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Report shows ‘positive signs’ of growth for Auburn economy

City sees first surplus in 6 years; projections looking good
By: Jon Schultz, Journal Staff Writer
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Receiving the best opinion from an independent audit of the city’s financial reporting is normal for Auburn. Having a surplus to report is not.

For the fiscal year ending in June 2012, the City of Auburn’s general fund recognized its first surplus since 2005-06, adding $58,000 to the reserves that had been decimated to half of what it was prior to the recession. The city is expected to net more than double that surplus this year.

At the end of the 2011-12 fiscal year, general fund reserves grew to $2,728,000 and the city is on pace to add the projected $123,000 to the fund balance at the end of the current fiscal year, said Andy Heath, Auburn’s director of administrative services.

Heath presented the findings of the audit as well as a picture of the city’s financial state during last week’s Auburn City Council meeting. The city contracted Smith & Newell to perform the audit using generally accepted accounting principles, and it gave the city an “unqualified opinion,” which is the most favorable outcome, Heath said.

“I found the audit and Andy’s report encouraging as we emerge from the great recession,” Auburn Mayor Kevin Hanley said. “We used some reserves to avoid layoffs, particularly in the police and firefighter area, and streamlined. And we managed to put some money, a modest amount of money, back into the reserve last year and we’ve had some pretty good growth in sales tax – so it’s positive.

“But there’s a lot of uncertainties with increased taxes at the federal and state level, so we don’t know what’s going to affect our local economy, so we have to be prudent going forward, but certainly some positive signs.”  

The city’s general fund is its main operating fund with nearly three quarters of it used to cover employment costs. Its revenues for 2011-12 totaled $8,492,000 – the highest since 2008-09.

As of June 30, 2012, the general fund’s fund balance, or reserve, consists of $2,250,000 designated for economic uncertainty, $425,522 unassigned funds and $52,166 that was already tied up to be spent in coming months.

The reserve is currently about 30 percent of the general fund budget, which Heath said is “prudent” for a city of Auburn’s size, though “it was nice” having the 50 percent reserve in the coffers when the budget was $10 million before the recession.

“Absent having that, it probably would have been a lot more difficult to make some policy decisions that had been made,” Heath said.

“Given the impacts of the recession, I think the typical citizen would be able to say the services that are provided to them have not deteriorated in any way, and that we have sustained,” he said. “But the way we were able to sustain those services … was by City Council using some of that fund balance.”

Why is the city seeing a surplus now?

It’s been a multi-year process featuring a mix of reorganization, streamlining efficiency and deferring capital maintenance projects during the course of the recession, Heath said, among other factors.

The city’s staffing levels are 25 to 30 percent less than what they were in 2006-07, as the total, including elected officials, is down to 74 from 104, he said.

Since 2006-07, the city’s employment-related costs coming from the general fund dropped from about $8 million to $6 million last fiscal year. Nearly 75 percent of that $6 million went to public safety employees, compared to the 62 percent slice from the general fund in 2006-07.

“We are spending more as percentage of the budget and the general fund as a whole on public safety, demonstrating keeping public safety at a very, very high level in the city,” Heath said.

Capital maintenance projects that had been delayed due to economic challenges are now starting to see the light of day, he said.

Some examples include a $144,000 lease purchase of a new dump truck that was approved by council Monday, $25,000 budgeted for public safety facility maintenance, $9,000 for duct cleaning at the police department, and a new phone system for the city, Heath said.

General fund revenues and other financing sources increased by $521,000 from 2010-11 to 2011-12, in large part due to a 21.7 percent increase in sales tax revenue amounting to $617,000.

“The city’s economic basis for sale tax increased at both the fuel level and also at the retail level when we added McCaulou’s to our sales tax base to replace Gottschalks from a couple years ago,” Heath said. “So sales taxes are returning. They’re not quite what they used to be.”

General fund expenditures also increased by $285,000, including an $83,000 rise in city-paid CalPERS retirement costs, thanks to a $129,000 bump in public safety payouts coupled with a $46,000 decline in non-safety pensions.

The rising pension costs and unpredictability of how rates will be calculated in future years is the greatest fiscal challenge the city faces moving forward, Heath said.

“For every dollar we pay in salary for public safety, 30 cents in addition to that is paid for retirement,” he said, and that’s about a 10 cent increase from the previous fiscal year.

“Pensions have been going up because of what actuarial changes are being made by CalPERS themselves: How do you deal with longevity, assumptions on how long people live, the discount rate, what rate of investment the fund is going to earn and age of retirement as well,” he said.

Pension rates for city employees not in public safety have only increased by about a percentage point during the past seven years and are just above 10 percent for 2011-12.

Auburn has received six consecutive awards for financial reporting excellence from the Government Finance Officer’s Association.

The auditing firm made two recommendations for the city to implement in its financial reporting that Hanley called “fairly technical,” and Heath said they were already being practiced, but the city needs to put them into its policy.

Heath will be bringing that before council within the next couple months, he said.

 

Jon Schultz can be reached at jons@goldcountrymedia.com. Follow him on Twitter @Jon_AJNews