Tuesday, May 10, 2011

The Perils of Using the General Fund for an Event Center

The General Fund is the primary operating fund for the city which pays for most of the day to day services for the city. When city general fund departments don't expend all the money in their yearly budget, the unspent monies remain in the general reserve fund. 

The general fund is supplied money primarily through the first penny sales tax and property taxes. If the revenues (first penny sales tax and property tax) exceed the expenditure (the general fund departments' expenses) then there is a surplus, hence the growth in the fund, usually referred to as the unobligated balance.

As the primary operating fund, the general fund is comprised of budget expenditures (appropriated by the city council) of all general departments not supported by user fees. No funds may be expended without the council appropriation approved by city ordinance.   In the 2011 Budget, 85% of the expenditures were personnel costs, 9% of the expenses were for other operating costs, 6% were for capital expenses.

Personnel costs encompass wages and benefits for the mayor, city council, appointive officials,  full time and part time civil service employees and temporary and seasonal employees, workers compensation costs, health insurance costs, liability insurance costs. Other operating costs encompass operating and administration costs for departments, i.e., new and replacement computer hardware/software, gas and utilities, supplies and materials, education, travel and training, telephone costs, consultants and contracts, to name a few.

There are many ways the Administration can save money thereby building up the general fund unobligated balance in order to use as a funding source for the Event Center. Here are some things to watch for during the year to indicate the mayor is building his cookie jar.
  • Set the annual budget at zero percent growth. What this means is departments will have to eat any inflationary costs in non-discretionary spending which will impact their ability to fund program services expenses.
  • Put a hiring freeze on any new and/or separated employees.You also won't be able to afford to staff a new westside library or a new fire station since all those costs must come out of the general fund.
  •  Limit the hiring of temporary or seasonal employees. In Parks and Recreation, this would limit recreation program services offered in the summer.  Summer maintenance and repair programs and winter storm removal will be impacted in Street Maintenance.
  • Slow down purchases of  new computers, new or updated software requests, etc. This could mean a negative impact on services to the public. 
  • With supplies experiencing high inflationary trends, this will limit the resources available for their purchase.
The mayor could ask the city council to pass an ordinance to use the city's primary operating fund  for the construction of the event center. If the city council allows the utilization of unappropriated funds (reserve or surplus, whatever you want to call it)  it will leave minimal funding for emergencies and for cash flow.

Bringing an ordinance forth to allow general fund dollars for construction costs is unprecedented.

There are funds identified in city government for construction and infrastructure needs: the second penny sales tax, the entertainment tax, and bonding. I hope cautious heads prevail at the city council level if they adopt such a drastic change in fiscal management of taxpayer dollars. What a city council does today to finance an event center could have serious ramifications to the operation of city government as we have known it.

19 comments:

  1. As I recall, the General reserve fund stands at 41.7 million. Lotsa questions. Is not that reserve fund at over a third of expenditures? How long did it take to build up this "cookie jar" money? When is the last time no money was added to the reserve fund? Are our taxes too high if we have a reserve fund that is at over a third of total expenditures?

    As for things to watch for. The good mayor will have to go after pension plans, good or bad, still bargained for, and won in good faith.

    Part time help? I have heard, can't recall if I read it here or somewhere else, the city already has a hiring freeze in place at the street department. Is it true the street department last year ran four crews taking care of potholes? Is it true this year they are only running one? Remind me again where the money comes from to fix our pothole riddled streets.

    This all seems like a lot to sacrifice for a man with a Napoleon complex and a vision.

    Polly Amalo

    ReplyDelete
  2. Jennifer's MusingsMay 11, 2011 at 11:24 AM

    Polly Amalo,

    There has always been money in the unobligated reserve fund. There needs to be money in there for cash flow (used to be around $15 million, not sure what is necessary today)and emergencies. The council adopted a reserve fund level of 25% as of December 31 of each calendar.

    No our taxes are not too high. The city needs an unobligated reserve fund for cash flow and unexpected emergencies. The unobligated reserve fund will increase as long as the city's revenues exceed budgeted expenses at the end of the year.

    The 2010 and 2011 budgets were sent at a zero growth basis which means if the revenues exceed the budget expenditures, more money will flow into the unobligated reserve fund.

    Taking care of potholes is a street maintenance function which comes out of the general fund which the Street Division falls under in the budget.

    ReplyDelete
  3. Concerned CitizenMay 11, 2011 at 11:38 AM

    It seems to me the mayor is sacrificing departments, personnel, street repair costs to build up this fund. Didn't you say this fund has never been used in the past to pay for any construction costs?

    ReplyDelete
  4. OMG, Jennifer, why are you unnecessarily scaring people? The Mayor has NEVER EVER considered using general fund dollars to build the events center....EVER. By putting it out the way you have, you have misled your readers into thinking Mayor Huether has somehow proposed that, when in fact, he has not.

    You are clearly very knowledgable regarding city governement and their budgets, and I think your blog is some times a valuable eduction tool for your readers, but again, why put this clearly false information out there or mislead your readers into thinking Huether is contemplating this?

    ReplyDelete
  5. Anonymous@3: 57 you.are wrong. The mayor has previously said his finance plan is made up of general fund reserve, private donors and bonding.

    ReplyDelete
  6. Seems to me the only place the real issues concerning an EC are found on a couple of internet blogs. Yours and South DaCola. The Argus, KELO, KDLT, ksfy, cable channel 16, and the local talk radio spin doctors are stuck on their favorite location, not who's gonna pay for it.

    A couple of weeks ago I was at Rookies Bar for KWSN's annual NFL mock draft. Had a couple of friends participating, so I was there lending moral support. The place was full. Stu Whitney, (the tool) was supposed to be the "commissioner" of the draft. He showed up for one radio segment, pitched a twenty minute rant on why the mayors plan is the only plan that will work. What surprised me is EVERYONE in the place was on his side and cheered him on. I found that rather curious, and asked several fans there why they agreed with Stu. They ALL repeated Stu's talking points and brought up parking, traffic flow, yada, yada, yada.

    I think Joe SixPack is simply misinformed...from both proponents.

    The internet is where the truth lies.

    Polly Amalo

    ReplyDelete
  7. @5:40pm, trust me when I tell you that you are wrong....he said bonding, naming rights (private money), and a down payment from annual CIP excess funds (2nd penny reserves). Someone cited the internet as the source of truth, what a joke, this is the problem with the internet, people who may have good intentions but don't fully understand the different funds, then you combine that with bloggers who put out half truths intentionally or unintentionally and the saps who read these believe every word as the gospel and spread this crap.

    ReplyDelete
  8. @6:22PM

    First off, the CIP reserve is at 3.8 million. What you gonna buy with that? A monument outside the place of the mayor? Naming rights? How much there? 10-12 million? That leaves about 120 to 140 million in bonding which will need a 60% super majority VOTER approval. Ain't gonna happen.

    Remember this Argus article?

    http://www.argusleader.com/article/20110320/NEWS/103200310/1001/news/Huether-hails-city-s-healthy-reserve-fund

    Polly Amalo

    ReplyDelete
  9. From a power point presentation with the good mayors fingerprints all over it.

    How would we pay for it?
    • Cash Reserves $ 15 million
    • Private Partnership $ 15 – 24.5 million
    • Bonds $ 60 – 69.5 million
    • Total $ 99.5 million

    Where is that 15 million cash reserve coming from?

    And while we're at it. Yer gonna build a 12,000 seat McArena, with all the cushy ammenities for $99,999,999.99? Tell us what it's really going to cost AFTER you factor in the true cost of anything more than a concrete box, or pole building with cramped seating. Don't forget to toss in parking upgrades, arterial street upgrades, and utility upgrades.

    You can only pull the wool over our eyes for so long, then you gotta show us the "meat on the bone."

