Government accounting is like an onion, says City Manager Joel Linares—complex, with many layers. Though the details may be dizzying, city staff sat down with the Moab Sun News to explain the basic structure and big-picture concerns regarding the city budget.
At the regular City Council meeting on Oct. 8, City Finance Director Rachel Stenta presented what she called a “fireside budget chat,” in which she outlined the upcoming budget challenges facing the council. Stenta was also recently appointed City Treasurer.
“Our projected fund balance for the General Fund at the end of this year will be under a million dollars,” Stenta told council members.
The General Fund is used to finance day-to-day city operations, including employee salaries and wages, utilities and building maintenance, fuel, and supplies. Money can also be taken out of the General Fund to support other funds.
For comparison, in fiscal year 2020, the city budgeted $13.6 million for General Fund expenditures.
“So basically,” Stenta said, “in order to budget for status quo, exactly as we did this year—we don’t have funding in the General Fund balance to do that.”
Understanding the budget structure
According to Utah law, the city’s budget is organized into several different funds dedicated to different expenses: the General Fund, Capital Project Funds, Special Revenue Funds, Debt Service Funds, Internal Service Funds, and Enterprise Funds.
While a substantial portion of city revenue is collected through fees for services and permits, City revenues come primarily from sales taxes. The state levies a sales tax of 4.7%, applicable to goods and some services, and also gives cities and counties the option to add a local sales tax on top of that. Moab collects a 1% sales tax in addition to the state sales tax, which is applied to the same categories of sales. Because Moab qualifies as a resort community, the city is also allowed under state code to collect a 1.6% resort community tax.
“The bulk of our sales-based tax revenue comes from that resort community tax,” Stenta told the Moab Sun News.
The remainder of city tax revenues come from the 1.5% transient room tax, and a .3% highway tax, which must be used for street maintenance and construction projects.
All those taxes go into the General Fund.
Depleted reserves
So what happened to deplete Moab’s General Fund so severely?
If General Fund revenues in a given year exceed expenses, the leftover money goes into a reserve. Stenta explained that this reserve works essentially like a savings account for the city.
“Sound fiscal practice for that money is to keep some in reserve, because there’s a certain proportion you should keep for emergencies,” Stenta said. “And then excess should go to capital projects—roads or facility improvements or park improvements.”
For the last three years, however, city expenses have exceeded revenues, and the city has had to deplete its reserve fund to continue daily operations.
“This year, in order to balance our budget, sustain operations, and also subsidize other funds, we had to take a million dollars out of our reserve,” Stenta said of the fiscal year 2020 budget.
City council members are aware that something needs to change.
“Rachel Stenta has already told all of us that we have, not a huge budget problem, but one that does need to be fixed this coming fiscal year,” said City Councilmember Mike Duncan.
In September, the council adopted a debt management policy which mandates that operations may not be financed using reserve funds for a period longer than two years, starting from the date the resolution was passed.
“In years gone by, we’ve used General Fund surpluses to fund capital projects—buy new equipment and fix up this and that and so forth,” said Duncan.
“[But] because our administrative expenses have grown faster than our sales tax receipts have, that money has been increasingly used to cover operating expenses. And that is not a sound fiscal policy.”
Capital Project funds
Because those reserve funds have been used for daily operations and not saved for other uses, the Capital Projects Fund has languished.
These funds are used to purchase equipment and other assets, fund construction projects and improve infrastructure.
Items on the 2020 Capital Projects budget include new vehicles and equipment for the city and police department, computer replacements, replacement of equipment at the aquatic center, parking improvements, and improvements to the city’s maintenance shop and yard.
Councilmember Rani Derasary noted that there are even more capital projects waiting to be funded.
“Foremost in my mind is the $33 million in critical infrastructure needs we’ve recently learned we’re facing (and more than $70 million for infrastructure upgrades overall),” she said in a conversation with the Moab Sun News.
City Manager Joel Linares confirmed that there is a long list of overdue infrastructure replacement and improvement projects.
He said the infrastructure deficit is “no less than $74 million right now,” including water, sewer, stormwater and road improvements.
“That’s not on any given year plan,” said Linares, “that’s a lifetime worth of projects, and we’re just behind on all of it.”
He noted that the majority of the infrastructure in Moab is at least forty to sixty years old—part of a nationwide crisis.
“This is not a ‘Moab’ problem,” he said. “You look at the infrastructure throughout this entire country, it’s crumbling—the bridge systems, the roads… it’s a national issue, really. We’ve just got to do our part of it, and figure out how we’re going to pay for it. And it’s expensive.”
