City reviews budget, financial position
City officials reviewed their budget and finances during their Jan. 16 meeting.
Melissa Kinzler, finance director, and Kirsten Wavra, deputy finance director, walked commissions through their revenues, expenses and budget drivers.
The city is still recovering from COVID and did not take any tax increases during fiscal years 2021 and 2022, using $552,502 and $1,300,466, respectively, of fund balance.
The city used the full tax increases during the fiscal year that ended June 30, 2022, but did not recoup all the lost tax revenue from the previous two years and used $1,205,000 of CARES Act funds to balance the budget.
For the current budget, the city is using the full allowable tax increase and $998,064 of CARES to balance the budget, according to city staff.
The city is also seeing the increased expense of the COPS grant, a four year grant to hire additional police officers, with a larger portion of the cost paid by the city each year of the grant, until paying the full cost in the fourth year, which will be fiscal year 2025.
Kinzler said expenses have increased over the last three budget years and about 72 percent of the city’s expenses in the general fund are personnel, which includes salaries, benefits, retirement, health insurance, etc.
Wavra did a three year comparison as of Dec. 31 each year.
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She said it’s more meaningful to look at their finances as of the end of December when the city receives the first half of its tax revenues.
The city’s cashflow is cyclical since tax payments are received in December and June.
Wavra said that’s why the 22 percent fund balance is so important to the general fund, to handle that cyclical nature and cover any dips in funds between tax payments.
Commissioners adopted their budget in July.
They typically set their tax levies and assessments in August when they receive their certified taxable values from the Montana Department of Revenue, but waited until early September since Calumet Montana Refining had asked for a review of their taxable values.
Wavra reviewed the budget drivers since that time.
One of those is newly taxable property. The finance staff has to estimate that while developing the budget since they don’t get the certified numbers from the state until August, after they’ve had to build the budget.
Historically, that’s been $400,000 on average, she said.
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This year’s came in much higher at $1.5 million.
But, there’s also $644,000 of protested taxes for the first half of the year, most of which is from the Calumet appeal, according to city documents.
The city received a $1 million reimbursement through the sale of the Centene building since the city had contributed to public improvements on the site years ago.
The city has received $139,448 in local marijuana tax payments to date and the finance department estimates that will stabilize around $220,000 annually.
For comparison, the entry pay for a new police office at GFPD was $63,857.16 as of July, 1, 2023. The cost of a new fire truck was an estimated $750,000.
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The city also received $83,308 through an opioid litigation settlement. Those payments are projected for about 10 years for about $40,000 annually over the next few years, then down to $25,000. She said the use of the funds is restricted to specific uses.
Kinzler said that the city started the year with a $998,064 deficit and used fund balances and COVID relief funds to balance the budget.
She said that the city received an unexpected extra $1 million in newly taxable revenue, but with about $1 million in protested taxes, that zeroes out.
Adding in the Centene sale reimbursement and the marijuana tax revenues, the city could potentially end the budget year with $38,558 in the black, she said.
She told commissioners that the one-time Centene reimbursement funds could be used toward a capital improvement or a one-time expense, and if they do that, the budget is back in the negative.
“There’s a lot of caveats,” Kinzler said, particularly with protested taxes.
In recent history, it took nearly three years to settle the Calumet protest and the city can’t access those tax revenues during the protest process.
She said they don’t know how long it will take or how the appeal with settle out.
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City officials have worked in recent years to cut subsidies from the general fund, which is largely made up of tax revenue, to the enterprise funds, which are those primarily funded by user fees.
That’s been an effort to reduce reliance on the general fund and free up funds for public safety.
Funds that have lost general fund subsidies include the library, recreation, parking, golf, multisports and others.
City Manager Greg Doyon said the enterprise funds that need review are no surprise to those who have been around for awhile.
Some are affected by weather, some by the national economy, some by their management, he said.
Sometimes there’s an imbalance between fees and cost recovery.
