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Careful Costing
Tom McGreal | Stratford Court

The Mid-Year six-month results and a new Mid Year Budget for FY2019 were presented to the City Council at the March 18th Council meeting. The overall results show an increase in Revenues of $1,028,580, an increase in Expenditures of $920,185 and an ending General Fund Contingency Reserve of $3.25 million or 20.7%. The numbers exclude the Measure Q revenues, which are accounted for in a designated Reserve and are dedicated to the Council approved projects (Streetscape, Undergrounding and Shores Park).

While the Contingency Reserve remains healthy, the underlying Revenue and Expense numbers require some further explanation. The primary driver for these FY 2019 budget increases is the inclusion of Legal expenses in the amount of $767,930, which are also shown as Revenues because the City expects to receive an insurance reimbursement for $767,930. Once these two offsetting Revenues and Expenses are excluded, the numbers can be more clearly analyzed.
The Finance Committee presented its analysis of the new Mid Year Budget for FY2019 with a comparison to FY2018 actual results (which were reported to Council in January).

The comparison show that year-to-year Revenues have increased by 2.7%, the Operating Expenses have increased by 5.7% and the total Expenditures (including Special Projects) have increased by 9.2%. The Finance Committee alerted the Council to the reality that this trend is unsustainable. Expenses cannot continue to grow at a rate faster than Revenues. A simple forecast example demonstrated to the Council that if the growth of Expenses continues to exceed the growth of Revenues by 2%, the City would have no money available for Capital Improvement projects by 2022.

The Finance Committee recommended that the City develop a Cost Control Plan for the FY2020 and FY2021 Budgets that ensures that the growth of Expenses will be maintained at a level well below the projected growth of Revenues. The Finnell Plan requires that the rate of Revenue growth must exceed the rate of Expense growth by 1.4%. If the Revenue outlook for the next fiscal year is the same as the projected FY 2019 Revenue growth rate of 2.7%, the Expenses would have to be held at a growth rate of 1.3% for the coming fiscal year. This level of cost control is a significant challenge for the City, but essential to our continued financial health.
In February the City Council completed a two-day workshop to set Goals & Priorities for the City. It is now the City Manager’s task to prepare new Budgets for FY 2020 & 2021 that will accomplish as many of these goals & priorities as possible while holding the line on spending.

Ultimately, the Council will have to make the final decisions on cost control and approve the new Budget. The Finance Committee will continue to participate in the Budget process and will be watching the numbers very closely.
Stay tuned for further updates.

 

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