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Enterprise funds impacted by recession

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POSTED October 1, 2009 2:18 a.m.

Employees have been asking me why all city funding sources are subject to budget cuts, when most of the discussion has centered around the status of the city’s General Fund. This is an excellent question. In fact, I am just as worried (if not more so) about our enterprise and redevelopment funds.

As most people realize, our 15 percent reduction in property taxes has translated into a 35 percent reduction in tax increment revenue—leaving us very little revenue for anything but debt service.  Our redevelopment reserves are also going to be hugely impacted by the $8 million theft included in this year’s state budget.

Our Golf Fund has been in the red for years, and currently owes the General Fund $1.3 million on top of the $155,000 annual General Fund subsidy.

As most of you know, our Solid Waste, Wastewater and Water budgets are wholly dependent on user fees and receive no support from the General Fund. The rates charged for these functions must cover all materials, supplies, labor, debt service, maintenance and capital upgrades. All of the revenue to pay for the operation comes from those who benefit from the operation. These revenues come in the form of user fees. As user fees, we don’t put these charges on the tax rolls, these are paid by the owners or tenants of the properties that use the service.
Thus, just like any private sector company, we depend on the users to actually pay their bills each month - and the vast majority do. However, as our rates have increased and our economy has tanked, the number of unpaid bills has increased exponentially. While we work very hard to collect on our debts, the bankruptcy code allows many of our debtors to walk from their bill. As the economy continues to falter and bankruptcies increase, we expect our revenue collections to drop even further.  Nearly 12 percent of our customers now receive 48-hour shut off notices.  Our write offs have already doubled since last year and we are projecting another doubling of the write offs by next June (10 percent of all receivables).

In addition, the downturn in the economy has created a reduction in the demand for many of our services. Developers are no longer demanding large trash bins and many other commercial users have cut back their consumption. Also, with the many foreclosures, fewer homes are actually needing water and trash service.  For example, despite a hefty increase in water rates, our revenue year to date has not increased.  In Solid Waste, our revenue is 5 percent less than projected in our rate study—with overall revenue up less than ½ of one percent — not nearly enough to take into account rising fuel costs, much less the rest of our expenditures.

The bottom line is that our business enterprises are likely at more risk than the General Fund. In these tough times, we need to make sure that our operation is lean enough to endure major cuts in revenue while still having funds available to make capital improvements. Just like our other revenue sources, it is very difficult to absorb increasing labor costs at a time when revenue is dropping.

Our water and sewer rates were updated last fall.  This adjustment put our rates at or near the top of our peer cities.  I was hoping that when other cities updated their rates, our rates would end up being one of the more affordable in the region.  Unfortunately, that has not been the case.  Most of our peer cities do not have enhanced retirement plans for their employees, nor do they pay as much towards health insurance, and none of them have guaranteed 4 percent Cost of Living Adjustments (COLAs).  Because of this, our rates continue to be among the highest in the region.  This will certainly impact our ability to attract businesses in the future.  We will need to take a hard look as to how we can reduce our rates in the future.

In addition, with private sector compensation dropping, we have to make sure that our enterprise employees aren’t costing more than the market can bear. Many of our citizens are already demanding that we look at the cost of contracting out services. If the gap between private and public sector pay continues to grow, it will be very difficult for us to justify our high rates that are a consequence of rising labor costs.

To access City Manager Steve Pinkerton’s blog go to www.ci.manteca.ca.us/blog/

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