Sedona, the future in now

SEDONA, AZ - Oct 21, 2008 - It is difficult to believe the city's assurances that all is well in the coffers of Sedona. It does not matter that established-local media attested to soundness of the city's books; that Sedona City Manager Eric Levitt stated that while his bookkeeping and financial acumen was unconventional, it was nevertheless sound in approach; and, of course, our former Mayor Pud Colquitt was always referring to Mr. Levitt as a genius in his guidance of the City of Sedona's financial future.

Mr. Levitt has resigned from his position of City Manager of Sedona and leaves in December.
The City of Sedona is left with bond debt in excess of $76 million and bond payments of more than $6.5 million annually against revenue of $23 million or 28 cents on every dollar.

August revenue figures have just been posted and it's not a pretty picture - down 11.8 percent from one-year ago and now level with 2005 revenue figures.

The 2009 City Budget which was unanimously adopted by the Sedona City Council projected a General Fund deficit of $1.8 million on budgeted expenses of $13 million but with the latest monthly revenue figures that number could easily exceed $2.5 million.

The City of Sedona is always quick to mention that it has a $10 million General Fund rainy-day account.

It is not so quick to mention that it has no monies are set aside for a bond-debt repayment reserve account, which most cities do have and which should be at least 12 months of payments or $6.5 million.

It also usually fails to mention that the General Fund is only 22 percent of the total-city budget of $53.4 million.

Under a Freedom of Information Subpoena I recently reviewed City of Sedona Budget Documents, specifically the Enterprise Fund (Sewer) Capital Projects Fund, and Street Fund.
The Enterprise Fund under the most optimistic projections, will be out of reserve funds by the beginning of 2012; the Capital Projects Fund has only a minimal reserve balance and will be fully depleted by June 30, 2009 reverting to a pay-as-you go funding, financed by a portion of sales tax; the Street Fund will essentially have no reserve balance by the end of this year, 2008.
Without immediate and significant budget cuts the City of Sedona will be insolvent by 2012 or earlier.

Under Mr. Levitt�s guidance, the City of Sedona issued exclusively Revenue Bonds which pledged approximately 65 percent of city revenues to insure payments.

These bonds were approved and issued on a majority vote of the City Council and did not require voter's approval.

Beginning in 2012 through 2016, principal reduction payments are due, most of which are in excess of $3 million per year adding further to city deficits.

Of course it was always thought that such bond principal-reduction payments could be easily refinanced.

Now, however, it is readily apparent that such refinancing will be nearly impossible in the future due to market conditions and that in no event will such refinancing will be possible unless the city immediately takes steps to curb deficit spending.

Just to bring the 2009 Budget into balance the city would have to cut $2.5 million from its $13 million General Fund Budget reducing it to $10.5 million or 19 percent.

In purely numbers of personnel that would represent 24 individuals of the approximately 126 city employees, of which at least 29 are police officers - to achieve a budget surplus of $500,000 and equate that to number of personnel, another five people would be let go. All programs which are non-essential would have to be cut, as well as grants.

The remaining funds Enterprise, Capital, and Streets, would have to experience budget cuts as well since both the Enterprise and Capital Funds are financed at least partially by Sales Tax receipts.

These cuts are more problematic primarily due to the fact that the Enterprise Fund operates the Sewer Treatment Plant and sewer line maintenance and thus has certain built-in overhead which will be difficult to cut.

The only alternative to budget cuts in the Enterprise Fund would be raising the sewer fee from its current $32 level.

The Capital Projects Fund which typically spent in the range of $4 million per year will now rely on flat-line or falling-sales tax revenue of approximately $2 million to fund Andante sidewalks or storm-water culverts.

The Street Fund which gathers its revenues from a portion of gas taxes and with a depleted reserve will now only fix streets that are in the most extreme state of disrepair.

Even if such cuts were implemented immediately it still remains highly probable that in order to remain solvent after the year 2013 the City of Sedona would have to begin immediate discussions at the City Council to place a ballot measure for a General Obligation Bond or property tax on citizen's of Sedona's property holdings before the electorate.

The City of Sedona has a long tradition of imposing no property tax. Indeed, within the pages of the 2009 City Budget it is proudly proclaimed that no such tax exists.

