CFO presents budget facts to water board
David Barnum, chief financial officer of the Ramona Municipal Water District, presented an overall picture of the district’s challenging financial situation at the district board’s Oct. 13 meeting in response to residents’ recent concerns and questions about budget and staff cuts.
The most talked-about cuts were those in the fire department. Barnum said RMWD General Manager Ralph McIntosh asked CalFire to cut 20 percent. CalFire said the 20 percent cut wasn’t achievable. Their recommendations were to cut staffing on the county rescue rig, and instead staff it with a county stipend employee, and eliminate the reserve firefighter program.
McIntosh emphasized that no career firefighters were cut, but the total number of firefighters on duty every day on the floor dropped from 11 to 10. According to Ramona Battalion Chief Greg Griswold, there are about 30 firefighters assigned to the district.
The cuts did not include closing stations or reducing engines and ambulances, said Barnum. McIntosh also said the district cuts were across the board.
“Every organization in RMWD contributed to staff cuts,” Barnum said.
According to Barnum, RMWD’s budget theme for this fiscal year is “Managing District Resources in Difficult Times.” To explain how some of the money is spent, Barnum referred to a phrase, “The Color of Money,” which he said is a keystone concept in public budgeting. Essentially the concept is that revenues are generated for specific purposes and those revenues can only be used for those specific purposes, he said. Barnum added that this concept is important because comments were made about water rates going up but not being spent on fire services.
“Well, I’m here to tell you that’s true,” said Barnum. “As a public agency, the revenues that are generated through water rates can only be used for water improvements, water service and water purchases.”
In addition, Barnum said the fire EDU (equivalent dwelling unit) of $188.52 is revenue generated that can only go to the fire fund. It only partially funds fire services, but every penny is spent for fire, he said. The district is not allowed to use that money for anything else, as it is audited and revenues generated for a specific purpose must be spent for that purpose, he explained.
Barnum said the $188.52 EDU hasn’t changed in 14 years; to do so would require a vote by the residents. If the EDU could be increased, Barnum acknowledged it would free up some of the property tax revenue. A RMWD subcommittee has been formed to review fire EDU and includes board members and staff, and CalFire.
The EDU brings in about $2.6 million a year. Adding in about $700,000 from ambulance transport revenue and about $2.1 million in property taxes yields a total of $5.4 million for the fire department. The percentage of fire protection costs funded through property taxes is 39 percent and forecasts show that, as costs to operate the fire department increase, the property tax portion will rise to 45 percent by the 2011-12 fiscal year.
Besides the operating funds of water and fire, the district has funds for parks, sanitation and a general fund. In addition, as a special district, money is received from discretionary property tax revenue, which is up to the board to decide how to spend. The challenge for the board is to look at the entire district and appropriately balance the needs and “plug in the holes with your discretionary property tax,” Barnum said.
The property tax that the district receives is a portion of 4 percent of the 1 percent allocation, said Barnum. The first line item on the property tax bill is the 1 percent property tax, which is 1 percent of the assessed value, he noted.
“That is different than 1 percent of the value of your home,” Barnum said. “Assessed values are established a couple of different ways. One is when you purchase your home. The other is when you have your home reassessed voluntarily. What’s critical to know is that we receive about 4 cents on every dollar of that 1 percent property tax assessment.
“What we are seeing here is the assessed values in Ramona are coming down,” he continued. “What that means is that we will see less property tax in this district going forward.”
He also said that, due to Prop 13, the assessed value goes up by 2 percent a year.
For fiscal year 2008-09, the district received $5.3 million in property tax revenue. Barnum explained that traditionally the district has used that money to fund fire operations (40 percent); debt service (30 percent), which is payment of principal and interest on loans; and other services (30 percent) such as water capital improvements, San Vicente operations and improvements to the San Vicente and Santa Maria wastewater treatment plants.
Barnum said that, year after year, the amount has increased for fire operations, putting a squeeze on available revenue for other projects
For the 2009-10 budget, the property tax revenues are projected at approximately $5 million, which reflects a 6.4 percent decline. That is before a State of California Proposition 1A raid, which would actually bring the amount to about $4.6 million, Barnum said.