    Polly Amalo

    ReplyDelete
  10. I don't believe we have to worry about spending the 3.8 million CIP reserve. I think it was spent (first reading)at Monday night's city council meeting!!

    ReplyDelete
  11. Jennifer's MusingsMay 11, 2011 at 9:08 PM

    @ 3:57 pm and 6:22PM

    Let's set the record straight with THE FACTS.

    First, I suggest you go the the City's official website at siouxfalls.org and click on the 10-4-10 Event Center Presentation and watch the video and review the presentation PDF. The mayor specifically addresses financing to include $15m from cash reserves, $15-24.5M from private partnerships and the remaining millions from bonding.

    After I watched and reviewed the mayor's presentation,and subsequent presentations I wrote a blog on October 12, 2010 titled Funding the Event Center with Reserve Fund Money; October 18, 2010 blog titled The Cookie Jar (alias for the General Reserve Fund), October 21, 2010 blog titled Robbing Peter to Pay Paul, and March 21, 2011 blog titled General Fund and CIP - Healthy Reserve Fund Balances for the Event Center.

    The facts are the facts.

    ReplyDelete
  12. Jennifer, it doesn't make it "fact" just because you wrote it in a blog. I read your blog and I do recall those postings, and each time I knew they were wrong.

    In your defense, you and polly aren't too far off, although polly also likes to throw in her own editorial comments and baseless claims of $120-140M. As I've said all along, his goal was to use up to $15M from reserves as a down payment, just as any responsible consumer would do on a home purchase. This $15M is to come from excess CIP funds (or CIP reserves) each year, he would build that "cookie jar" amount for a down payment. So you are correct in citing his presentation slides and those numbers, but you are wrong in your assumption/assertion that he has EVER stated he would use general fund (operating budget) reserve dollars. As I stated in an earlier posting here, just show me one citation where he clearly said that and I'll apologize for being too hard on you.

    PS And to the posting about the $3.8M being spent....very astute point, you must pay attention. However, it was not a first reading, it was an idea thrown out by the finance director at the city council informational meeting. It was thrown out there because it has become clear the city council isn't fiscally disciplined enough to NOT blow that money, it's burning a hole in their pocket just like the saved general fund dollars from the reduced CVB subsidy approved last Fall when they managed to spend those "savings" in less than 15 minutes, so might as well spend it on legitimate items rather than some crazy list they'll come up with.

    ReplyDelete
  13. Jennifer's MusingsMay 11, 2011 at 10:41 PM

    @9:31 PM

    This is turning into an interesting discussion between you and me. Unlike you, I publish my name with my convictions.You feel so strongly in your position, yet you do not have the conviction of your position to use your name and choose to remain anonymous.

    You are using a play on words. During my tenure with the city, cash reserve was the terminology used when making reference to the general fund. Any funds not expended in the Sales and Use Tax Fund (2nd Penny) was termed undesignated, or an unobligated balance.

    I see in the 2010 CAFR that the management summary on the general fund refers to the 41.7 million as unreserved fund balance.

    The Sales and Use Tax Fund management summary states the fund experienced a positive $0.8 million change in fund balance, ending with a balance of $27.0 million,$8.4 million of which is unreserved. Of this balance, $4.6
    million has been designated for capital projects that will carry forward into 2011, leaving $3.8 million unreserved and undesignated.

    I suppose we can wordsmith this forever and you can make the term "cash reserve" mean anything you want to mold it to fit your position that the mayor never said "general fund" cash reserve and really meant "2nd penny sales tax" cash reserve. I don't buy it, but that is the beauty of differing opinions. It is convenient to now use this "new" way of talking about undesignated/unobligated reserve of 2nd penny sales tax as "cash reserves."

    Next time you comment, show your credibility on this wordsmithing of "cash reserve" by using your name.

    ReplyDelete
  14. Goodness, I wish these City employees would use their names when they post comments. Might then believe them instead of this chickenshit "anonymous".