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Doyon said there’s also the political will factor of “why are we doing this service and we aren’t going to do it anymore if it’s not working.”
Some don’t have clear answers, such as parking, he said, and parking problems are never fully resolved since a lot has to do with user behavior.
“If that was easy, we would have dealt with that a long time ago,” Doyon said.
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The city owns two parking garages, both with significant capital deficiencies that run the risk of turning into major problems like the Natatorium, Civic Center and Fire Station 4 if not dealt with, Doyon said.
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He said there had been some consideration to privatizing the garages to make it more attractive to an investor or using tax increment financing funds for further repairs.
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Other city officials have warned over the years that privatizing the garages is an option, but then the city loses control of those parking rates and private companies often increase parking rates significantly.
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An example of the lack of political will, Doyon said, was when years ago he pitched selling the municipal golf courses.
Commissioners rejected that proposal and the city went through several more budget cycles of the golf courses losing money.
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They have since entered an agreement with CourseCo, a private company, to manage the golf courses, which are now making money and reducing the golf fund’s deficit to the general fund.
The Multisports facility has gone back and forth between public and private management and Doyon said he won’t propose a public subsidy for that since he believes users should cover those costs.
Newly elected Mayor Cory Reeves asked if the city could sell the existing Recreation Center once the new aquatic center opens.
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For years, Doyon has said he would recommend closing the Rec Center once the new aquatic facility, with its new recreation center, opened.
A daycare facility has been renting space in the existing Rec Center and has been working with city staff for some time to extend and expand their lease with the plan of eventually taking over the building.
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Doyon said that as long as the lease can generate revenue to support the Park and Recreation department, he’ll recommend retaining ownership of the building, but they’ll also have to maintain the building.
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Commissioner Rick Tryon asked the finance staff how they’d characterize the city’s overall financial position.
Kinzler said that the years before COVID weren’t easy either, resources were scarce.
She said it’s concerning that the CARES funds will end but the financial landscape isn’t much different than pre-COVID with a lack of available resources and rising costs, making it “always a struggle.”
Kinzler said that the city’s position is okay now, but expects struggles as they build the next budget.
Doyon said that he expects a deficit in the next budget. He said that there’s construction in the community, but not enough to significantly impact the tax base. Apartments and single family home construction don’t make much of a dent, and that more industrial, manufacturing or commercial construction is needed for meaningful growth of the tax base.
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He doesn’t “see any clear way without additional funds to address public safety at all,” Doyon told commissioners.
Even with a significant adjustment in the city budget, it would be hard to fund public safety the way city officials say they need.
He said his observation of the community’s response to the public safety levy was that a feeling of not fixing things until they really break.
Doyon said the city tries to do pre-planning and maintain infrastructure, such as utilities, since those funds are funded by user fees and not subject to the property tax cap.
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He said they often hear from the community that they want slow and incremental service fee increases and are frustrated with tax increases.
“There’s a different set of expectations,” Doyon said. “Perhaps people are simply satisfied with the services they’ve been getting.”
Commissioner Susan Wolff said she’s concerned that the community is slipping backward.
“It seems that our community is unaware” of the current needs for public safety, she said, and hopes it doesn’t get to the point of something bad happening before voters want to engage.
She asked if the increase in newly taxable value would continue.
Kinzler said that increase was attributable to Calumet and “I don’t foresee anything like that occurring in next year or so.”
Kinzler said that past history shows the only significant jumps in newly taxable property are major commercial projects in an area that’s outside a TIF district and not a nonprofit.
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Commissioner Joe McKenney said they talked about not letting the public safety levy disappear and not dealing with it for another decade. He said commissioners discussed during their retreat earlier this month putting together a public safety advisory panel to advise on funding or service reductions.
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In 2021, the city established a crime task force that spent months learning about local public safety challenges and needs for public safety. In late 2021, that task force provided eight pages of recommendations to the City Commission.
Commissioners and city staff spent months discussing those recommendations, which morphed into the public safety levy and bond that failed on the November 2023 ballot.
