Scottsdale comes to terms with new fiscal year expenditure limitation

From right are Scottsdale Treasurer Jeff Nichols who is listening to the May 23 budget hearing while City Manager Jim Thompson takes notes as Budget Director Judy Doyle outlines the fiscal year 2017-18 tentative budget. (Independent Newsmedia/Terrance Thornton)

The municipality of Scottsdale and its city council have come to terms on fiscal year 2017-18 expenditure limitations for both the day-to-day operations and long-term financial obligations of the city.

Scottsdale City Council held a budget hearing Tuesday, May 23 at City Hall where the local governing board approved its tentative fiscal year 2017-18 budget through Ordinance No. 4306, which enables staff to meet myriad financial disclosures at the state of Arizona.

The tentative budget adoption was unanimous while city leaders expect final budget adoption next month as the new fiscal year begins Saturday, July 1. The city as a whole is expected to approve a nearly $1.3 billion fiscal year 2017-18 budget.

But while revenues are expected to hit peak levels over the next five years, so are costs, and city leaders are acknowledging that both a bond program and new property tax levies may be pursued to help make municipal ends meet.

The city of Scottsdale tentative fiscal year 2017-18 General Fund sits at $265.6 million, which provides for the day-to-day operations of the city, while the proposed all-funds budget can be broken down to:

  •  Operating budgets: $557.9 million.
  • Grants and special districts: $15.2 million.
  • Capital Project Budget: $524.1 million.
  • Reserves: $184.1 million.

“This sets the maximum expenditure limit,” said Scottsdale Budget Director Judy Doyle during the May 23 public hearing. “You may reduce or reallocate … but per state statute you may not increase anything after tonight.”

Ms. Doyle told city council certain numbers have shifted since the proposed budget discussions held a month earlier.

“The tentative budget includes $4.8 million more than the proposed budget,” she said pointing out both to council and in her staff report that program cost estimates have shifted both reserve and contingency calculations. “But no real change to fund balance in ‘17-’18 compared to the proposed budget.”

A fluid process

Major General Fund increases playing a role in the municipality’s budget sustainability is a recent court ruling regarding forgone payments that must now be paid through the Public Safety Personnel Retirement System. The city of Scottsdale’s portion to pa out for what is known as the “Parker case” is $7 million in the coming fiscal year.

The Scottsdale Police Department is carrying a $122.4 million PSPRS liability of which 55 percent is funded, city officials say.

The Arizona Public Safety Personnel Retirement System is a 236-member organization managing the pension plans for eligible public safety personnel entities statewide. The Arizona Constitution recognizes public employee pensions, while PSPRS and its duties were established in the late 1960s to ensure public safety employees equal footing in terms of pension eligibility, contribution rates and benefit formulas.

In addition to Parker case payouts, the city of Scottsdale is seeing notable General Fund increases including:

  • A $3.5 million payment to the PSPRS fund;
  • A $2.1 million increase due to a 3 percent merit pay salary increase for employees;
  • A $1.3 million increase to provide for a police 5 percent salary step program;
  • A $400,000 increase to provide for a 5 percent salary step program for police sergeants;
  • A $800,000 increase to provide for a 5 percent salary step program for fire fighters;
  • A $600,000 increase to employee healthcare costs.

Ms. Doyle says one-time expenses are playing a significant role in how the sustainability of the municipal budget can be perceived.

“We have talked about those significant changes in 17-18 proposed budget,” she said. “The tentative budget leaves our undesignated, unreserved General Fund balance at 6 percent at year end, which is about $15.5 million.”

Scottsdale Public Works Director Dan Worth says the majority of projects to be pursued in fiscal year 2017-18 are ones residents failed to approve on two separate occasions — 2012 and 2014 — where the city sought bond measures.

The projected capital improvement spending plan in fiscal year 2017-18 is approximately $178.3 million, of which dollars will be going toward several projects including: a portion of a now five-year phase of planned renovations at the Vista Del Camino Park and subsequent facilities at an estimated cost of $17.5 million; and a Granite Reef Watershed study to the tune of $5.2 million.

However, city officials say the $178.3 million is an expected spend by all funds available to the municipality with capital outlays including the local water company and both the Preserve and transportation funds, among others.

Dollars derived for capital improvement projects appears to be in short order as city council has set 25 percent of construction sales tax remits, earned interest gained from the General Fund in excess of $1 million and a portion of the 1.6 percent tax on food to be allocated annually to pay for infrastructure needs.

In addition, dollars can be carried over from previous fiscal years as capital projects can often be multi-year endeavors, city leaders say. The city also sees an annual allocation of PAYGO funds, a budget worksheet shows.

The city of Scottsdale assesses a 1.65 percent sales tax on all grocery goods with within city limits. (File photo)

A regressive approach

Scottsdale Councilman David Smith is pursuing the abolishment of a local sales tax on the sale of groceries within city limits.

Since 2004 the city of Scottsdale has been assessing a 1.65 percent sales tax on all grocery goods sold within city limits, but a tax on food was first assessed in 1958 through ordinance 50, city officials say. Until earlier this year, 1.1 percent was dedicated toward the General Fund while the remainder was divided into the city’s transportation and preserve funds, city leaders say.

David Smith

Scottsdale City Council, this past January voted 5-2 to take 1.1 percent of the 1.65 percent retail sales tax assessed on all grocery sales within city limits — a total of about 7.8 million this fiscal year — and funnel those dollars into the capital improvement budget.

Mr. Smith made a statement alerting his colleagues and those in attendance he does not believe a regressive tax on food should be paying for capital improvement projects.

“I am not thinking of a specific project, but I am thinking of asking council to dedicate a specific amount to the CIP, which we have done in the past,” he said of moving $5 million from the unreserved fund balance into the CIP budget.

That idea died on the dais for a lack of a second vote to support the motion.

“The renovation of Vista Del Camino was a project that we asked for the voters to approve that project and they did not approve it,” he said of failed bond measures pursued by the municipality.

“The only reason we are able to accommodate this project is because we have moved the most punitive tax in the city — the tax on food — for our poorest residents into the CIP fund. We have now managed a way to renovate the Vista Del Camino Park without the help of anyone just our poorest residents.”

Scottsdale Councilwoman Suzanne Klapp agreed with the spirit of Mr. Smith’s comments.

“I would like to support Councilman Smith,” she said. “It is not lost on me that money to improve Vista Del Camino is coming from a tax on food. Hopefully, one day we can fix that. It does not sit well with me that we are using food tax dollars to pay for the CIP.”

Scottsdale City Council is expected to host a second budget hearing and possible adoption of the fiscal year 2017-18 budget at City Hall, 3939 N. Drinkwater Blvd. Tuesday, June 13.

Northeast Valley Managing Editor Terrance Thornton can be contacted at tthornton@newszap.com

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