Following an early morning special session last week, the Avalon city council finally adopted a budget for its current fiscal year after auditors and staff were finally able to piece together numbers for questions about previous budgets.
In the end, the city made small adjustments to the proposed $17.6 million budget, adding back monies for preventative maintenance and approving the deferral of budgeting in some capital expenditure projects that more reflects the years in which the funds would actually be spent.
Budget analyst Matt Baker presented the document to the council, first explaining how the staff and auditors finally agreed on a starting balance after making adjustments for the previous accounting.
A complete copy of the presentation is available on the city’s website, officials said. In general, however, Baker and Finance Director Robert Torres have been able to work through the fiscal 2017-18 discrepancies in which former officials scheduled a $3 million transfer from the city’s “successor agency” in the overall budget process.
To be clear, Baker said, “no actual transfers were ever made” and that while transfers from that agency are allowable under some conditions, neither he nor Torres were comfortable with the “assumptions” under which the previous finance officials had proposed the transfer.
Baker said the adjustments have been made and are now reflected in the current budget. Assuming the budget rolls out as projected, the city’s overall general fund will reflect a reduction of approximately $2 million as they expect to end the fiscal year somewhere between $15 and 16 million.
Baker explained the complicated process of how they backed out the budget balances and how they arrived at “starting balances” that were reliable and justifiable.
Major capital improvement expenditures such as Pebby Beach Road, Green Pier repairs, Harbor sand and sediment study, Cabrillo Mole improvements, and the Fuel Dock closeout were budgeted only for their capital needs for the year, said Baker, rather than the entire project costs.
Also during Friday’s special session, Baker told the Council that, in general, revenues would cover operating costs, but “certain operating expenditures are outpacing revenue growth.” He said salaries and benefits had increased $600,000 year over year, which included higher worker compensation costs and unfunded pension liabilities.
Council member Pam Albers stopped Baker during the presentation when he said the city had increased pension costs of $120,000 for the year, saying she did not believe it was fair to taxpayers to not reveal the total unfunded liability is “more like $7 million” overall and that it deserved a hearing during a regular Council meeting, not just during a morning session when most people were not able to watch or participate.
Baker mentioned, however, pension costs for Avalon is at 8.6 percent of the general fund budget while the California average is currently 11.2% and is projected to substantially increase by 2025.
City Manager Denise Radde said the item would be placed on a future agenda.
The Council’s hunt for revenue also included a discussion of potentially borrowing from the long-held housing fund of approximately $5 million to cover short-term costs of capital improvement projects that could be paid back when grant funds from state or federal sources were received.
Radde said the city was making about 2 percent interest on those funds and Mayor Anni Marshall pushed back on many suggestions, suggesting any ideas about “borrowing” against the fund would have to involve a way to ensure the interest would be recaptured.
The council also questioned some long held practices that could change very soon, including a change in the formula that awards the city’s Chamber of Commerce and Visitor’s Bureau more than $1 million per year of the city’s transient occupancy tax.
Albers said the city has been over generous in its formulations of the percentage awarded to the chamber. She also questioned the practice of advertising that brings tourists to the island in droves in summer, only to award them with a “bad experience” because of overcrowding during peak periods.
Marshall asked about the issue as well but as Council member Oley Olsen reminded the Council that any major changes may require a vote of the people. The council did agree, however, to take up a discussion about changing the current formula at a future meeting.
Baker said any changes to the formula can be discussed but he thinks any changes will require a vote of the people. The city receives 12 percent on all short-term vacation or hotel rentals, which Baker said generates $5.4 million per year and is critical to the city’s general fund budget.
Regarding future sources of revenue, Baker told the Council they had the authority, without voter approval, to add a $1 cross channel fee that would generate about $650,000 per year.
With voter approval, Baker said the city could generate $900,000 per year with a 2% increase in the transient tax and $250,000 per year with a quarter percent sales tax increase.
Council member Richard Hernandez asked for budget changes that the council agreed to consider.
The Council voted 4-0 to adopt the budget.
