An accounting of Oro Valley’s finances, which details a nearly $3 million deficit for the year, has town leaders uneasy.
“I’m really concerned,” said Oro Valley Town Manager David Andrews. “In my tenure with the town, this is the worst revenue picture I’ve seen.”
Andrews has been town manager since 2006. Before that, he was the town’s finance director for 15 years.
The report, which the town council will receive at its Wednesday, Dec. 17, meeting, shows a projected $2.7 million deficit for the fiscal year — about $1 million more than town financial officials had projected.
Shortfalls are scattered throughout the budget — declines in sales tax receipts, a decrease in money from the state and $231,808 in lost investment revenue.
The investment loss resulted from the bankruptcy of Lehman Brothers, the multi-billion dollar firm that collapsed in September.
Oro Valley and other communities around the state have money in an investment pool administered by the Arizona State Treasurer’s Office.
Lehman Brothers’ stock made up about 1 percent of the pool, according to Stacey Lemos, Oro Valley’s finance director.
Lemos said the town could recover a portion of the $231,000 loss once Lehman Brothers’ restructuring and possible liquidation takes place.
Governments everywhere have experienced similar losses and budget shortfalls in recent months.
Locally, Tucson and Pima County have discussed numerous cuts to budgets and services.
Tucson officials have scoured their budget for some $58 million in possible cuts this year.
The city also slashed police spending, deciding to forgo two of the three scheduled police academies by the end of the fiscal year, and intends to leave at least 65 law-enforcement jobs unfilled.
Pima County also plans nearly $40 million in budget cuts, including a 2.5-percent mid-year reduction in all departmental spending.
County officials also have instituted a hiring freeze to help alleviate the impending income crash, the result of skimpy sales tax receipts and less money coming from the state.
County leaders also have discussed the possibility of reducing costs by limiting parks and recreation and library services.
Oro Valley officials recently initiated a hiring freeze as well, but don’t anticipate the need to cut services like other governments have done, citing sound financial planning as the reason.
“In Oro Valley, we knew that we were on the down slope of growth,” Lemos said.
Licenses and permits related to construction had for years been one of the town’s most reliable and largest sources of revenue, especially in the rapid-growth years of the late 1990s and early 2000s.
Since then, however, most of the town’s open retail and residential land has been developed, leaving Oro Valley at about 80 percent build-out.
Lemos said the town planned for the day when the growth would end.
“We didn’t have any unrealistic expectations about growth,” Lemos said.
One troubling aspect, though, lies in the five-year budget projections included in the recent financial report.
The calculation estimates Oro Valley leaders will need to dip into the town’s nearly $14 million reserve, a sum accumulated in recent years.
According to the report, the town could drain as much as $8 million from that reserve over the next five years to pay for increased expenses.
“We’re going to have to come back to the town council with some more options,” Lemos said.
Town policy mandates that reserves stay above 25 percent of the general fund, the portion of the budget that makes up local services and personnel costs. With the town anticipating spending the savings, the fund could drop to 20 percent by 2012 and to 17 percent by 2014.
The biggest contributing factor to the reserve spending comes from a potential tripling of employee-related expenses by 2014.
Those costs, which include salaries and benefits, could swell from $488,419 in fiscal 2010 to more than $1.5 million in 2014, according to the financial report.
Despite the troubling economic picture, Andrews said the town still has ways to remain solvent.
A recent adjustment to parks and recreation user fees, possible annexations and expiring sales tax rebate deals with developers could improve the bottom line.
Most importantly, Andrews noted, for the sake of town employees, “We’re not looking at any layoffs.”