The Lompoc budget, like may other municipal budgets, covers a span of two years. A lot can happen to both revenue and expense predictions during that period. The Lompoc City Council wisely chose to have a periodic review to see where they were with the spending plan.
On Dec. 7 they received that update, and some of the numbers were worth noting.
First the staff said, “For the period ending June 30, 2021, the general fund actual revenues exceeded actual expenditures, which resulted in estimated surplus of $8.0 million to unassigned fund balance.” That’s good news considering all the economic chaos that was created with COVID-19 business interruptions.
They go on to explain, “This was mainly attributed to the passing of I2020 sales tax ballot measure and the federal government passing the American Rescue Plan Act (ARPA) both of which were not included in the FY [fiscal year] 2020-21 budget. In May of 2021, the city received $6.3 million of ARPA funds from the U.S. Department of Treasury to help mitigate the city’s impacts from the economic downturn caused by the COVID-19 pandemic.”
One councilman, Dirk Starbuck, had been very concerned about the following: “For the period ending June 30, 2020, the city actually had an unassigned fund balance of negative $215,999.” Meaning that the city was in the hole.
But because of the unplanned revenue, the final balance was a plus $8 million, thus his concerns were not justified. This was the result of the arrival of ARPA funds and an unexpected windfall from the sales tax increase, largely because anything purchased outside of Lompoc is subject to the tax, the outcome was that the general fund balance is the best it’s been in more than a decade.
The city staff and the council knew that this revenue was coming, but good budget practices precluded including it in the budget. In other words, “don’t count your chickens before they hatch.”
For several budget cycles, the reserve fund has been declining and is near zero. Here is what the adopted 2021-23 budget says about that: “The adopted biennial budget for FYs 2021-23 general fund reflects a surplus of $2 million. The projected surplus is vital to restore the general fund’s depleted unassigned fund balance. As of June 30, 2020, the city’s unassigned fund balance was negative $0.2 million.”
“The City Council’s adopted general fund reserve policy target is 25 percent of annual expenditures of approximately $11 million. While the (current) surplus is a positive achievement for Lompoc, the general fund will require an additional $9 million to follow the city’s funding policy and restore the general fund’s reserve fund to the target of $11 million. Each budget for the next four budget cycles will attempt to restore full reserves.”
During the staff update, they concluded, “Staff recommends the City Council consider holding $4 million in reserves. This would follow the city’s fund balance policy to reestablish its goal of a 25 percent reserve within a period of five years. The fund balance policy also states at least 50 percent of any surplus should be put into reserve until the 25 percent goal is achieved. That being said, the $8 million of unassigned fund balance could be split, with $4 million being held in reserve and the remaining $4 million used for one-time capital outlays.” The majority of the council supported this idea.
All right, that sounds like a good strategy; spend part of it on immediate needs and save the rest for a rainy day. Lompoc is currently rated as the worst credit risk in California based on a near zero balance in the reserve fund. This has a serious impact on our ability to use municipal bonds for infrastructure improvement, so it is extremely important that the city reestablish a healthy reserve fund balance.
American Rescue Plan Act funding will total $12.9 million over the next two years. The first increment was for salary/benefit costs associated with reacting to COVID-19, and that freed up budgeted general fund monies for other one-time uses.
So, what does the council want to spend the money on? Some of the one-time purchase items will require well over a year to obtain; for example, if new fire equipment is purchased today, it will take almost a year for the new truck(s) to be built. So, the staff was suggesting that the council provide direction sooner rather than later.
Staff was recommending that the council approve the purchase of a new fire pumper so a contract could be signed. Payment for this truck would be delayed until it arrived on-site, however considering the newly improved revenue outlook there will be more than enough money available at that time.
The council discussed many things, however the staff stressed that this was a workshop and they only wanted to know what the council wanted them to bring back at a later meeting. In other words, no hard decisions were made. Only one council member, Starbuck, was able to provide the information requested in a clear and concise manner; the others used the opportunity for political speeches.
Mayor Jenelle Osborne pointed out that the council needed to start making decisions soon because the federal requirement was that this year’s funding increment be spent “this year” and that six months had already gone past waiting to figure out what the rules would be.
Considering the diverse thinking among the five council members and the wide-ranging priorities of the community, it’s going to be extremely difficult to please everyone, but they must come to a consensus on this issue soon or they risk losing much needed ARPA funds.
Ron Fink writes to the Sun from Lompoc. Send a response via the editor at clanham@santamariasun.com.
This article appears in Dec 16-23, 2021.