Klapp: A band-aid won’t stop Scottsdale’s hemorrhaging budget

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Having served on the Scottsdale City Council for nearly 12 years, and having worked hands-on during the Great Recession with Mayor Jim Lane, it is very clear to me that our current city budget will be affected by a rapid revenue decline due to the effects of the COVID-19 pandemic.

And, unfortunately, the city’s preliminary 2020-21 budget is not realistic and needs serious trimming.

Like any business or family household budget during a difficult time, Scottsdale must live within its means and make unpleasant, but necessary adjustments and strategic cuts to offset a potential devastating shortfall.

The City Treasurer has now received the first sales tax collection payment from the State of Arizona for the month of March. Only about 15% of those owing March taxes have paid so far.

Comparing the current sales tax payment to the same period last year, revenues show a decline of 8%. The next payment for March will come from the state next week, and the final March payment will be received on May 1st, so we can watch a beginning trend.

April revenues, with most activities shut down, will be a significant decline from March. The trend will likely be a rapid decline in tax revenues by the time we finalize our budget in June.

Current operating sources are projected to be $13 million in excess of the city’s budget by the end of this fiscal year. In a good year, that would be a comfortable projection.

Yet in a tanking economy and with residents shut in their homes, the City Treasurer says we will likely see that $13 million revenue cushion disappear by fiscal year end. We will burn off these savings quickly.

I am alarmed that we are in the middle of a crisis and not doing nearly enough to stop the hemorrhaging.

While Scottsdale business owners are reducing employee pay and hours, furloughing or eliminating employees, talking with landlords about extending or reducing rent payments, negotiating with banks and lending institutions regarding lowering payments or obtaining federal funding, some within Scottsdale government are only playing a shell game to move expenditures from one fund or line item to another.

The general public will not understand this strategy.

I know budget cuts are painful and often unpopular and that city management prefers to project a larger budget with more wiggle room down the road; however, that process makes me uncomfortable. It is not how I ran several businesses, and it is not how I manage my household budget.

As a starting point to begin real and meaningful budget talks, I recommend bringing the following changes to the table now in the 2020-21 fiscal year budget:

  • Eliminate all city employee salary increases that were scheduled to be effective July 1, 2020. Do not keep the money as a place holder for future discretionary use after the budget has been decided by the City Council.
  • Eliminate all salary increases for the new people who take office on the council in January, until the foreseeable future. The mayor and council should not get an increase in the next budget year until such time as salary increases are given first to other city people.
  • Eliminate as many of the nearly 200 open city staff positions as possible from the budget, except for the few who might be deemed essential.
  • Eliminate part-time workers, contract people, and consultants.
  • City management and staff should give the council a realistic projection of 2020-21 operating sources. As drafted, the current budget projects a slight increase. There is also a plan being floated to maintain a flat revenue budget. I disagree. General Fund sources could decrease by at least 25% or approximately $82 million.
  • Strategically propose and cut some city services and programs and their associated expenses.
  • Strategically propose and reduce hours at some city facilities.
  • Determine essential work that can be done offsite or at home, eliminating associated facility costs.
  • Identify and sell selected city land to free up funds.

Simply cutting out six months of salary increases and a portion of the current open positions decreases the budget by about $9-10 million. As the council has been told by staff, about $60 million is available in unreserved funds (savings) to cover a budget shortfall next year.

However, if our “burn rate” of those funds is higher than the projected decrease in operating revenues, we could have a real budget deficit before the end of the next fiscal year.

Our City Manager, executive staff, and the City Council should come to consensus in the next two weeks about prioritizing services and programs, with a plan to cut those which are at the bottom of the priority list.

We need strategic cuts now, based on smaller cuts in higher priority areas and much larger cuts in lower priority areas. Cutting operating expenses a set percentage across the board is not realistic and a faulty budgeting mechanism.

Budgeting is a top down process. Set a realistic revenue figure and then cut operating expenses accordingly, by priority, to meet that figure.

We do this in our own households. If one person in a household loses their job, then the resulting reduced income figure guides all expenditures: high priority needs are met first --- food, housing, healthcare --- then lower priority items are cut from the budget --- meals in restaurants, entertainment, luxury items and travel.

Admittedly, the notion of making cuts to the Scottsdale budget is difficult; however, our city is faced with unprecedented circumstances, and our future success and prosperity will be defined by the hard decisions we make today --- provided we have the courage to face these challenges directly.

Editor’s Note: Suzanne Klapp is a member of Scottsdale City Council and candidate for mayor.

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