Considering other funds
The remaining budget funding divisions cover more specialized areas, like the Special Revenue Fund, Debt Services, Internal Service funds and Enterprise funds.
Special Revenue Funds exist to allocate specific funding sources to cover some amount, but not all, expenses for specific uses. These include the Community Development Fund, the Recreation Fund, the Class C Road Fund which governs road maintenance, and the Housing Fund for affordable housing projects.
Stenta pointed out in the Oct. 8 meeting that the Recreation Fund operates at a loss each year, and the city subsidizes the fund nearly $900,000 from the General Fund to make up for that loss.
Duncan mentioned recreation services as one area where the city might be able to renegotiate agreements with agencies, such as the Recreation Special Service District.
“Particularly sports programs and stuff like that,” he said. “The city heavily funds that, and a lot of people who are outside the city and in the county participate in those programs.”
Debt Service Funds are used to pay off city debt obligations, and the Internal Service Fund is used to pay for self-insurance for health and dental insurance for city employees on a cost-reimbursement basis.
Enterprise Funds are those designed to pay for their own expenses through user fees. Moab’s Water, Sewer, and Storm Water Funds are all enterprise funds.
Stenta pointed out to the council that user fees must be periodically adjusted to keep enterprise funds balanced with rising costs.
“We’re getting ready to look at our water impact fee and increase those rates. This year, Water was budgeted to operate at a loss,” Stenta said at the Oct. 8 meeting, as she displayed a graph of the Water Fund budget for the upcoming fiscal year.
Options for getting out of the hole
The council has scheduled a budgeting workshop with city staff on Dec. 6 to discuss new budget strategies. The meeting is open to the public. It will be held in the Moab City Council Chambers from 10 a.m. to noon, and will also be streamed live on YouTube.
Stenta summed up the big picture of what she will be proposing to the council.
In order to stop funding operations expenses out of the city reserves and begin rebuilding the Capital Project fund, Stenta recommended a “combination of trying to reduce or limit operations as well as diversifying and increasing revenue,” she said.
Stenta said she was gathering data from all city departments to draft cost-cutting proposals ahead of the December budgeting workshop.
She recommended taking a hard look at fees and taxes in order to increase city revenue.
“Specifically in the recreation fund, we’re looking at different fee structures that might increase some of that revenue coming in,” said Stenta.
“We’re also looking at some options for some alternate [sales-based] taxes that we haven’t implemented so far,” she said.
Considering a property tax
Another kind of tax that could boost and stabilize city revenue is property tax, which is more predictable and adjustable than sales tax.
Currently, Moab does not have a property tax for residents, but it does have the power to collect one.
When asked if that option would be on the table at the workshop, Linares said,
“It’s talked about–it’s always considered.”
Linares compared the ebb and flow of sales tax revenue to the more stable source of property tax.
“[With property tax,] you can control how much you’re getting every year, and if it’s not enough, you can have hearings, turn up the rate, and you can get more money,” he said.
Linares also noted that when asking the state for money for city projects, state officials notice that Moab is not collecting as much revenue locally as it could.
“But we’re looking at other ways of diversifying the revenue that’s coming in besides property tax, trying to get kind of a more stable base,” Stenta said.
At the budgeting workshop on Dec. 6, fees will be examined and possibly adjusted, particularly recreation service fees. The workshop will be open to the public.
Attendees at the workshop will also work on a “Master Capital Improvements Plan.” The plan will organize capital projects based on how critical the need is and will include the projected cost of each project.
Council members are waiting to hear from staff before discussing probable strategies for solving the budget deficit in detail.
“We really haven’t talked yet about specifics about how we might fix all this, but there’s a variety of tools that we can use to do so,” said Councilmember Mike Duncan.
“There will be, I’m sure, some combination of reducing our own expenses and trying to augment our revenues one way or the other in the coming months.”
A positive attitude to challenge
“The City is very fortunate to have Finance Director Stenta and City Manager Linares helping plan our budget process,” said Derasary. “I’m likewise grateful that Rachel is calling our attention to needed changes.”
“Our Finance Director is extremely knowledgeable and will present us with good solid information and options to help guide our decisions for the next fiscal year,” agreed Councilmember Tawny Knuteson-Boyd.
Though the budget gap appears daunting, city staff say they are prepared to tackle it.
“I’d say we’re in a good position as far as having staff that is addressing the issue and identifying the issues and collectively coming up with solutions instead of just kind of taking a ‘blinders’ approach,” said Stenta.
“It’s not anything I don’t think we’re up for,” Linares agreed.
He said he’s glad they are addressing the problem now, as the deficit issue would have become more critical if it weren’t corrected.
“I think we’ll start getting it worked out. It’s a fun problem,” Linares said.
