City revenues and spending on target

Yuma receives ‘clean’ audit

Doug Allen, the finance director for Yuma, joked that it’s the worst nightmare of every finance director: juggling three fiscal years at once.

In a recent council work session, Allen touched on a 2021 audit, 2022 financial status and 2023 proposed budget.

2021 AUDIT

The city’s Annual Comprehensive Financial Report, completed on March 29, received a “clean” opinion.

“I say that with great pride because at times this year it looked like we may be not getting it this year, but we did manage to pull the audit through and receive that clean opinion,” Allen said. “That’s really important because that says the auditor can make a good judgment on those financial statements and does not have to qualify it. So when it comes to your bond rating, it’s very important to have.”

The audit looks not just at the Finance Department, but the whole organization and the function of systems, including technology and staff procedures. It also looks for proper and adequate training and execution of duties of all staff involved.

The independent auditor will present the complete results at the May 18 regular meeting. Allen said that the council should expect to hear about the city’s good financial position, improvements of the team and two findings.

2022 SPENDING LEVELS

All governmental operating funds are showing second quarter revenues exceeding 75% of the revenue goal and second quarter spending is less than 75% of budgeted spending authority. Governmental funds include the General Fund, Highway User Revenue Fund, City Road Tax Fund, Public Safety Tax Fund and Two Percent Tax Fund.

Operating expenditures tend to be near 25% for the first quarter (July to September),

50% the second (October to December) and 75% the third (January to March). However, Allen noted, if a large quantity of expenditures are made in single payments such as an annual subscription or lease, a quarter could run higher than expected.

Yuma’s year-over-year spending appears higher in 2022 than last fiscal year due to reduced and deferred spending in 2021 re

lated to COVID-19 caution.

“It’s just not a matter of saving your hard-earned cash. A lot of it is supply chain things. The goods and services are ordered, but they’re just not coming in on time,” Allen explained.

These balances will be carried over to the next year. “It’s going to show, wow, we have a lot of fund balance, but it’s really earmarked for those purposes that should have been received last fiscal year,” Allen added.

Likewise, the spending levels of the enterprise funds are under 75%. Enterprise funds include water, wastewater and solid waste.

2022 REVENUES

“What we’re seeing right now is that revenues are a little above 75%, so we’re pretty confident we’ll make budget,” Allen said. “Projections look to be holding even with inflation and other things going on. The revenues are pretty steady.”

While they are slightly under 75% of the revenue goals, the enterprise funds continue to show consistent revenue growth compared to last year, Allen said. The first and second quarters show 5% growth, and the third quarter shows 8% growth, a little higher than expected.

As for General Fund revenues, while the traditional third-quarter benchmark is 72% of total year-end revenues, the city had collected 80% of the budget goal by the third quarter in FY2022. October was the only month lower than projected, but November made up for it.

“The way it looks now, it’s a little more solid coming through. We’re almost at budget, and the projections can raise up a little bit more,” Allen said. “What that says is, in the next month we’re expecting to meet the budget. and so we have excess revenue coming in.”

2023 BUDGET

Allen said he expects the 2023 budget goal to be above the 2022 trends.

Currently, the city is working on a 2026 forecast as part of the financial plan for the 2023 budget. The forecast takes into account the labor market, inflation, state shared revenues, local and state economy, new construction, available housing, legislative actions, voter initiatives and local and state population.

The idea of the forecast is to plan and set up how the city will fund things in the future years. For example, the city needsto plan for new fire trucks every 10 years.

The forecast will incorporate multi-year plans for fleet repair, replacement and expansion; information technology life cycle and cloud and subscriptions costs; debt service, facilities and capital improvement projects; public safety equipment; employee costs and levels; and designation of fund balances.

Designated fund balances refer to money put away for specific goals, such as a new facility. The city previously had these kinds of fund balances, but dropped them around 2014.

“Going forward, we’re going to recommend we bring back some of these designated fund balances for the future,” Allen said.

Examples of designations include fleet repair, replacement and expansion; IT equipment life cycle; debt service, capital improvement projects; and public safety equipment.

He also noted the city’s typical 20% reserve, pointing out that best practices call for 20% at minimum in case of potential problems with revenue stream or extra spending. If the city doesn’t have a program of committed fund balances or long-term planning, then the city will probably need a larger reserve, he said.

During the COVID-19 pandemic, tourism dropped, causing revenues to decline by 56%. “So the concept was to have enough reserves so if we didn’t collect any revenues we could survive for a chunk of time. So it worked in that case,” Allen said.

Councilman Mike Shelton asked what fund balance percentage he recommended. Allen said that it could change from year to year, depending on the council goals.

Allen noted that the 2023 proposed budget is designed with flexibility to adapt with anticipated and unforeseen changes, such as supply chain and labor issues, during the fiscal year.

In a discussion after the presentation, Mayor Doug Nicholls noted that although Yuma grew in population, it didn’t grow as much as the Phoenix metro area. Consequently, Yuma will receive a smaller percentage of the overall state budget.

However, Nicholls added, the natural growth of the economy means that the available funds will offset the decline in population. In other words, Yuma’s slice of pie will be smaller but the pie itself is larger.

The mayor also asked about budgeting for inflation and the cost of gasoline. Allen acknowledged that these factors keep changing. Aside from determining the normal average cost and how many gallons of gasoline will be used, the city also has a contingency fund strictly for gasoline. If the cost keeps increasing, the city can tap into that. If it’s not needed, these funds can be reallocated somewhere else or rolled over to the next budget year.

In response to questions from Councilman Gary Knight, Interim City Administrator Jay Simonton explained that the city no longer stores gasoline but rather uses an outside vendor to fuel all vehicles. However, Simonton said, the city pays less than the consumer pays at the pump and pays a fraction above wholesale.

Councilwoman Ema Lea Shoop asked about grants, noting that some people believe grants could offset the budget, while others call them problematic because of matching funds and ongoing costs.

Allen said that grants are always part of the budget and incorporate matching funds and future operating costs. However, to accept a grant, the city first needs to have all that information on hand.

The council will discuss the 2023 budget during work sessions on May 3 and 17 with adoption of the tentative budget on May 18. Final adoption is scheduled for June 15 with adoption of the tax levy on July 6.

“We look forward to this process. I say that a little tongue in cheek, but that’s the most important thing we do every year,” Nicholls quipped.