    ReplyDelete
  15. Polly - I want to correct something. I got the Mayor to admit the $100 million number is false when he was on Stu Whitney's Q & A, BJ Fest. Mike said it could cost $110-115, but he didn't know, because final 'plans' have not been drawn up. While I appreciated Mike being somewhat honest, it just proves he has been running this operation by the seat of his pants. He has no clue what an EC will cost, which is unfortunate since we have spent well over $1 million dollars studying an EC in SF yet not one expert can give us a hard number. Of course, you have to realize this is the same city that told us Phillips to the Falls would cost $1.5 to complete (actually $3 million) and the Pavilion would be $21 million to complete (with subsidies it has cost over $50 million).

    As for the media and blogs, Lalley took the bold move to pronounce that blogs are not 'Influential' anymore during the AL's last '100 Eyes' program. Even though his journalists have taken tips from me, Jen and Cory of Maddville times after we have broken stories. I also pointed out while his show had 29 viewers that day my last podcast with Representative Hunhoff had over 1,100 downloads on I-Tunes and my daily readership averages 10,000 individual readers a day (I think the AL's daily household subscriptions is around 25,000 a day) I jested though Patrick had to protect his job while I was merely protecting my hobby. Lalley really has drank Beck's kool-aid.

    ReplyDelete
  16. As I've said all along, his goal was to use up to $15M from reserves as a down payment, just as any responsible consumer would do on a home purchase. This $15M is to come from excess CIP funds (or CIP reserves) each year, he would build that "cookie jar" amount for a down payment.

    ~~~~~~~

    What the ?!?!?! Back in our day, a down payment was just that, a down payment. We bought a new home thirty years ago for $100,000. We put 20% down. That meant $20,000 at closing time, not maybe 'cookie jar' money from next year, or the years and decades after. We paid off that 15 year mortgage in ten years. How? We were fiscally responsible and stayed away from credit card scams like our mayor marketed.

    Take a close look at out finance directors presentation monday night.

    http://docs.siouxfalls.org/sirepub/mtgviewer.aspx?meetid=1475&doctype=AGENDA

    It starts somewhere around the 7 minute 30 second mark. If you watch from the beginning you can catch the Entemann rant. Anyway, Turbak is clearly talking about the $3.8 million in unobligated 2nd penny tax money. I guess this is the money the mayor plans on using as a 'down payment'. Hard to tell though. Like Jennifer says, you city bean counters love to play with wording to make your numbers fit.

    Some important project numbers the city would like to use that 3.8 million 'cookie jar' money on?

    $800,000 Arena improvements (mainly scoreboard)
    $1,200,000 Street work
    $100,000 Fire Department work at 37th & Minnesota
    $200,000 Library upkeep
    $300,000 Townhall improvements
    $1,100,000 City Hall HVAC Improvements

    As you can see, this 'cookie jar' money comes up to 3.7 million dollars. That leaves $100,000 for a down payment on a yet to be determined cost for an EC? I guess that's why Turbak was too ashamed to even list an amount under 'Event Center Cash Downpayment'.

    And please...while you're here miss beancounter, please explain how we can magically build an amenity filled and comfortable EC for $8333 a seat? Similar projects over the past few years run anywhere from $10,000 to $13,000 a seat.

    Polly Amalo

    ReplyDelete
  17. @ 9:31 You said:

    "As I've said all along, his goal was to use up to $15M from reserves as a down payment, just as any responsible consumer would do on a home purchase."

    As a banker or investor, what would you tell someone asking to borrow funds to remodel their $75,000, 1960's, 2 bedroom ranch home on the North End into a $750K sprawling home with a 6 car garage soley because they might host a big party or two 6 years down the road? Does that sound like a responsible consumer to you?

    ReplyDelete
  18. Anon 9:45 - As a friend said to me about the EC a few years ago, "You don't add a guest room to your home for your uncle who visits once every two years."

    ReplyDelete
  19. Too bad about the lost comments. Finally got a huether lieutenant to crawl out...and whoooosh.... it's gone.

    Polly

    ReplyDelete