
per gallon. This is still a lower rate than in the neighboring cities to the
west, and it will allow us to resume an annual paving program.
Reimbursement payments for Ruben Lane as well as systems
development charges have built a balance in the fund for building additional
road capacity (by state law, we can't use SDC revenue for paving or other
maintenance). A policy issue for Council is whether to keep this balance on hand
for street construction projects, or to pay off the debt we incurred to complete
Ruben Lane and Dubarko Drive. Since we do not anticipate city-funded street
construction costs in the near future, the Public Works Director and I recommend
retiring the debt.
Transit Fund
Sandy Transit provided its one-millionth ride in December of
2006, not long after SAM half-hourly service was extended to all day
during weekdays (from the previous hourly service and half-hourly during rush
hours).
The major event in the transit fund
for 2007-09 is completion of the Operations Center, which will allow transit
operations (both city staff and contractor) to be consolidated, and provide more
efficient storage and cleaning of buses. This project is largely
grant-supported, but it is being supplemented by accumulated cash in the transit
fund as well as a proposed transit systems development charge.
Water Fund
In November, 2002, the city entered into a contract with a
private company (OMI) to operate our water and sewer treatment plants. The budget
reflects this contract cost, along with reductions in direct city expenditures
for salaries, utilities, chemicals, etc.
The largest capital expenditures in the next biennium are
related to development of a new water source. Our capital improvement plan assumes we will develop our Salmon River water
right, but the city engineer is considering other, possibly lower-cost, options. The budget also
includes funds for the water fund's share of the Operations Center. In order to
cover the cost of a new water source, our rate model predicts annual water rate
increases of approximately 5%.
Sewer Fund
As with the water fund, the sewer fund budget reflects the transition to
a private contract for operation of the wastewater treatment plant. The sewer collection
(pipes) system will
continue to expand in 2007-09, but this will be done by developers; no other
major capital improvements are scheduled.
The new wastewater treatment plant was
partially funded with a $2.97 million forty-year loan from the federal
government. While much of the plant will last longer than forty years, some of
the equipment has a shorter life, and we have planned to retire the debt in
twenty years, rather than forty. Our fund balance has grown accordingly. In
order to better account for this bond reserve account, we are proposing the
creation of a separate sewer debt reserve fund. An initial transfer of $846,000
will bring us current (as of the end of FY2009) with a twenty-year payment
schedule, and biennial transfers of $136,000 in subsequent budgets will allow us
to pay off the loan in 2019.
Both the water and sewer funds include
a 5% fee in lieu of a franchise fee for use of the city's rights-of-way (see the
SandyNet discussion, below).
Stormwater Fund
The stormwater utility was created in 2005. The revenue to
the utility is derived from a $3/month utility fee for each home
(non-residential property is charged proportionally, based on impervious
surface). Revenue growth has been slightly ahead of estimates. In 2007-09 we
intend to tackle a backlog of maintenance and operation tasks (including
maintenance of our growing inventory of treatment and detention ponds). The
budget includes this fund's share of the new Operations Center, as well as final
payment on a previous loan from the sewer fund. We recommend holding off on
major capital improvements (e.g., the Meinig Park detention system) until
2009-11, allowing the utility revenues to build before issuing bonds.
SandyNet
In the winter of 2001-02, the City Council created a
telecommunications utility in order to provide badly-needed broadband service to
Sandy residents and businesses. SandyNet DSL service was launched a year later;
wireless service started a year after that. The initial wireless system uses
900MHz proprietary equipment; the longer wavelengths are better able to
penetrate buildings and trees in our challenging topography. In 2006 we launched
Wi-Fi service. We are seeing a steady increase in customer interest and sign-ups.
In the next biennium, for the first
time, it appears that SandyNet revenues will be strong enough to not only cover
operating costs, but also provide for modest growth in our network. This is only
possible, however, if the utility either postpones debt repayment to the water
and sewer funds, or the debt is written off.
Not too many years ago, the water fund itself was in the same situation. Bonds
for water system expansion were general obligation bonds, and paid through
property taxes rather than customer revenue. Now both the water and sewer funds
have healthy fund balances, and new capacity is largely paid for through systems
development charges and revenue bonds.
The Finance Director and I discussed the SandyNet loan situation with our
independent auditor. While it is theoretically possible for the water and sewer
funds to write off the loans to the telecommunication fund, there is a more
defensible (from a policy standpoint) method of easing the debt burden on the
newly-formed SandyNet fund. The water and sewer funds have never paid a
franchise fee—as the other utilities do—for use of the city rights-of-way for
water and sewer pipes. A 5% fee in lieu of a franchise fee would, over six
years, allow the loans to be paid off (the franchise fees would be paid to the
general fund, which in turn would make a transfer to the telecommunications fund
for its initial capitalization).
The SandyNet Advisory Board supports this option. This is clearly a key policy
issue for the Council to address in its budget deliberations.
Parks Capital Fund
The primary source of revenue for the parks capital fund
comes from systems development charges,
paid by new residential construction. More recently, we also collect payments in
lieu of land dedications, where it is not practical or desirable (from the
city’s standpoint) to accept neighborhood park land. The budget assumes that all
of the payments in lieu of land in 2007-09 will be applied to our internal loan
for purchase of the Fleming property as a park in Bornstedt Village.
Expenditures in park improvements are
guided by the Park Board. We anticipate that the next biennium will see a Tickle
Creek hiking trail that will link several neighborhood parks, and minor
improvements to various neighborhood parks.
Operations Center Capital Fund
The new field operations center is being paid for from six separate funds. In
order to better track the revenues and expenditures for the project, we are
creating a separate capital improvement fund. This fund will be eliminated once
the project is complete and all bills have been paid. Note that project expenses
are double-counted in the total of all appropriations (in the transfers from
each contributing fund, and in the direct expenses of the operations center
fund).
Urban Renewal
The next biennium will see the end of our $5 million urban
renewal district, and the completion of the remaining projects, including:
