Fiscal Year 2008-9Budgetary Update

Report to the Cottonwood City Council – February 17, 2009

Background to the Problem

• Fannie Mae and Freddie Mac were encouraged and even required to issue loans and mortgages to people who could not possibly afford to pay them back.

• These mega-millions of dollars of bad loans are the main cause of our economic meltdown.

Background to the Problem

• Additional issues with the economy:• Banks have tightened credit

• Some banks filed for bankruptcy

• Stock market decline

• Those businesses that are still open are struggling to stay afloat

• Rising unemployment

• Slowdown in retail sales

• We are in a downward spiral

Issues Facing the City

• Slowdown in retail sales (less local sales tax)• Comparing the 2.2% November Sales were down

11.3% over last year

• Smaller stores are closing down or struggling

• Auto sales are less than ½ of what they were two years ago

• State shared sales tax is down (-10.23%)

• State shared income tax is anticipated to decline dramatically the next few years

Issues Facing the City

• Unemployment is rising – December figures• United States – 7.2%

• Arizona – 6.9%

• Prescott Area – 7.3%

• Demand for services are expected to increase as the economy worsens

• We are in a downward spiral, too

What is our Fiscal Status

• General Fund revenues are estimated to be down by 7.3% or $1.44M• Our primary source of revenue, local sales tax is down

by over 11%

• The .8% increase is not coming in as anticipated

• Any revenue related to construction is also lower than anticipated

• State shared revenues are way down

• It is not expected to get much better next year.

The City of Cottonwood Plan

• Budgetary reduction of 5% across the board

• Earlier, filling vacancies was delayed for 60-90 days

• Already we are not filling any positions (unless currently in the queue) through the end of the year

• Reduced travel and training budgets

The City of Cottonwood Plan

• Reduced operating supplies

• Reduced or eliminated continuing education for employees

• Eliminated any chance of Cost Of Living Adjustments (COLA)

• Eliminated the Undesignated Reserves

The City of Cottonwood Plan

• Eliminated the Impact of Growth Study

• Reduced or eliminated many equipment purchases

• Eliminated the compensation study

• Reduced council and manager’s contingency

The City of Cottonwood Plan

• Reduce the GRL sales tax reimbursement amount

• Eliminated a City-wide asset inventory

• Reduced overtime in some departments

• Reduced other O&M costs

The City of Cottonwood Plan

• What was the current status of the plan:• Departments reduced their budgets by 6.7% or $1.32M

• The remaining shortfall of $120k can be absorbed by the General Fund balance

• We will continue to monitor revenues and expenditures for changes as the budget season moves forward

The City’s Future

• The downside of the near future• State shared revenues will be lower

• Local sales tax are expected to continue to suffer

• Departments may need to reduce some non-essential services

• Departments may need to review staffing pattern

• We may need to tap into City reserves

The Future

• The upside of the near future• City will see a full year of the .8% sales tax• A new recreation center is currently being built• City is moving forward with capital projects• President Obama signed a Stimulus Plan• We have reserves