Manteca was on pace to burn through $149.6 million of reserves and fund balances before City Manager Miranda Lutzow — upon being given the first insight of how dysfunctional the city’s finances were — put the brakes on municipal spending.
The cuts last year to operational and capital requests imposed by Lutzow avoided the citywide fund balance of $168.6 million dropping to below $19 million or a reduction of 89 percent instead of the $95.4 million drop or 43 percent cut now projected for June 30.
Spending adjustments were made in September shortly after Lutzow retained the services of forensic accountants to try and secure solid numbers on where various municipal accounts were at in terms of balances and outstanding obligations. It was a move strongly advocated by Mayor Ben Cantu who was not satisfied that a city such as Manteca that has enjoyed solid, non-stop growth since 1997 including through the Great Recession when virtually every other city in the region’s building permit activity flat-lined could not support more robust services.
The decision in September has allowed the city to stop the bleed. It means that the budget for the fiscal year starting July 1 will be built on “real numbers” when it comes to the general fund for day-to-day services as well as enterprise accounts such as sewer, water, and solid waste along with other restricted funds.
Councilman Gary Singh made the observations that the “real numbers” were the silver lining during last week’s council meeting where Acting Finance Director Stephanie Beauchaine provided a clearer snapshot of the city’s finances during a PowerPoint presentation.
The most stunning findings were how inter-fund borrowing, failure for years to properly assign expenses to the right accounts, and general ledger entries lagging for months had masked the true financial status of various accounts.
*The sewer fund is on pace to end this fiscal year on June 30 with a negative balance of $4.7 million.
*The water fund is on pace to end this fiscal year on June 30 with a deficit of $16.2 million.
*Outstanding inter-fund loans — an accumulation of tens of millions of dollars — were not being properly tracked nor being paid back. Enterprise accounts such as sewer and water alone owe the city’s streets fund $20 million in loans with interest for which payments haven’t been made for at least several years.
*The streets, drainage and solid waste accounts were being rapidly depleted.
The fact the city at the start of November had $100 million cash on hand helped mask the real problems for years. But when all books are properly balanced and all binding obligations are met much of the money on hand primarily from robust growth fee balances for everything from government facilities to major roads can’t be used to cover shortfalls.
The avenue of making more inter-fund loans is still open and may be a necessity until rate increases can be still put in place. But those loans and existing loans need to be paid back so pressing city needs for which the money was collected such as major street work on Airport Way can occur.
The mid-year budget adjustments the council adopted this month reflect:
*$39.3 million in revenue adjustments.
*$104.2 million in expense adjustments.
*the use of $73.2 million reserves including those in the general fund and other accounts.
The cuts last year to operational and capital requests imposed by Lutzow avoided the citywide fund balance of $168.6 million dropping to below $19 million or a reduction of 89 percent instead of the projected $95.4 million drop or 43 percent cut now projected for June 30.
The original budget for the current year was adopted as a provisional or rollover budget with minor changes. A lot of cities were doing that due to the unknown financial impacts of the COVID-19 lockdowns back in June 2020. Once that was known and vacancies in financial department management were filled, the city was planning to rework the budget.
That changed once a thorough look was taken of the city’s books.
It was soon discovered that major capital improvement projects — new and rollover — did not have funding addressed to pay for them and in some cases had cost estimates that were too low.
Ongoing concerns identified were as follows:
*The city does not have sufficient funding necessary for operating and staff needs.
*Capital improvement projects were committed to in prior years without funding plans. Many other projects being advanced had funding caps.
*Rate studies were outdated and do not reflect current operating and capital needs.
*A master capital improvement plan and development impact study is expected to identify millions more in unfunded capital needs.
*The city currently has a general fund reserve of $23.5 million that may need to be tapped before the end of the fiscal year on June 30.
*The general fund — which includes police and fire services — will only sustain the current level of service once the economy rebounds.
The current fiscal year budget as adjusted last week:
*Maintains status quo staffing and operating capacity.
*Funds necessary capital improvement projects include street work already in the design and bidding pipeline such as Mayors Park, Springtime Estates, and widening Main Street to four lanes through downtown.
*Preserves most fund balances.
Looking forward the budget for the next fiscal year will:
*likely have to be a “hold the line” approach.
*require capital improvement projects to be prioritized and deferred where possible to preserve fund balances.
*enterprise funds — sewer, water, solid waste, and golf — as well as fees levied on growth — will have rate studies completed.
*rates and fees will need to be raised.
*large scale projects will either need to be financed or deferred until city balances are restored sometime in the next three years.
To contact Dennis Wyatt, email dwyatt@mantecabulltin.com