However, it does not take a financial genius to review existing and past city revenue streams to realize that most revenue sources are either flat or in serious decline, often only achieving the same levels of 2005.

The revenues are sales taxes from retail trade, restaurant and bars, construction, and hotels; a bed tax; shared state revenues which include income tax, sales tax, motor vehicle tax; miscellaneous community development fee income, parking ticket and court fines, franchise fees and other miscellaneous fees, and lastly sewer connect fees.

As an example of the significant declines the city is experiencing or are about to experience only one-residential building permit was issued in the last 4 months, and construction associated sales tax has declined by 50-state shared sales tax has declined by over 10 percent, and state shared income which has a two-year lag period is down more than 25 percent.

The city manager in a recent memo to the city council regarding the Enterprise, Street and Capital Fund issue, stated that the city must seek "significant revenue sources.�

Should speeders pay more? Maybe parking meters should be on the table for Uptown? What possible significant revenue sources is he referring to?

The city manager cannot be referring to borrowing because the City of Sedona is at its maximum borrowing limit.

As we are all aware, the current mayor and city council have spent several months concerned with 89A lighting issues and commissioning studies on a redevelopment plan for the western corridor of 89A.

Now before them is the troubling task of seeking a successor to Mr. Levitt who can understand the unorthodox accounting methods the city manager used to direct the financial future of the City of Sedona.

What alternative does the City of Sedona have at this time but to seek a property tax?

It has the alternative to avoid the problem of declining revenues and deficit spending which will ultimately lead to insolvency by either doing nothing or studying the problem.

At least in the instance of Mayor Rob Adams, he has decided to form a Budget Committee of eight individuals to study the problem.

The city can also just sit on its hands and wait for the new city manager to arrive and fix the problem.

The problem with that solution is that it places a new city manager in the uncomfortable position of having few and unpopular choices: layoff city personnel and cut programs, and propose a property tax.

The lay of the political landscape would suggest that no property tax would ever pass the electorate in Sedona.

However, there is a possibility that if the proper spin is associated with the property tax proposal it may have a slim chance of passing.

That spin would be that the City of Sedona is rapidly entering a critical period were it may run out of cash and that critical services would be cut.

Since the Sedona Fire District is not part of the City of Sedona financial turmoil, the critical services would be police, certain capital projects, and of course, sewer treatment plant maintenance problems which are mandated by the Federal government to fix.

It does have enough reserve funds in the General Fund to go on for another two years or so at current spending levels.

The Enterprise, Capital, and Street Funds, are not adequately funded and will so revert to pay-as-you-go systems which will be barely be adequate for residents' needs.

Rather than rely on the City of Sedona's assurances that the city's financial situation is excellent, citizens should demand more accountability and responsibility from both our elected officials and city staff.

In my opinion, to date, that has not occurred. And I am not sure it will not occur. However, once the city has gone deeper into its deteriorating financial condition and the prospect of a property tax is raised, I am confident the citizens will rise up and ask �how did this happen.�
And just as we are incredulous to the events on the stock market today we will be incredulous to the state of Sedona's financial condition tomorrow, although today at this writing had we taken action no financial calamity need occur.

Terry Nash has an extensive background in accounting and business. He has advanced degrees in accounting, finance and taxation. Early in his career he conducted fraud audits for the protection of minority shareholders for a Big Eight accounting firm. He was also the controller of a division of a Fortune Five-Hundred company. For the last several years he has concentrated his career on venture capitalism.

Readers' comments

#1 I agree with the contents of Mr Nash's article - I feel the current City
Council is totally out of contact with our community, and I do not mean
just on economics. They spend many hours arguing about lights, (4
meetings and a committe working for months) and such items as replacing
sidewalks at city hall and extending the sewer at Chapel while the
residents there protested even while the County and other cities are
laying off personnel. Budgets are being cut yet our Council seems
indifferent to that - I believe in being "ahead of the game" and so
should the city administrators yet currently I think the city is well
behind the game. The former mayor had no idea of the economics of this city.

