The FY 2009 Budget was developed in the context of a slowing economy. An overheated housing market was followed by a cataclysmic credit crunch. Within Arizona, the reliance on the real estate and construction sectors has taken its toll, with job growth and consumer spending lower than anytime in recent memory. These factors not only affect the overall economy, but the city’s fiscal picture as well.

New retail development and outlets in Peoria will help offset the slowdown in the local economy. While annual sales are expected to be lower, the opening of new auto dealerships and retail centers should help maintain the City’s sales tax collections. However, the City’s portion of state-shared revenues is expected to be flat, with little growth expected for the coming year in this major revenue source. With this in mind, the proposed FY 2009 Budget has become a “reality check.” The goal of this budget is to slow the growth of services and spending, while maintaining basic core service levels.

The development of this budget was challenging. Our operating departments developed budget submittals that emphasize maintaining essential functions. Department budgets have been streamlined to stay within baseline targets established at the start of the process. Additional funding was provided only in situations where overhead cost increases were unavoidable.

During the budget balancing process, City departments were called upon to make reductions to their respective budgets to help balance the overall budget. All departments were asked to share (proportionally) in reductions in the general fund base budget totaling $500,000. This secondary “budget scrubbing” process was not only productive, but it was good practice for the kinds of things we could be required to do in the future (if the economy worsens).

Based on policy guidance received from the City Council at their September mid-year financial review workshop, the budget reflects a $.05 (or nearly 21%) reduction in the City’s Primary Property Tax rate. The rate will fall from $.24 to $.19 per $100 of assessed valuation, and the overall tax rate will thus change from $1.49 to $1.44 per $100 of assessed valuation.

While the City’s revenue growth appears to be slowing, the City must at the same time support rising costs in a number of key areas. For example, county prisoner incarceration fees, the cost of fuel, utility, and employee benefit cost increases, must be incorporated into department budgets. Just keeping up with these built-in-overhead increases accounts for much of the budget growth this year.

The proposed budget recommends 12.7 new full-time equivalent (FTE) staff positions. Five of these new positions are to staff the new branch library, which is currently under construction. The remaining new 7.7 FTE were necessary to bolster core services, and are funded through various grants, transportation revenues, internal service charges, and utility rates.

The proposed budget is based upon Arizona’s existing revenue structure at the time of budget preparation. In response to the looming State fiscal crisis, should the Legislature decide to change the overall revenue structure, it would be necessary to retool the Budget. And given our heavy reliance on state-shared revenues, the City would also need to adjust its forecasts for the future, which would directly affect programs, services and projects.

The proposed budget conforms to the Council’s adopted “Principles of Sound Financial Management,” and all recommendations regarding operating funds have been based on our long term financial forecast models. The City employs forecasting tools, such as Peoria “TAPE MEASURE” (Trend Analysis and Planning with Effective Measures) in developing the budget. As called for in our adopted financial policies, the City continues to maintain strong reserves for unforeseen circumstances and events, whether of a financial nature, natural, or man-made disasters.

These reserve policies, combined with the adopted financial policies and management practices, have served us well over the years, and have prevented the need to undertake more drastic budget reductions this year.

The Police Department is experiencing large cost increases in certain expenditure areas. County jail incarceration fees and fuel costs in particular, increased faster than the rate of inflation. To help address these rising costs, the department reallocated some existing funding over several functional areas, and made reductions to pager and cell phone costs, copy and printing, building maintenance funds, and selected training programs. The budget does include additional funding to support a heightened evening security presence for the 13 city-owned facilities in the general vicinity of the Municipal Center. A new Police Officer position is also recommended for assignment to the State Gang Task Force (funded by a grant).

The Police Department believes that it is very important to begin a School Resource Officer Program in our local high schools. In order to get the program started, the Department is recommending that two existing police office positions be converted to school resource officers, with one officer being assigned to Peoria High School, and a second officer to be assigned to a high school to be determined. The program can then be expanded to include all of our four high schools in the future, as funding permits. The Peoria Unified School District has been asked to partner with the City and provide some financial assistance for these school resource officers; we should have more information regarding this potential partnership by the time the budget is reviewed with council.