Focusing on the Prop. 1A raid, when the California state budget required local agencies to contribute property tax revenues to the state, Barnum said RMWD had to give 8 percent ($450,000) to the state with the promise of repayment in three years. He said the district has heard local agencies could potentially receive repayment of the “contribution” upfront through a securitization. This, he said, is not a guarantee and is subject to enactment of SB67, which passed in the state assembly but has been stuck in the state senate. He said they hope to be able to participate; if not they will need to make more cuts.
Barnum said legislative analysts are discussing eliminating property taxes for special districts and instead giving that money to the state. If this were to happen, Barnum said the only way to offset that loss and be able to fund operations and projects would basically be to double the rates.
Property tax revenues and water sales have been down. During the first two months of the current fiscal year, July and August, water sales were down 18 percent compared to last year, said Barnum. Comparing water sales in those months to 2006-07 and 2007-08, the decline is 40 percent to 41 percent, Barnum said.
“Pretty dramatic decline for the first two months of the year,” he commented.
The decline in water sales has an impact in revenue and expenditures, he said. In the water fund, revenues last year were down about $4.8 million. Expenses were also down, about $3.8 million, leaving a $1 million loss in gross income.
Looking at cash balances by year, Barnum pointed out that in 2006-07 the cash balance was around $17 million. The following year, it was about $14 million. In 2008-09 it was about $10 million and this year, he said, they’ll probably dip to $5 million or less. The amounts are not necessarily all operating cash; some of it may be for specific projects, Barnum explained.
“We will be in the lowest cash situation by later this year,” he said.
Near the end of his presentation, Barnum provided answers to some of the questions recently asked regarding the fire department, including these two questions:
“Why does RMWD not spend $8.8 million on fire?” Barnum said he thought the $8.8 million figure was derived from all property tax, fire EDU and paramedic transport.
He reiterated that all fire EDU and paramedic transport revenues are 100 percent used to partially fund fire. The remainder is funded by discretionary property tax. If all discretionary property tax were spent on fire, then water/sewer rates would have to dramatically increase to fund debt service and project spending, said Barnum.
“Why does RMWD not give ‘the burden’ of fire to the county of San Diego?” Barnum allowed this answer to be provided by Attorney Sophie Akins. Akins said the Cortese-Knox-Hertzberg Act governs the provisions of services for special districts such as the water district. In 2007, LAFCO (Local Agency Formation Commission) initiated reorganization and approached the water district about opting into the regional fire protection district formed by the county n 2007. The Cortese act, however, did not have a provision that permitted the district to divest itself of fire protection and emergency medical services. Therefore, the district didn’t have the legal mechanism by which to do this.
Since that time there has been an amendment to the Cortese act and a new law in January 2009 allows the district to divest itself of these services, she said. However, they must be funded by a revenue source. The district cannot transfer taxes it collected from its citizenry for the provision of services to another entity. Akins said it is somewhat of a Catch 22 situation because the district now has the legal mechanism to transfer the services to the county but cannot transfer the revenue source.
RMWD Board Vice President Bryan Wadlington mentioned that the population of Ramona has increased but the staffing levels of the fire department have not. “Are we adequately staffed?” he asked Barnum.
Barnum deferred the question to CalFire Chief John Winder of the central division, who said, “It’s all in what the community desires. It also comes down to what the community can afford.”
“Would we like more staffing? Absolutely,” Winder continued. “You guys run a very lean fire department, quite honestly. You had 11 guys on the floor, now you have 10.”
As to whether the fire department is meeting the needs of the community, Winder said they are doing the best they can with the staffing they have.
“It was not a good situation to take the staffing off the rescue rig, but it was a decision that had to be made,” he said. “It was the best of all the bad decisions.”
Winder added that they are hoping to fill that void in six to eight months, possibly a year, with the county paying stipend positions to staff the rescue rig. Winder he wants some of the volunteers who were signed up with the district’s reserve program to file applications with the county so that his staff can train them on the rig.
“But that doesn’t happen overnight,” he said.
According to Winder, CalFire provides fire protection for many other communities in the state and some are facing similar budget woes.
“I don’t envy you one bit, but tough decisions have to be made,” he told the board. “We’re here to help and do whatever we can to make it easier.”