PS As a separate issue, how about an article about our Fire Dept, money
input going up, hiring new personnel for a ladder truck we do not need
while calls remain the same annually. What is the SFD cost per fire for
the past few years, millions, and it goes on and on. Yesterday I saw a
fire tsruck, an ambulance and a Sedona police car at the Y for a fender
bender, isn't that overkill? I asked once about that and they "decided"
to have EMTs in fire trucks, not ambulances, so they need a fire truck
to go to all calls - a waste of money I say. What an irresponsibility at
SFD.

#2 Brilliant, Terry. Keep it coming.

#3 I am shocked that there are not more comments to this article that articulates so well, Sedona's real challenges for the future. I have watched Sedona since its incorporation. I say watched because after living there in 1988 and '89, I moved to the Village; life just brings change and opportunity. Anyway, there has always been a strange chauvinism about living in Sedona proper, how long etc. As if living there long time, longer, longest gives you more right to have an opinion. I digress, my point is, any positive criticism, or sound financial advice Sedona has gotten over 20 years has fallen on deaf ears. The city seems to go blindly into the future, never learning from its or anyone else's past. It's sad to watch. Heart breaking.

#4 I was impressed by the article (Sedona, The Future in Now) about the financial dilemma that the City of Sedona faces.

We hear a lot about the need for change these days. We do need change, but we need change we can live with.

This country didn�t become what it is or �could have been� by spending more than you have and then charging some unknown unlimited source of big wealth for our needs. It was built on hard work and it still takes hard work. It takes concern by all and it takes doing with what you have in a wise and reasonable manner.

You can�t send the elite rich into an area and expect that they will be able to adjust their ideas of what the community should have or do to manage itself on a reasonable budget.

WE have to change and adopt with planned reason and not just pie in the sky change with gold streets and silver sidewalks for everyone, but CHANGE WE CAN LIVE WITH.

I own a building lot in Sedona. It is a lot that I planned to build on. But guess what, the expenses, the time, the costs for permits, impacts, city services and etc. all opened my eyes to the fact that I would be moving into a kingdom of OZ paid for by my dollars.

When I look at Sedona, I see about the same community services and conditions I am accustomed to seeing in cities throughout this country. The natural views are better than some but that shouldn�t be part of the city maintenance budget.

When I already pay more property taxes for a vacant lot Sedona than I pay in other cities for a lot with a nice home, then I begin to feel something is basically out of control at the state level. Other cities have paved streets, water and sewer systems, police, fire departments, ambulances, hospitals, schools, etc. and guess what, their expenses are much less. You have to ask yourself, who are the bureaucrats that are making the problems and then get some CHANGE we can live with DONE.

Then you have to live with what you can afford. And you can�t let the elite dictate what the common population can afford. It is not that difficult, it just takes placing caring people with sound judgment in charge of the money.

We all want more, but we have to get along with what we can afford. Unfortunately the road back from irrational spending funded by borrowed money is a bitter pill. It may be a bitter pill that even the elite rich are not willing to take. But if we are going to survive we must take the pill and stop eating cake at someone else�s expense, because there really isn�t someone else. There always comes a time when the minuses in your check book can�t be changed by just borrowing more money or by asking everyone else to pay for it.

You have to realize the market will always win. If it takes turning Sedona into a ghost town to do it, the true uncaring marketplace will do just that. It will not be the first or the last and that is all good and well and as it should be. If you push reality beyond the means of the community then the marketplace will eventually will catch up with you.

#5 "The former mayor had no idea of the economics of this city." It is heartbreaking that we again have her on our council.

#6 This information is incredibly disturbing because all but two of our elected officials and our City staff are annoyingly ignorant, totally uninterested in becoming informed and rudely arrogant toward us.

I recently attended a meeting where the author of this article informed the attendees that 75% of the City of Aspen\'s electricity is currently provided by renewable resources. In the year 2000 that City\'s population was about 5900 when they began their ambitious energy efficient policies and programs. I urge all readers to see what that relatively small community is already doing
http://aspenglobalwarming.com/whataspenisdoing.cfm

Sedona could have accomplished these feats and more. By now, we could have transformed our tourism industry so that visitors and businesses would visit to enjoy and learn about our "green" efforts and we would have insured our economic base.

Hopefully, there is still time to replace these "do nothing" officials and staff with people who really share a passion for this City before we have to declare bankruptcy!