Benicia is expecting to finish the midpoint of its two-year budget with $1.5 million less in its General Fund than it budgeted last year, Interim Finance Director Brenda Olwin told the City Council Tuesday night.

While revenues are slightly better than expected — $58.7 million rather than the adopted budget’s expectations of $58.5 million, expenses have run more than $3 million higher.

Instead of $60.5 million in expenses, the city is expected to spend $63.6 million before June 30, 2015.

While some of the added expenses were related to unavoidable capital improvements, the city also has unexpected expenditures related to the severe drought, Olwin said.

Columbus Parkway widening, ball field and restroom improvements in parks, drip irrigation, a terminal bar screen and updates to the city’s programmable logic controller and supervisory control and data acquisition systems added nearly $1.8 million in expenses.

General Fund operating revenues are trending downward, she said. Sales tax, which exceeded $7 million in Fiscal Year 2012-13, has shown a steep decline since then. While the city had hoped the trend would change and that the city would have $6.2 million in income this current fiscal year, it’s more likely the city will get $5.8 million.

Gasoline prices are dropping off, too, so the city’s utility users tax receipts also are falling to the vicinity of $4.4 million.
Benicia’s General Fund operating expenditures reached peak of about $33 million in Fiscal Year 2008-9, after which the city began cutting back to cope with the recession.

But many of those cuts haven’t been sustainable, and some projects can’t be put off. In addition, the city has had to face unexpected costs.

Olwin said the spending is going up faster than projected trends, but currently the two lines intersect at a little more than $31 million.

Water Fund revenues were expected to be $8.5 million. While actual water sales have dropped — a trend that may continue as residents try to meet the 20 percent consumption reduction goal — other revenues, including a drought surcharge, may put water revenues at $8.8 million by July 30, 2015.

But water expenditures, expected at $8.7 million, may reach $10 million, she said. Operations costs have decreased slightly, but debt service, capital projects and drought-related expenditures have caused spending to be more than planned.

The Wastewater Enterprise Fund is expected to have about $300,000 less in revenues during 2014-15, because commercial sales have declined, she said. But expenditures are expected to be slightly less than budgeted, both figures less than $10 million.

Olwin said the city must continue to monitor its budget closely. “Cost containment measures are difficult to maintain over time,” she said.

In addition, the General Fund, Wastewater and, in particular, the Water Enterprise Fund are continuing to experience a decline in budgeted reserves, she said.

Benicia needs to keep analyzing its organization structure, its critical unmet needs and options for improving its resources, she said.

The Council approved Olwin’s recommended changes to the current budget, and also approved a plan that changes how the city apportions administrative costs to individual city departments.

Tim Seufert, managing director of NBS, a financial company with offices in Temecula and San Francisco, said having a cost allocation plan “is good accounting.”

It also gives Benicia a logistics tool, provides a basis for cost recovery that complies with California’s Proposition 218, that governs voter approval of assessments and taxes and Proposition 26, which requires a two-thirds majority approval for certain fees, levies, charges and tax revenue allocations.
Olwin called it “a reclassification.”

Relying on federal guidelines and industry standards, the plan can calculate both direct and indirect costs, he said.

Then those costs may be recovered through utility funds, special revenue funds, user and regulatory fees and other agency support, he said.

His company will interpret the results of the allocation plan for the city’s fee study.

The plan also can derive total annual assigned overhead, as can overhead rates, he said.

The procedure provides for a defensible method of transferring of funds, particularly since several types of municipal fund transfers are experienced stricter scrutiny, he said.

Olwin said the city’s current methods weren’t defensible if they were challenged.

In addition, Seufert said, if such a procedure is not in place, the city could get notations on its annual audit. “It’s more the norm. It’s a GFOA-recommended process.”

GFOA is the Government Finance Officers Association, founded in 1906 and represents multiple levels of public financial officers in the United States and Canada.

The city will put the plan in place gradually, but ultimately it makes a “net zero” change in the budget, he said.