The City of Healdsburg’s budget is looking good and general fund reserves are expected to hit slightly above the 30% city council-mandated reserve requirement thanks to general fund revenue projections that are exceeding expectations. Unfortunately, the budget outlook isn’t too rosy for the water fund, which is suffering decreases in revenue due to water conservation.
“We initially thought we would end the year under our fund reserve goal of 30%. However, with the change in revenue projections that we’re proposing tonight, we are expecting the fund balance to remain just over the 30% target,” said Andrew Sturmfels, the city’s finance and administrative services director, during the Feb. 22 Healdsburg City Council meeting.
City staff brought several budget amendments and revenue projection changes for the 2021-22 budget before the council on Tuesday and the recommended changes were approved by the council in a 5-0 vote.
Changes include:
– An over $2 million increase in community services fund transient occupancy tax (TOT) revenue projection.
– A $516,400 increase in general fund TOT revenue projection.
– A $516,400 increase in Measure S fund TOT revenue projection.
– An $100,000 increase in general fund property transfer tax revenue projection.
– An $101,497 increase in general fund vehicle license fee revenue projection.
– An $175,000 decrease in general fund franchise fee revenue projection.
– A $300,000 increase in general fund development fee revenue projection.
– A $40,000 decrease in general fund parking citation revenue projection.
– A $1,000,000 decrease in water fund utility charge revenue projection.
– A $2,500 increase in budget authority in the tree mitigation fund.
The other two major changes include a transfer of $1 million from the community services fund to the community services capital projects fund in order to start saving for future capital projects and deferred maintenance needs.
The other change is the repayment of a $625,000 Measure T loan, which clears out debt within the fund and provides funding support for the Montage Healdsburg Fire substation planned for next year.
In terms of the overall health of the budget, the general fund and community services fund — which in the past has faced program and service cuts due to a large decrease in TOT in 2020 — look to be on solid ground as TOT revenue continues to outpace initial expectations as tourism ramps back up again.
For sales tax revenue, consultants believe the city will end the year meeting or exceeding revenue estimates.
General fund and community services fund expenses are in line with projections and other major funds like sewer and electric are also in line, according to the mid-year budget report.
“Unfortunately, not as good news to share of our water funds. The big difference is we’re proposing a $1 million decrease in the water fund budget for the year. We are currently proposing that we keep expenditures in the same place, but expenditures in the water fund are high and part of that has to do with the summer activity we had around the recycled water programs and it was a lot of money spent in the first quarter of the year, so I am watching that closely,” Sturmfels said. “The big story here is revenue has not materialized. It is clear that we are going to be in the hole a million dollars and it may end up being a little more, particularly as we get into spring and see what the drought conditions are like.”
Sturmfels said the fund will still meet the 25% reserve requirement and they are leaving some remaining working capital for next year. He added that every dollar they lose in the fund is a dollar less they have to put towards water resiliency projects and water rights expansion projects.
“Director Crowley is working hard with me and with other members of the team to bring to you the rate study to start having that discussion soon about rates for both the water and sewer fund and we are taking changes and dynamics into account,” Sturmfels said.
Councilmember Evelyn Mitchell said most of the budget is good news, but regarding the water fund she asked, “what can we do?”
Sturmfels said city staff had started a fee study for both water and sewer rates but recognized that rate hikes during a pandemic would probably not be a good decision.
“That being said, we are going to have to take a careful look at how do we increase revenue, particularly during times of a drought, so that we continue to do projects while still being mindful of the ratepayer,” Sturmfels said.
He said city staff will be putting together a presentation on sewer and water rates and will bring it to the council in the next month or so.
Mitchell clarified with staff that the reduction in water fund revenue is because Healdsburg residents are using less and less water. Sturmfels said water conservation is the right thing to do but it hurts on both ends, residents and funds.
Councilmember David Hagele also had concerns related to the water fund. A question that came up was, what would happen if the water fund fell below reserve level. Sturmfels said if that were the case, he’d recommend moving capital from other funds to the water fund in order to meet reserves and shore up finances.
“All of the things you’ve just heard are on the table and maybe we don’t want to put that on the ratepayers, but rather want to look at other options, so we are thinking about those things,” said Healdsburg City Manager Jeff Kay.
