By Mark Carlisle
Five years ago, when the Glendale’s reserve fund was in the red, City Council and city staff set a goal of reaching a $50 million reserve fund by the end of the 2019-20 fiscal year. Last week, the city began its planning process for that year’s budget, and staff says the goal will be reached.
City staff presented before City Council Dec. 11 the first of many meetings regarding the budget for fiscal year 2019-20, which begins July 1, 2019 and ends June 30, 2020. Eleven more budget meetings are planned before the fiscal year starts.
Glendale’s longstanding goal has been to reach an unassigned general fund balance of $50 million by the end of the fiscal year the city’s now planning for. Once the city’s rainy day fund reaches that benchmark — where Council and staff can be comfortable in the event of unforeseen expenses or another recession — it will allow the city to spend more of its annual surpluses on things like improving city streets, parks and public buildings rather than putting it into savings.
Staff says the city should reach its goal on time, even if that’s not what its forecast shows.
The city’s five-year forecast presented to Council last week shows the unassigned general fund increasing by just $612,000 with the reserve not reaching $48 million, let alone $50 million.
First, it’s important to note the forecasted budget is only a forecast — and not the final forecast. These projections will change between now and June as City Council directs staff on how the city’s money should be spent.
Second, it’s a conservative forecast. The forecast accounts for a conservative growth rate in the city’s sales tax revenue — 3.5 percent over this year’s — anticipates City Hall will be fully staffed throughout the year and projects that Glendale will use all of its $2 million in general fund contingency.
Budget and Finance Director Vicki Rios said this conservative forecast should not be expected to play out as is. A combination of outperforming revenues, spending less than its planned expenditures and not using all of its contingency, the city can reach its reserve fund goal of $50 million.
“We feel that we can still get there, but it’s tight,” Ms. Rios said.
Glendale’s forecasts have historically been more conservative than reality. The fiscal year 2018-19 forecast anticipated an unassigned general fund balance of $43.6 million by the end of the year. Halfway through that fiscal year, the city has adjusted that balance to $47.3 million.
If Glendale can continue its fund growth at anywhere near its recent rates, it will meet its $50 million goal easily. The city’s reserve fund has increased by at least $5.3 million in each of the last six years. If it grows at about half that rate — $2.7 million — in the upcoming fiscal year, it will reach $50 million by mid-2020.
Assistant City Manager Tom Duensing said Glendale has never spent its entire contingency since he joined the staff in 2013. So, the city could save up to $2 million in that area alone. In fiscal year 2015-16 and 2016-17, the most recent two years with final financial reports, Glendale spent $2.1 million and $3.8 million of a $5 million contingency.
Vacancy savings come from payroll savings during the interim time between when a staffer leaves a position and the time the position is filled again. Mr. Duensing said Glendale budgets 100 percent of salary and employee-related expenses, such as FICA and retirement, but averages vacancy savings of at least 5 percent of that total payroll amount each year.
Staffing is not the only area in which the city could under-spend the forecasted expenditures. During last year’s budget process, City Manager Kevin Phelps explained that staff’s forecast is conservative both for money coming into the city and money going out.
“Just like we want to be conservative on our revenue assumptions, I think we also want to be conservative on our expenditure, and by being conservative, saying that we’ll assume a higher rate of expenditures than what we really anticipate to have,” he said.
Staff’s forecasts are even more conservative in the out years. The forecast presented to Council last week shows the reserve fund’s trend of growth reversing. It projects a decline in the reserve fund starting in fiscal year 20-21, culminating in a loss of $5.7 million at the end of the five years.
Ms. Rios noted in her presentation that the forecast projects for slower growth the further out it gets, because so much is unknown about the years further down the line. As year’s get closer, they become easier to project.
Last year’s forecast projected a $31,000 general fund deficit in fiscal year 2019-20. Now that the year is closer, staff is projecting a $612,000 surplus. The recent trend suggests it’s likely to be higher than that.
During last year’s budget process, Mr. Duensing said although the fiscal year 2018-19 budget showed a surplus of just $214,000, he anticipated a surplus of about $5-$8 million each year moving forward. That’s consistent with recent trends, and, halfway through the year, the city projects a surplus of $6.8 million.
The difference will be, once the city reaches its reserve fund goal in mid-2020, that $5-8 million will no longer be sent straight to the piggy bank but can be used to improve Glendale.