As the Town of Paradise Valley approaches a final budget adoption, the municipality’s top finance official is estimating operating revenue to be down about 40%.
The total budget as presented is $64,145,371 --- but about $20.5 million is contingency funding in the event revenue bounces back quicker than expected.
On May 14, Paradise Valley Town Council received a fresh update on the town’s draft budget, presented by Chief Financial Officer Douglas Allen.
The town adopts its fiscal budget annually prior to June 30. With the COVID-19 pandemic affecting all aspects of life this spring, the council has been paying close attention to its revenue streams --- mostly generated through sales, bed and construction taxes --- while it plans next year’s budget.
Due to COVID-19, the town experienced sharp, abrupt revenue drops beginning that were extremely deep.
Last fiscal year, the town collected more than $5.3 million in all revenues directly tied to local tourism from the months of March 2019 to June 2019. This accounts for approximately 17% of the town’s General Fund revenue.
On May 14, the town also received information that their retail and hospitality taxes were down 39% for the month of March, compared to last year.
Collections for March 2020 were $699,079, compared to $1,154,171 March 2019.
Total collections for all revenue in the month of March is down 34% year over year. Municipal officials won’t know the impacts of April until about mid-June, officials say.
To prepare for different types of financial scenarios emerging in fiscal year 2020-21, which begins July 1, Mr. Allen created forecasts using three different levels.
Level one is based on a worse-case scenario, such as an economic shutdown. Level two identifies a crisis that has not materially impacted operations, revenues remain steady or at a slight reduction, such as a contract or franchise. Level three presumes the economic activity driving the revenue has not been impacted, or the revenue is resuming to fiscal year 2019 trends.
Revenues identified as level one includes occupancy, retail and hospitality taxes; vehicle license tax and highway user revenue funds. Level two revenues include construction and building and development fees and permits.
Overall, total revenue is estimated to be just under $22.2 million for 2021. Prior to COVID-19, the town was estimating its revenues to be $36.5 million.
“Up through mid-March we were projecting being better than 2019, however as things just halted, so did the revenues,” Mr. Allen said, noting the projections for next year.
The CFO says the town will be able to fund its departments’ highest priority needs with its projected budget, but some lower-priority items will be deferred.
Estimated operating revenue levels, as presented by Mr. Allen are:
The total $22.2 million operating revenue is about 61% of the best-case scenario, Mr. Allen says.
While the total budget is about $64 million, the total expenditures planned for fiscal tear 2020-21 budget are only $47,437,596.
“Compared to last year, it’s down about $4 million,” Mr. Allen said of last fiscal year’s budget to this year’s recommended budget.
“So it sounds like, ‘wow you didn’t cut that much when you don’t think you have those revenues,’ but a lot of it’s in these contingencies. So if those revenues don’t rebound, this money is never spent, never touched. It’s built in safety nets.”
Mr. Allen says by putting in those contingencies, the town has control over not letting spending occur until those revenues hit their levels.
PSPRS unfunded liability is a part of the contingencies, Mr. Allen points out.
“We’re not putting that in priority one just because it’s about $5 million to go,” he said. “If revenues rebound, that becomes a top priority once again.”
Further, Mr. Allen points out the use of emergency reserve funds of $4.4 million.
“It’s a little higher than last year. Typically we look at using the reserve --- but then your revenues come in higher, expenditures come in lower, it kind of offsets each other,” he explained. “The difference this year, is last year when we looked at using the reserve, it’s for one-time purposes like PSPRS or, something that’s not reoccurring. This year, we’re using it to fund operations, which are reoccurring. However, we don’t think it’s going to be an ongoing event where we’ll need to use the reserve year after year.”
Mr. Allen points out the emergency funds are there due to prior councils’ management, and to be a safety net for catastrophic events.
The budget breaks down to be:
Councilwoman Anna Thomasson noted the level of detail in Mr. Allen’s budget presentations, stating it provides for a level of confidence.
“I wanted to briefly not only thank you for the presentation, but how you and all of the team have thought through the different contingencies, and how you express the contingencies,” Ms. Thomasson said.
“To the extent that we have residents looking at this level of detail, I think it gives them confidence, as it gives me confidence, that we’ve thought through a variety of scenarios and we have the flexibility in place to execute those scenarios.”
Mayor Jerry Bien-Willner says there have been multiple requests from various cities and towns to expedite the dissemination of information regarding tax revenues, as it goes through the state before ending up in municipal coffers.
“I’d support having, and I’d ask my colleagues to join me in writing a group letter to the governor’s office, a formal letter, once again requesting that and stating the benefit of having that information, or more updated information, as we go through this planning,” Mr. Bien-Willner said.
Town Manager Jill Keimach said her and Mr. Allen had discussed that as well.
Mr. Allen says the delay comes from the Arizona Department of Revenue taking over collection activities a couple years ago.
“With conversations having with Experience Scottsdale, the resorts, we’ll have a good feel for where the activity is,” Mr. Allen said of local revenue projections without ADOR official numbers. “We knew March was going to be half bad news, April we don’t expect much optimism. We’re trying to stay ahead of it that way, so regardless of what happens with the ADOR situation. We’re not very optimistic that they would be able to change their business model and getting that information to us any time sooner.”
The Town Council is expected to return to the budget discussion on May 28, followed by a public hearing and adoption on June 11.
The Town Council also took a quick look over the capital improvement program for fiscal years 2021-25.
Jason Harris presented a rundown of considerations for the upcoming fiscal year due to the town’s uncertainty.
There are four projects tied to the Lincoln Drive mill and overlay for summer 2021; one of which has been moved to fiscal year 2023:
Nine CIP projects, which amounts to a total of $2.9 million, are proposed to be deferred from fiscal year 2020-21. These include miscellaneous drainage improvements at various locations; public works and engineering building remodel; police station remodel; various intersection and sidewalk improvements; and fiber connection work.
Projects being recommended for fiscal year 2020-21 are based on considerations such as leveraging other funding sources; contractual mandates; and protection of health and safety of the town.
Projects identified in 2021 include: