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Financial prudence at Paradise Valley Town Hall during the time of the coronavirus

Posted 3/26/20

Paradise Valley municipal funds are not in troubled waters quite yet, but elected leaders are making plans to weather the storm as impacts of the novel coronavirus continue to unfold.

On March …

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Financial prudence at Paradise Valley Town Hall during the time of the coronavirus

Posted

Editor's Note: A previous version of this story incorrectly stated Mr. Allen's last name. 

Paradise Valley municipal funds are not in troubled waters quite yet, but elected leaders are making plans to weather the storm as impacts of the novel coronavirus continue to unfold.

On March 26, Paradise Valley Chief Financial Officer Douglas Allen laid out a financial plan to address inevitable revenue lost this spring.

Mr. Allen recommended the town continue to pull back on the last three months of fiscal year 2019-20 --- which ends June 30 --- and conserve as much as possible in the coming fiscal year to slow the use of reserve monies until revenues rebound.

The fiscal year 2019-20 budget reserve is $29.4 million, which is 118% of the operating budget.

Mr. Allen said the impetus of this plan is to mitigate external risks “everyone knows and can feel,” to keep the town in strong financial health.

Preliminary data shows January and February each garnered around $1 million in retail and hospitality transaction tax --- made from bars, restaurants and resorts --- but March revenue is expected to not make that $1 million goal, and there will be a drop off for the coming months.

“Less than a month ago when we were running projections we were looking at historically again, with this trend, 2020 was looking on track to far-exceed 2019,” Mr. Allen said.

“To the extent where even if we had a drop of 25% of tourism, enough revenue was collected in the first two months to still sustain that and close the fiscal year in the positive. What we saw then about March 10 was scenarios where we weren’t quite sure what we were looking at.”

After the Cactus League Spring Training season was canceled, and other tourism events followed suit, Mr. Allen now believes they will now be exceeding a 70% break down in revenue.

Last year, from March to June, the town collected more than $5.3 million in all revenues directly tied to local tourism.

“How to address that revenue drop? Rather than just say, well the reserve will pick it up, which might be an approach. We want to look at things and try to make it last a little longer because we don’t know how long this droppage in revenue or droppage in tourism will last. The duration is unknown,” Mr. Allen said, pointing out tourism usually picks up again in October.

“If that occurs, then we will be back on track. But if it doesn’t, we want to be prepared for up to two years, possibly, of last tourism.”

A six-point plan

Mr. Allen laid out considerations of town costs to be cognizant of as officials prepare next year’s budget amid a global pandemic.

The operating costs, capital and other priorities include:

  • $13.5 million for payroll;
  • $9.1 million for other operating costs, which is the status quo;
  • $6.6 million for the capital improvement plan;
  • $5.3 million for the Public Safety Personnel Retirement System;
  • $11 million for private capital reimbursement to the CIP.

Overall, Mr. Allen is preparing for multiple situations, he says, looking at creating a robust financial plan.

“Going through the budget process, we’ve introduced a lot of contingencies in the last couple of years, but I think this year we’re actually looking at budgeting for two years,” Mr. Allen said. “One, for if 2020 is similar to how we’re used to operating; and the second one is how if 2021 does not rebound. So we’re prepared for both situations.”

One suggestion made by the CFO is to consider holding off on paying additional funds to the PSPRS fund due to the current cash crunch. The town has, for the past several years, been paying off the PSPRS debt aggressively.

Mr. Allen says there was still a $3 million payment on the docket to PSPRS, and town officials had discussed trying to squeeze out an additional $2.8 million for the debt obligation.

“We might want to consider holding off until September, October to make sure these funds wouldn’t be useful to support the town’s operations,” he said.

Mr. Allen’ plan, coined the “Six Point Plan,” is being designed to provide flexibility and adaptability to mitigating risk, validating priorities and maintaining fiscal resiliency. The plan includes:

  • Policies and priorities: assess and modify or temporarily suspend as appropriate;
  • Resetting assigned (set-asides);
  • Department, program and capital budgets using a tier approach for prioritizing;
  • Recalibrate costs and sources;
  • Align staffing: duties, workload, service level and demands; and
  • General cash reserves.

At this point, there is no concern the town will have trouble meeting its contractual obligations and covenants with debt issuance, Mr. Allen noted.

In addition to Mr. Allen’ financial planning, Town Manager Jill Keimach says her office is seeking additional revenue sources to help during this time.

“We’ve been talking about it as a team, department heads and finance, on two different levels. We’re primarily focused internally on how to reduce our expenditures during this uncertain time,” Ms. Keimach said. “But then also at the same time because the mayor granted or approved a proclamation stating an emergency for the town, it allows the town to apply for, after this crisis over, apply for FEMA dollars.”

Ms. Keimach says town staff have focused on new recording and tracking mechanisms to keep track of all costs associated with this COVID-19 crisis to provide documentation for reimbursement from the federal government.

“It is a very time-consuming process, but it is something that every staff person and especially Mr. Allen has supported going forward with that.
We’re looking for other revenue sources in the future to help us get through this time, along with every other city,” Ms. Keimach said. “Compared to other towns and citizens, because of the reserve that has gone back years, we are in much better shape than most any other community. So it’s a good result from this council and previous councils and staff management of it.”

Cash is king

Councilmembers gave general support for Mr. Allen’ outline and plan, pointing out what a troubling time it is for government and residents alike.

“There’s never a good timing for a health event like this that also has very serious macroeconomic consequences, but the timing does work out that it’s aligning up with our budget season so I am sure we can anticipate continual discussion of this because it’s the lifeblood of our service to the community, how our finances are arranged,” Mayor Jerry Bien-Willner said.

“This is really, an exemplary job of gathering the information up and the work that’s gone on from staff. Along with transitioning to remote working, and customer and citizen efforts --- that’s obviously the first focus is the health and safety of the public, supporting our stakeholders as well, and the resort industry --- I know I can speak for all of us and say thank you for the hard work that’s gone on.”

Councilmember Paul Dembow gave a word of wisdom, thanking Mr. Bien-Willner for pushing a financial modeling to look at forward.

“A long time ago I learned in business that your biggest mistakes are made when times are good. You look at projects that weren’t funded but, ‘For the grace of God go I’ --- people that look at longterm safety and security always end up being in a much better position during times like this,” Mr. Dembow said.

“As a result of other previous councils and individual councilmembers that were sharp, including the mayor, we’re in this position today. Living here and seeing that type of action is just fantastic.”

Ms. Keimach asked if the council supported holding off on the PSPRS funding, as recommended by Mr. Allen, until the fall time.

Mr. Bien-Willner and Mr. Dembow, as well as Vice Mayor Julie Pace and the remaining councilmembers said they supported that action, pointing to the unknown factor of the future.

“I absolutely support holding on to that, we don’t know what the future will hold,” Mr. Dembow said. “I believe we will be better off, but we’ve had two of our resorts already shut down, by themselves, so we don’t know what the future is like and what that will look like when they get turned back on.”

Ms. Pace said even though it’s important to the town, she believes it’s wise to hold off on the PSPRS payment.

“I do think it’s wise at this point, and prudent to consider delaying the payment even though it’s so important to the town, until we know a little bit more,” Ms. Pace said. “We don’t know the impact in our region yet. What happens in other parts of the country is different, as it rolls to different states and different regions. So it’s probably wise at this point to be thoughtful, prudent, looking at options and trying to plan for the best options we can.”