The Fire Department experienced increases in utility, fuel, and dispatch contract costs. Consistent with recommendations emerging from recent emergency training, one-time funding is provided to create a back-up emergency operations center. Ongoing funding was included to continue the enhanced level of fire and EMT response in the Lake Pleasant area (initiated last year). It is also recommended that we replace all of the cardiac monitors used by the Department. To help offset these costs, the Fire Department scaled back on training overtime, extended the schedules for equipment and turnout uniform replacement, and reduced the amount budgeted for contract labor in the Fire Inspection Division.

A high priority of the Council is to increase the level (and quality) of public right-of-way maintenance; the Community Services budget was increased to accomplish this goal. The recent re-bidding of the landscape maintenance contract has already improved the appearance of streets and detention basins. The Community Services budget also includes all the equipment and supplies required to operate the new branch library. This budget also makes possible additional playground shade structures in a number of parks, and renovates deteriorating playground surfaces. Rising costs for fuel and electricity in parks was offset by commodity and contractual reductions in a number of recreation programs.

The Community Development Department budget includes $100,000 to continue the highly successful Neighborhood Grant Program, where neighborhood associations may receive funding for neighborhood improvements. This new program has been well received by the public, and was also identified as a Council priority.

Over the past year, the City Council and staff have worked to develop an Economic Development work plan, to create more employment opportunities and high quality commercial development. One-time monies were earmarked for healthcare campus and university location studies, which will help target future City investments relating to these key sectors. An infrastructure study will be undertaken for the Loop 303/Lake Pleasant Parkway area, to help design the blueprint for future development of this strategic corridor. Funding is included for participation in a regional analysis of potential future light-rail routes, with possible links to the Metro Rail network.

With the recent slowdown in development, the growth of the commercial and residential Solid Waste Division budget has slowed. Exceptions include vehicle costs, including fuel, parts, and maintenance, as well landfill tipping fees. These operational cost increases were the basis for the 50 cent per month rate increase Council approved for residential sanitation service, effective January 1, 2009. The new Curbside Recycling Program is very successful and financially self-supporting, and experiencing a better than expected waste-stream diversion rate.

Part of Peoria’s service delivery strategy has been to maximize the use of information technology to deliver services. But this strategy carries a cost, and budget increases are required for licensing and maintenance of system hardware and software. The Information Technology staff did everything possible to limit cost increases relating to these systems by extending warranties and reducing contract support where feasible.

To improve our control and efficiency relating to certain fixed overhead costs, we are taking a close look at how we internally support our operations in several areas. The vehicle fleet function has been tasked to extend the useful life of non-public safety vehicles. We are also revisiting the computer equipment replacement program in an effort to find cost-savings.

Throughout the organization, all staff position vacancies are now being reviewed as they occur to determine replacement need, and in some cases whether a reassignment might make sense. This does not constitute a “hiring freeze” per se, but rather a systematic review of staffing needs and priorities as vacancies occur.

The Capital Improvement Program (CIP) addresses the significant infrastructure needs of our growing city. The 10-Year, fully-funded CIP aligns with (and helps implement) the General Plan, as well as the infrastructure master plans for our various services. The recommended 10-Year CIP totals $1.0 billion, and the FY 2009 CIP totals $340 million.

The recommended FY 2009 Budget is balanced, and maintains strong reserves. It is in conformance with all of the Council’s adopted financial policies. This budget responds appropriately to the new economic realities, and positions the City to respond as needed in the years ahead. It continues the City’s philosophy of fiscal discipline, attention to core principles and priorities, and always living within our means.

Special thanks goes to all of the outstanding staff that had a role in the budget preparation process. It truly was a collaborative effort that called for discipline and shared sacrifice this year. I am confident that – whatever the future holds – Peoria will be up to the challenge.

Because I will be retiring from city management following the adoption of the budget, this is the 11th and final budget message I will submit. Budgeting and financial management is one of the fundamental strengths of this City – one of the things we do well. It has been an honor and privilege to have been part of it for these past 11 years.

Sincerely,

Terrence L. Ellis
City Manager